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Imf Warns Of Low Interest Rates 'risk' To Economy

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http://www.bbc.co.uk/news/business-29541918

The International Monetary Fund has warned of new risks to global financial stability.

Low interest rates could lead investors to buy riskier assets as they seek better returns, the IMF says.

In a new report, it says there is a danger that this behaviour could derail the economic recovery, which the IMF has already described as "weak and uneven".

The report says the risks require "increased vigilance".

The IMF has already given its assessment of the wider economic recovery and is concerned about its lack of vigour.

This new report takes a closer look at the health of the financial system. Its problems gave us the global recession and it will have a central role in determining the strength and durability of the recovery.

Side-effects

The conclusions are unsettling. The root of the problem is the actions taken by central banks to stimulate the recovery.

The IMF report does not for a moment dispute that they are necessary. But, as medication often does, they have had side-effects.

The measures involved are very low interest rates, now in place in the US, Britain, Japan and the eurozone, for example.

Doesn't this imply that central bank actions did not fix the problem but delayed the inevitable?

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I don't get it, one week the IMF say "don't rise rates, it'll wreck the recovery" next week "low rates is risky"

I assume this how they stimulate volatility?

The IMF have 2 depts I think. One is the happy clappy govt section that just parrots whatever national govts wants and rubber stamps forecasts. Then there is the second section which puts out stuff to ensure "credibility" that the IMF is in fact having a discussion rather than just a rubber stamp shop. The 2 sides never meet.

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Low interest rates are the end of the line for a broken economic model that still tries to convince itself that people at the bottom can continue to support it when people at the bottom have increasingly been starved of the fuel to support it for 35 years.

Edited by campervanman

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The trouble is, ultra low interest rates sends money to the wrong people - hedge fund managers, super-rich etc.

Monetary stimulous needs to go to ordinary people. If they QE programme since 2008 had been spread throughout the population, it would have meant some $56k per US household (and something similar for the UK). That would have boosted spending, removed the threat of deflation, avoided the problem of too much money going to the 1%, boosted consumer spending, avoided excessive asset inflation etc etc.

In other words, the IMF is correctly saying that the global economy still needs stimulous; and also right that ultra-low interest rates are the wrong way to do it.

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I don't get it, one week the IMF say "don't rise rates, it'll wreck the recovery" next week "low rates is risky"

I assume this how they stimulate volatility?

No, you do get it. Even ten years back one week they'd be warning Gordon Brown about house prices, the next (presumably after a phone call from Gordon Brown!) they'd reverse their position and call prices 'sustainable' or somesuch.

Not fit for purpose.

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Low interest rates are the end of the line for a broken economic model that still tries to convince itself that people at the bottom can continue to support it when people at the bottom have increasingly been starved of the fuel to support it for 35 years.

Ha, I see what you did there. Fatcher's fault again.

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The IMF report does not for a moment dispute that they are necessary. But, as medication often does, they have had side-effects.

Reinforcing the pathology you are supposed to be curing is not a 'side effect' it's just outright failure.

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The CBs can only temporarily paper over liquidity problems. They are not a replacement for government policy.

They cannot (easily) rebalance global demand and consumption, reduce inequality or invest for the future.

Those are the responsibilities of govt. Therein lies the problem.

As Carney pointed out re broken UK housing market for example "BoE cannot build a single house"

Germany don't believe they should raise demand. China will take years. UK has wasted 4 years, and so on.

Edited by R K

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Back to front. Low interest rates and deflation are symptoms of excessive and unresolved debt creation.

You are a heretic!!! It is the Euro's fault in EU. There is nothing wrong with PIGS spending what they do not have ...

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The CBs can only temporarily paper over liquidity problems. They are not a replacement for government policy.

They cannot (easily) rebalance global demand and consumption, reduce inequality or invest for the future.

Those are the responsibilities of govt. Therein lies the problem.

As Carney pointed out re broken UK housing market for example "BoE cannot build a single house"

Germany don't believe they should raise demand. China will take years. UK has wasted 4 years, and so on.

Problem being (reductio absurdum) 'we can't afford the State anymore - give it all to the private sector"?

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Seems to me from reading the IMF statement that they are concerned with the threat that inequality poses to the global economy that has been the product from the last 35 years of 'the market knows best' dogma that has resulted in ever lower wages, ever higher profits and ever higher debt to sustain those profits that cannot be sustained by purchasing power through higher wages.

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