What Does the IMF Know?

How the World Sees Us | Andrew Gordon | Comments (0) |

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The IMF doesn’t know what it’s talking about, says the Telegraph’s Jeremy Warner, especially when it comes to US economic policy and its commitment to fiscal stabilization. “What fiscal stabilization?” Warner asks…

The IMF has to be careful what it says about the US, its biggest shareholder, so there is the customary “welcome” for the administration’s commitment to fiscal stabilisation. What fiscal stabilisation? US plans for deficit reduction are vague, and to the extent that they seem to rely substantially on growth to do the donkey work, wholly unconvincing. Frankly, the US commitment to fiscal consolidation doesn’t add up to a hill of beans. America risks putting itself in considerable and largely unnecessary long term peril by continuing to borrow on such a scale.

Money and credit are again shrinking fast in the US. The solution is not further fiscal stimulus, which thus far seems to have profited Chinese exports far more than American jobs, but for the US Federal Reserve once more to turn on the printing presses through a renewed programme of purchases of Treasury securities – in other words, more quantitative easing.

“More quantitative easing” however doesn’t work if banks don’t lend. That’s where Warner’s prescription falls apart. Not that I’m a fan of more spending either. It puts the US deeper in the hole. But my main complaint is that doesn’t work either. Economic activity has barely quickened. Obama’s options are frightenly limited.