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Imf Now Warning Of The Dangers Of Early Stimulus Exit

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http://business.timesonline.co.uk/tol/busi...icle6821670.ece

IMF warns spending cuts will derail recovery

Katherine Griffiths

The head of the International Monetary Fund (IMF) has warned governments not to unwind their economic stimulus packages too soon or risk derailing recovery.

Dominique Strauss-Kahn, the IMF's managing director, said that the global economy was emerging from a deep downturn, but predicted that recovery would be sluggish.

Speaking at a Bundesbank conference in Berlin, Mr Strauss-Kahn issued a warning that "unwinding the stimulus too soon runs a real risk of derailing the recovery, with potentially significant implications for growth and unemployment".

He added that a rise in unemployment could have social consequences which would be “even more worrisome".

"Exit policies should only be launched once there are clear indications that the recovery has taken hold and that unemployment is set to decline," Mr Strauss Kahn said.

Mr Strauss Kahn was speaking as G20 finance ministers began a two-day meeting in London today ahead of a summit in Pittsburgh later this month with leaders of the Group of 20 developed and emerging nations.

Both Gordon Brown and Alistair Darling have been calling for countries not to curb economic spending.

Mr Darling said: “My view is the biggest single risk to recovery is that people think the job is done."

Britain has been irritated by calls from Germany and France to start reducing the amount of support as their economies have shown signs of an upturn.

Germany and France have both emerged from recession but Britain is still languishing in negative economic growth and yesterday the Organisation for Economic Co-operation and Development (OECD) said that the UK will lag behind other leading nations in emerging from a full-blown slowdown.

Jean-Claude Trichet, President of the European Central Bank, warned of the dangers of stopping stimulus packages too soon but said the central lender had already begun to think about an exit strategy.

He said: “Now is not the time to exit. But I would like to make it clear that the ECB has an exit strategy, and we stand ready to put it into action when the appropriate time comes.â€

Mr Strauss-Kahn has thrown his weight behind the plan to crack down on bankers' bonuses – an issue which will be at the top of the agenda at the G20 meetings today and later this month.

“We must also act decisively to promote the reform of compensation policies in the financial industry,†he said. “I worry that as the financial sector emerges from crisis, a ’business as usual’ mentality may prevent serious progress from being made."

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Since the world is now full of the self-indulgent "me" generation that can't take hardship - I vote for a slow, depressing one.

You know it makes sense.

Edited by AvidFan

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Guest DissipatedYouthIsValuable

A drawn out tortuous decline, covering about the next 30 years, please.

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Guest DissipatedYouthIsValuable
I reckon it could be over in 10 in we're lucky.

Excellent. I'll be needing a good Ponzi scheme to get into early in my 50s, to see me through to dribbling dementia while someone else does all the work.

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I hope for hell on earth for the rest of my days, followed by an everlasting afterlife consumed with prolonged periods of torture, heat, and radio 1.

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Guest DissipatedYouthIsValuable
I hope for hell on earth for the rest of my days, followed by an everlasting afterlife consumed with prolonged periods of torture, heat, and radio 1.

No radios in Hell, they do, however, have Katie Price and Peter Andre front page spreads every day in the newspapers.

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I hope for hell on earth for the rest of my days, followed by an everlasting afterlife consumed with prolonged periods of torture, heat, and radio 1.

I fear we may get just that. :unsure:

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As many have previously stated and history shows, it is always easier to start the money printing press than to stop it.

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Since the world is now full of the self-indulgent "me" generation that can't take hardship - I vote for a slow, depressing one.

You know it makes sense.

fine with me as long as I can sit back and watch the wreckage from barbados,with a backpack full of gold...while everyone else who thought the light at the end of the tunnel was real(not the oncoming train) has to scrabble around for bits and bobs using banknotes that have less inrtinsic value than a sheet of andrex.

Edited by oracle

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Here's the fulltext of the speech:

http://www.ecb.europa.eu/press/key/date/20...p090904.en.html

I have to say, Jean-Claude seems to take a huge side swipe at UK QE, appearing to imply that it is subject to political interference which could prevent it's timely unwinding. No surprise there then...

b. Institutional capability and independence

On the institutional side, the question is whether a central bank has the institutional status and necessary independence to carry out any action it sees necessary to fulfil its task. The Governing Council has the unfettered capability to take and implement appropriate policy decisions whenever circumstances warrant, given the ECB’s strong institutional independence. This reflects the maintenance of a clear dividing line in the euro area between the central bank and the fiscal sphere of responsibilities.

The fact that the ECB has refrained from purchasing government bonds is in line with this institutional framework. This approach avoids any possibly intricate interaction with other policy actors on decisions relevant for exit, and maintains a clear separation of responsibilities between the central bank and fiscal authorities.

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http://business.timesonline.co.uk/tol/busi...icle6821670.ece

IMF warns spending cuts will derail recovery

Katherine Griffiths

Surely if Germany and France are already in recovery (and they didn't have anywhere near so much debt as a problem), then it is appropriate that they reduce government intervention?

