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IMF Brings Good Tidings: Prepare For Another Lost Decade

Tyler Durden's picture




 

"It will surely take at least a decade... for the world economy to get back to decent shape" is the somewhat shockingly honest (and at the same time hopeful that ECOpocalypse does not happen before) outlook that the IMF's Olivier Blanchard offers in a recent interview with Hungary's Portfolio.ru via Reuters. His diatribe of expectations that Germany would have to accept higher inflation, the US had to fix its fiscal problem, "Japan is facing a very difficult fiscal adjustment too" is more an understatement of facts than a forecast but on the bright-side he thinks China has turned the corner on its asset boom (but faces slower growth ahead). The reality is that, as he also notes, debt reduction (via default or deleveraging) is unavoidable and while he believes that this can be done without stifling growth in this credit-fueled world in which we have lived (though no mention of the tooth fairy). Dismissing the idea of inflation-targeting, he warns "You can have an economy in which inflation is stable and low, but behind the scenes the composition of the output is wrong, and the financial system accumulates risks." It seems the IMF is waking to the new reality - perhaps as evidenced by their actual disagreement with Greece over fantasy GDP data - though we fear what another decade of this will do to global instability.

 

Via Reuters:

The world economy will take at least 10 years to emerge from the financial crisis that began in 2008, the International Monetary Fund's Chief Economist Olivier Blanchard said in an interview published on Wednesday.

 

...

 

But even though the focus was on Europe's troubles now, he said, the United States also had a fiscal problem which it had to resolve.

 

"It's not yet a lost decade... But it will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape," Blanchard said.

 

"Japan is facing a very difficult fiscal adjustment too, one which will take decades to solve. China has probably taken care of its asset boom but has slower growth than before, but we do not forecast any really hard landing," he added.

 

Blanchard said that adjustment in the euro zone required a decrease in prices in the bloc's indebted southern half and a rise in core countries.

 

...

 

"A somewhat higher inflation rate in Germany should simply be seen as a necessary and desirable, relative price adjustment," Blanchard said. "Given overall demand conditions and the ECB's strong mandate to ensure price stability, this is not the beginning of hyperinflation," he said.

 

On the debt crisis, Blanchard said that debt reductions were unavoidable but it should be done without stifling growth, walking on a "narrow middle path."

 

"If you do it too slow, the market thinks you're not serious, if you do it too fast, you kill the economy. For each country you have to find the right path of consolidation," he said.

 

He said inflation-targeting had serious limitations and using just the main policy rate was not enough.

 

"You can have an economy in which inflation is stable and low, but behind the scenes the composition of the output is wrong, and the financial system accumulates risks."

 

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Wed, 10/03/2012 - 08:56 | 2851388 The Wizard of Oz
The Wizard of Oz's picture

BULLISH!

Wed, 10/03/2012 - 09:00 | 2851402 GetZeeGold
GetZeeGold's picture

 

 

 

I think we're turning Japanese.......I really think so.

http://www.youtube.com/watch?v=BvMgnH7sGI0

 

Wed, 10/03/2012 - 09:09 | 2851419 vmromk
vmromk's picture

I have full faith and confidence in a bearded ASSHOLE with a printing press bringing about robust economic growth.

Now please excuse me.....I have an appointment with my psychiatrist.

Wed, 10/03/2012 - 09:31 | 2851502 Dalago
Dalago's picture

If a 1776 style revolution happens it won't take a God damn decade.

Wed, 10/03/2012 - 09:59 | 2851630 13thWarrior
13thWarrior's picture

Best of luck America. Throw out the Oligarchs.

Wed, 10/03/2012 - 12:09 | 2852055 markmotive
markmotive's picture

More than a lost decade. From 1300-1700 real gdp per capita grew at 0.02%. That's 400 years of no growth.

