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Imf Chief Says Contagion Risk ‘very High’

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The global economic outlook is worsening and the risk of contagion from a financial markets crisis that began in the United States is now very high, IMF chief Dominique Strauss-Kahn said on Monday.

At a news conference in Paris, he welcomed the overnight steps taken by the US central bank and said the International Monetary Fund would be cutting its growth forecasts again soon.

http://www.ft.com/cms/s/86e11670-f41b-11dc...&_i_referer=

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A job in the hindsight conclusion dept.

Well bankers in the futures trade can make millions, if he could invent a job in the past trade he would make billions overnight, in fact he could earn more money from that. than bu setting up a company that forces the public under law to purchase imaginary Carbon offsets.

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A job in the hindsight conclusion dept.

In all fairness the IMF have been calling ******** on this for years- everyone just ignored them.

http://www.ft.com/cms/s/0/d836de26-7d13-11...00779fd2ac.html

http://www.guardian.co.uk/business/2006/se...s.housingmarket

http://www.abc.net.au/news/stories/2004/04/22/1092697.htm

there are loads more as well.

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In all fairness the IMF have been calling ******** on this for years- everyone just ignored them.

http://www.ft.com/cms/s/0/d836de26-7d13-11...00779fd2ac.html

http://www.guardian.co.uk/business/2006/se...s.housingmarket

http://www.abc.net.au/news/stories/2004/04/22/1092697.htm

there are loads more as well.

The Year 2001, the Subject Gordon Browns Economic Principles come under IMF Scrutiny, Gordon Knows Better.

Compared to the discipline adminstered to developing countries over the years, the International Monetary Fund's criticism of Gordon Brown is a light rap over the knuckles. But coming from the world's leading financial authority, it hit a raw nerve, especially since the IMF critique echoes that from from European Union finance ministers a couple of weeks ago.

Like the EU, the IMF agrees with Mr Brown's strategy, "particularly the need to enhance public infrastructure and human capital". Its latest health check on the UK praises the priority placed by Labour on investment and education. It does not call for any spending cuts. This is a far cry from 1976, when the IMF laid down the law to the Labour government led by Jim Callaghan during a sterling crisis, insisting on painful belt-tightening.

However, the IMF does not like the way Labour's investment plans should be paid for. The chancellor, who chairs the IMF's policy-making committee, wants to double capital spending to £18bn a year by 2003-04. The chart, based on Institute for Fiscal Studies-Goldman Sachs' "modest" assumptions, shows how investment will start to exceed the surplus generated from taxes.

Mr Brown believes it is financially sound to borrow in order to invest, as long as the borrowing is kept within strict guidelines preventing the ratio of government debt to GDP rising above 40%. The recent strong performance of the economy combined with the chancellor's tight (some would say over-rigid) control of the public finances means there is no danger of that happening.

The IMF on the other hand says public investment should be paid entirely from the revenue raised from taxation. Since current tax receipts are continually overshooting Treasury projections, there is ample scope to fund investment spending without resorting to borrowing. The result would be a balanced budget, a key tenet of the IMF's faith.

There are arguments in favour of both sides. The point at issue is quite a narrow one and in any case will have absolutely no bearing on what the Treasury actually does.

The IMF's argument is that a higher contribution from the public sector to national saving would boost investment and thereby address the achilles heel of the British economy - poor productivity growth. Although the weakness of productivity growth has many causes, nearly everyone including Mr Brown believes that under-investment is one of them.

The chancellor disagrees with the IMF's assessment of who should pay when, believing the Washington-based organisation's hair-shirt approach to public borrowing is old-fashioned and unfair. While he thinks it is right to keep the revenue budget in balance over the economic cycle, he argues that investment on new schools and hospitals falls into a different category from nurses and teachers' pay.

Unlike current expenditure, which only benefits those alive at the time, investment benefits both existing and future generations. Those alive in the future should help pay the bill and borrowing, which is in effect deferred taxation, is a way of spreading the cost over time.

Carl Emmerson of the IFS sides with Mr Brown. He likens his position to that of an individual buying a house. No one in their right mind would save up the entire costs before purchasing when they can get a mortgage to enjoy the benefit now.

However, Mr Emmerson says that neither fiscal norm, the IMF's yen for balance or the chancellor's so called golden rule, is perfect. While both are reasonable rules of thumb to ensure the public finances do not get out of control, they do not necessarily ensure the public gets best value for money from public services.

Ultimately it comes down to public - political - choice. Mr Brown's golden rule permitting borrowing for investment is sensible if the benefit to society of that investment is greater than the extra interest costs incurred in borrowing. The Treasury believes there is good reason for believing that this is the case now, when years of under-investment in public services has left them threadbare. With a huge backlog of investment to clear, it is unreasonable to expect the current generation to shoulder all of the costs. We think the IMF is being too fiscally conservative, says the Treasury.

On the other hand, it is not always easy to distinguish between current and capital expenditure. Who is to say, for example, whether teachers' pay is one or the other? It is surely both. Moreover, there is nothing sacrosanct about investment spending. As the dome has illustrated, it is perfectly possible to spend millions on public in frastructure and not get value for money.

Just ahead of the Budget, the IMF's intervention could not have been more politically awkward but it will make absolutely no difference to the contents of next Wednesday's statement. On top of the £1.7bn already set aside to placate disgruntled motorists, Mr Brown is expected to announce that the health of the public finances means he can introduce targeted tax cuts and spending increases worth just over £2bn without breaching his rules. The IMF would rather he eschewed what it calls "piecemeal" tax breaks and pay off debt, but with debt already falling rapidly Mr Brown will no doubt feel fully justified, both economically and politcally, in spreading some extra pre-election cheer.

• Mark Atkinson is the Guardian's economics correspondent.

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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