Now if the UK still has a massive hangover in that its banks are crippled, and if the UK has still got massively overvalued asset prices (houses still very much too high and sellers denying reality), then how is that France or Germany's problem?

If our government has printed £200bn of new money, and created a car repurchase scheme, and muppets in the UK have believed the government when they say the UK is okay, then would we not expect that much of that money might find its way to France and Germany for new Peugeots, Citroens, BMW, Mercs, Minis, etc?

So I'd guess that when Germany and France stop their interventions, it will be to the direct detriment of the UK and US vs an improvement in the situation France and Germany.

This QE thing hasn't been too bad while US, UK and Europe have been doing it, but if Germany and France stop, then the dollar and sterling will tank vs the euro.

If Germany and France stop government intervention, stop borrowing buckets of money, then sterling will tank fastest, and UK interest rates will have to go up to save the pound. 5% base rates anyone?

No wonder Gordon and Alistair are nervous about an end to the intervention.

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Here's the fulltext of the speech:

http://www.ecb.europa.eu/press/key/date/20...p090904.en.html

I have to say, Jean-Claude seems to take a huge side swipe at UK QE, appearing to imply that it is subject to political interference which could prevent it's timely unwinding. No surprise there then...

You're right here. No purchase of government bonds. Such an activity would be far too Zimbabwe for Jean-Claude (and rightly so!).

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I'm voting for a slow depressing one.. The Japanese have shown the way already.. :(

Nikkei Stock Index 1980-Present

Two_Lost_Decades.png

Yes, they haven't really recovered since the 1980s when their property became vastly overvalued. Lucky that Gordon guaranteed no more boom and bust or otherwise we too might suffer the miserable aftermath of an unsustainable property bubble.

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This QE thing hasn't been too bad while US, UK and Europe have been doing it, but if Germany and France stop, then the dollar and sterling will tank vs the euro.

... just so long as they don't whine about their reduced competitiveness when that happens, like they did before ;)

I'm quite happy to see a weaker pound to wean the UK off its over-consumption addiction, needs to happen IMO.

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McStalin and Badger are absolutely crapping it that France and Germany will stop the stimulus because this will expose the UK for what it is - the emperor with no clothes. The question is do France and Germany have the balls to say no to the US and their little brother the UK? What kind of threats have the Us and UK made to Sarkozy and Merkel? Who will hold their nerve? My guess is that the spineless frogs and krauts will submit to the will of the anglo-saxon corporate fascists and duly bend over. However, they could surprise me and actually grow a backbone for the first time. If they do say non/nein to further stimulus then the pound is toast!

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BUMP!

Sky News Ticker: "G20 Finance Ministers Agree Draft Resolution to Continue Stimulus"

Told yer! :angry: How much bullying and arm twisting have the anglo-saxons used on our prudent continental cousins? :angry: Spineless continentals!!! They should just cut cyclops free and tell him to go and do one!

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You're right here. No purchase of government bonds. Such an activity would be far too Zimbabwe for Jean-Claude (and rightly so!)

Thanks, though I should have pointed out I was referring to the ECB speech referred to in the OP, and not the IMF comments. . Here is the bit I was referring to (for others, as you have obviously spotted it):

3. Ability to act

Of course, notwithstanding these design features, exit will require a number of policy decisions. Therefore, an important question and the third cornerstone of our exit strategy is whether a central bank has the technical and institution capability to take such decisions.

a. Technical capability and the operational framework

On the technical side, the question is whether we need to set up new rules and procedures to exit. This is not the case. The ECB’s operational framework is well equipped to facilitate the unwinding of non-standard measures when the need arises. The framework embodies a rich and flexible set of instruments, including fine-tuning operations, for the absorption of abundant liquidity �" promptly if necessary.

Moreover the framework permits short-term interest rates to be changed while keeping some non-standard measures in place, should continued credit support be needed. This feature is of great consequence: it means that the Governing Council can choose the way in which interest rate action could be combined with the unwinding of the non-standard measures. There is no pre-determined sequence between a change in interest rates and unwinding of non-standard measures. Hence, the Eurosystem retains appropriate flexibility as to the way in which interest rate action will be combined with the unwinding of the additional credit support measures, notably its extended framework for longer-term refinancing operations.

In short, the ECB has in place all the technical ability to absorb liquidity as required.

b. Institutional capability and independence

On the institutional side, the question is whether a central bank has the institutional status and necessary independence to carry out any action it sees necessary to fulfil its task. The Governing Council has the unfettered capability to take and implement appropriate policy decisions whenever circumstances warrant, given the ECB’s strong institutional independence. This reflects the maintenance of a clear dividing line in the euro area between the central bank and the fiscal sphere of responsibilities.

The fact that the ECB has refrained from purchasing government bonds is in line with this institutional framework. This approach avoids any possibly intricate interaction with other policy actors on decisions relevant for exit, and maintains a clear separation of responsibilities between the central bank and fiscal authorities.

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As many have previously stated and history shows, it is always easier to start the money printing press than to stop it.

Oh yes - and when they discover that turning off the presses equates directly to loss of jobs then it becomes impossible for them to turn off the presses.

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