Growth is a temporary (250 yr) phenom. Good luck as we transition back to trend.

http://www.planbeconomics.com/2012/10/02/the-one-chart-you-must-understand/

Wed, 10/03/2012 - 09:55 | 2851616 asteroids
asteroids's picture

If Japan is any model, the Japanese Central Bank has been doing QE for almost 20 years. Massive earthquakes and tidal waves, heh! Debt to GDP over 200%. In short they'll never dig out of that hole. They haven't mploded, not yet. BUT one day they will. Just like the US.

Wed, 10/03/2012 - 11:04 | 2851869 Panafrican Funk...
Panafrican Funktron Robot's picture

Yeah, that debt to GDP includes shit we don't in our official number.  The U.S. is double that % if you include SS/Mcare.  We are much farther along towards totally fucked than any industrialized country in the world.  

Wed, 10/03/2012 - 09:38 | 2851530 Stock Tips Inve...
Stock Tips Investment's picture

We can not estimate the course of the world economy just by clicking these criteria. Since 2015, seven of the 12 countries with the highest growth will come from ... Africa! yes, Africa. 12 countries currently growing fastest (excluding China), are developing economies. These 12 countries together are greater than the major economies of Europe. Poblacionalmente are equivalent to two-thirds of the population of China and grow as fast as China. Europe is in deep crisis, but U.S. is poised to take certain measures and boost their growth very quickly. This time, moreover, with an energy charge that will benefit first. I think the global economy will give us a surprise again.

Wed, 10/03/2012 - 12:30 | 2852135 Marco
Marco's picture

Do tell ... how is the country with the largest trade deficit in the world going to boost their productivity so quickly?

Wed, 10/03/2012 - 08:56 | 2851389 SeverinSlade
SeverinSlade's picture

The IMF = the new captain obvious.

Wed, 10/03/2012 - 10:36 | 2851774 Zero Debt
Zero Debt's picture

Ponder where the IMF got all of its money (hint: look in the mirror) and the answer becomes clear.

Wed, 10/03/2012 - 08:56 | 2851395 Dr. Engali
Dr. Engali's picture

"You can have an economy in which inflation is stable and low, but behind the scenes the composition of the output is wrong, and the financial system accumulates risks."

Yeah tell that to the people who are trying to feed their families. ..... Idiot.

Wed, 10/03/2012 - 08:56 | 2851396 the not so migh...
the not so mighty maximiza's picture

I don't see the current reality exisitng for anouther 10 years.

Wed, 10/03/2012 - 09:02 | 2851403 Dr. Engali
Dr. Engali's picture

If they can control the decline I wouldn't be surprised if it does. It would suck beyond belief to continue this slow slide, but people are just adjusting to an incrementally declining lifestyle.

Wed, 10/03/2012 - 09:13 | 2851431 fonzannoon
fonzannoon's picture

I half agree, it can be a decade but it will be one hell of a bumpy ride. For example how many more parents are going to send their kids off to college and saddle them with debt knowing the last 5 years of graduates are completely screwed? I give that bubble another 2-3 years before enrollment drops and tuition plummets and colleges go bankrupt trying to pay ridiculous salaries. These scenarios will end up in bailout after bailout until the system collapses.

Wed, 10/03/2012 - 11:02 | 2851863 OldE_Ant
OldE_Ant's picture

Yeah and I can't wait for the day when the govt puts out the "education for idiots" program to make people 'smarter' for all those wonderful minimum wage temp service jobs looking for employees.   And the "Lets reward the over leveraged dumbasses" of the world with targeted helicopter drops of FRNs.

But be careful not to make the idiots too smart because they may quickly figure out robbing a bank, or becoming a cat burgler to be a much more lucrative 'job' than kissing the asses of bearded bankers with ink black hands. The bonus is if they get caught they get free food, shelter, medical, and internet access while they wait to rejoin the 'workforce'.

ENd of LiNE

Wed, 10/03/2012 - 12:21 | 2852103 XitSam
XitSam's picture

That Education for Idiots will be online.

