The IMF has been busy admitting to mistakes of being too slow to warn of the dangers of the credit crunch, but is trying to make amends now with warnings of fire and ice.
In the UK, Chancellor Alistair Darling is calling for the IMF to beef up its act. Good idea that, deflect criticism by going for your critic’s Achilles’ heel.
Meanwhile, Capital Economics has done some sums, and after examining the IMF figure that eventual losses relating to the credit crunch will hit $945bn, said actually, that isn’t so bad.
The IMF has a newish boss. So he can happily say the IMF has made errors, without dropping himself in it.
Yesterday, Dominique Strauss-Kahn, the Managing Director at the IMF, admitted the IMF was too slow off the blocks in warning of the credit crunch. He is right there. As was said here, yesterday, 12 months ago, the IMF was saying the US would suffer only a minor slowdown this year. Mr Straus-Kahn then said, “the question is how can we have for the future, an institution which is likely to give to different governments early warning and warning which will be listened to.”
He then went on to try and grab some headlines when he talked about ice and fire. Ice, referring to the risk of a serious slowdown, fire the dangers of inflation. There’s another word economists use instead of ice and fire – stagflation, but it doesn’t have quite the same ring about it, does it?
Later today, our silver chancellor is expected to say in a speech at Washington today, where the G7 is having a get together, “The IMF must focus its surveillance more closely on financial sector issues and on the links between developments in the financial sector and the real economy.
“The IMF should also strengthen its analysis of spillovers between economies, so that we have a better understanding of how difficulties in one country can be transmitted to another through the establishment of a multilateral surveillance department to shift the focus from national surveillance.”
Nice one, Al. The IMF has driven a coach and horses through your projections for the UK – especially for 2009, so why not have a go at them?
Meanwhile, Capital Economics has said words to the effect, “look, $945bn is a lot of money, but then bear in mind that it is not just the US, but the EU that is being hit by the credit crunch, as a percentage of the GDP for these two regions, actually, the amount isn’t so big.” Apparently, the savings and loans crisis of the early ‘90s posed a greater risk.
Capital Economics added, “The $945bn figure has already dominated the headlines in the last 24 hours, but it seems to be widely misunderstood. This figure is not a forecast of what the eventual losses are likely to be, or even an estimate of the actual costs to date. Instead it is an estimate of the losses that might be realised if distressed securities had to be sold (or marked-to-market) at current prices. As such it is arguably a worst case, since these prices are now close to rock-bottom and should recover as and when market conditions improve. Indeed, there are several proposals doing the rounds whereby the authorities would buy these securities outright (rather than simply accept them as collateral for loans). This option would be a last resort, but it would cut that $945bn figure significantly.”
So, panic over then.
It’s just that if house prices start falling in Europe , in the UK, and Spain – even France is vulnerable, expect losses to mount.
Comments
One Response to “IMF warns of Ice and Fire”
Trackbacks