Wed, 10/03/2012 - 11:12 | 2851891 Panafrican Funk...
Panafrican Funktron Robot's picture

Agreed, Tylers have made it pretty glaringly clear that the student loan bubble is the next "crisis" point.  The payoff matrix for anything other than a tech school degree is fucking stupid.  Given that this "crisis" will likely follow the same blueprint as the last one, get ready for waaaaaaaaaaay more printing than is already occuring, as those student loans are packaged up and shipped to the Fed balance sheet.  And let me tell you, nothing gives me a warm, fuzzy feeling quite like the Fed owning any debt slave that they didn't already capture via their MBS purchases.  Auto/credit card books probably aren't far behind.  I feel like a broken record here, but "the borrower is slave to the lender" needs to be heeded like never before.  Get the fuck out, and stay the fuck out of debt.  That is the only freedom left.

Wed, 10/03/2012 - 09:04 | 2851408 DavidC
DavidC's picture

"..higher inflation rate in Germany should simply be seen as a necessary and desirable, relative price adjustment".

What complete and utter bollocks.

DavidC

Wed, 10/03/2012 - 09:05 | 2851413 LawsofPhysics
LawsofPhysics's picture

Decade?  A bit optimistic.

Wed, 10/03/2012 - 11:07 | 2851877 OldE_Ant
OldE_Ant's picture

Yeah I was thinking it would be at least 1 generation and probably 2-3 to deal with the problems created by the previous 2-3 generations.

Oh and guess what - we havn't even started the healing process.   I figure at the current rate it will take at least another 5 years before we even START doing anything.

The powers that be have a vested interest in collapse, but only when they are ready with their fully automated AI/DRONE attack, and implanted robo-police defense forces.

ENd of LiNE

Wed, 10/03/2012 - 09:08 | 2851421 LULZBank
LULZBank's picture

Its all about strong mandate Bitchezz!!!

Wed, 10/03/2012 - 09:15 | 2851440 dcb
dcb's picture

e the same thing about inflation targeting on the blogs of the institute for  new economic thinking, that is it very bad because it leads the markets to take risks and lever up. that the very idea if massively flawed. I explained in greater detail. But they didn't put up the post. It involved the money view segment and the fallacy of what bernanke is doing

Wed, 10/03/2012 - 09:16 | 2851442 Acet
Acet's picture

Is he saying that paying huge bonuses to people for taking risks on 30 times or more (depends on leverage ratio) of some company's equity capital to gamble on financial instruments and for creating money as debt thanks to Fractional Reserve Banking might lead to vast capital misallocation!????

Tell me it ain't so!

Wed, 10/03/2012 - 09:25 | 2851478 Scalaris
Scalaris's picture

If by decade he means the decade after the great world war, and the introduction of the new global, post-war, asteroid-mining-backed currency, called "space money", then yes, it sounds about right.

Wed, 10/03/2012 - 09:48 | 2851588 Antifaschistische
Antifaschistische's picture

If we'll be healed in 10 years, at what point are we going to start heading in the right direction?   Is the IMF suggesting we've been heading in the right direction since 2008!!

Wed, 10/03/2012 - 11:25 | 2851920 johnnyyuma
johnnyyuma's picture

"You can have an economy in which inflation is stable and low, but behind the scenes the composition of the output is wrong, and the financial system accumulates risks"

This a$$hole intimates he and the other PhD's and Elites know what the correct composition of output should be. Arrogant prick.

Wed, 10/03/2012 - 11:28 | 2851928 djsmps
djsmps's picture

A decade? You mean it's going to take Obama four presidential terms to fix this?

Wed, 10/03/2012 - 12:14 | 2852075 Monk
Monk's picture

And then there's peak oil.

 

Wed, 10/03/2012 - 12:48 | 2852189 Marco
Marco's picture

Now now, don't go there ... there is only one thing the Austrians and faux-Keynesians agree on, non labour inputs just don't matter at all.

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