In an interview with Le Figaro, Dominique Strauss-Kahn shares his thoughts on a variety of economic subjects. Notable is his desire for central banks to begin soaking up the "water" which was used to put out the "1929-style" fire. Then again, as the Chairman has said, there is no threat that the Fed will ever end its risky assets Blue Light special, at least not under His watch (still, his December 3 confirmation hearing should be on everyone's TiVo schedule). Furthermore, this will certainly not happen so long as China keeps funding burgeoning US budget deficits, US importers be damned. And that won't happen as long as China needs the disappearing and maxed out credit consumer. Yet the various themes are starting to converge to a point in the future of maximum instability. Their resolution should be quite spectacular. Which is why by then all Goldman Sachs newly minted MD's hope to be far away, on a beach, collecting zero percent, courtesy of their gold holdings.
Anyway, here is the original link for French-speaking purists, and below is the rather entertaining google translated version:
In an interview with Le Figaro, the director of the IMF is concerned about the crisis.
The financial crisis is "almost under control," even if banks are still very far from being completely cleared their balance sheets. The global economy is beginning to see the end of the tunnel, but it was not until 2010 that unemployment will begin to ebb in the United States and Europe. Dominique Strauss-Kahn answered questions of Figaro.
LE FIGARO. - The global recovery is she strong?
Dominique Strauss-Kahn. In Asia, it is there. Elsewhere, it emerges only - according to the IMF, it will come in the first half of 2010. But the recovery is fragile. What is the risk today? What we do not continue to implement policies need to ensure the sustainability of the recovery. We do not relapse, what is called a scenario "W," but we can not completely exclude it. We must therefore maintain public support, as private demand remains weak and unemployment will continue to grow long enough. We may now consider that the financial crisis is almost under control. It has degenerated into an economic crisis, which are beginning to see the end of the tunnel. But the social crisis remains very high, mainly in developed countries. This is my major concern. Beyond that our growth model itself must be rethought.
Q. Should remuscler recovery plans?
No, but the question arises in the United States. The risk is that in some countries it is no longer considered necessary to achieve recovery programs planned for 2010, which increase the likelihood of relapse. Meanwhile, prepare plans to end the crisis, we will announce how to return to more sustainable fiscal positions, everyone needs to know, and at the same time it should not be implemented too early. It is an apparent contradiction that must be managed skillfully.
Q. The public debt reached alarming levels. Perhaps they drift?
We were facing a fire. The IMF was the first to sound the alarm. We released the big fire hoses monetary cooperation, fiscal and banking. It was thus averted a crisis like that of 1929 and was extinguished the fire. But now there was water everywhere. It will take time to absorb and return to reasonable levels. But he must do.
Q. How to get out of deficit and debt? Tax?
When recovery is assured, the fiscal strategy will then become the priority. The debt problem is not the same for everyone. It depends on the level of debt before the crisis, demographics and, of course, potential for growth.
Q. The performance of these packages is not it disappointing?
On the contrary! According to our calculations, a public expenditure of 100 billion will led to an increase of 100 billion they say the "multiplier effect" is roughly one. This is a good performance. Be aware: some countries have faced declines of 10 to 15% of GDP this year. We avoided a general collapse.
Q. Was not a waste when people save the public money instead of spending it?
Indeed. The U.S. savings rate increased to 6%, according to some experts, the goal is to do up to 8%. It is salutary to medium term, because it helps reduce global imbalances. But it is a problem in the short term, because what is not consumed slows down the recovery.
Q. What has restarted on the hats of wheels is speculation, especially on raw materials ...
That is why we must revise our growth model, except whenever growth takes off the pressure on raw materials and oil will resurface. The biggest problem for emerging countries is the abundance of liquidity in place to fight against the crisis. These capital flows draining mass in some emerging countries like Brazil or Indonesia. I understand that these countries believe in putting in place measures to prevent their exchange rate appreciates only too - including some capital controls.
Q. One has the impression that international cooperation has focused on exchange rates ...
The cooperation has focused on the monetary policies of central banks, to support banks and fiscal instruments. This is the first time that all major countries of the world decide on the same policy, and it's very positive. For exchange rates is more complicated. The most discussed on the value some Asian currencies, including the Chinese currency. An appreciation of the yuan would be consistent with the strategy to boost domestic demand that Chinese authorities have chosen.
Q. They are moving towards a simple revaluation of the yuan and Beijing agree there to float?
One day or another will come when the importance of the Chinese economy will lead the yuan to float. But now the Chinese want to control how it will appreciate. It will take time, even if it is not inconceivable that there be a first move faster.
Q. Is there not a collusion between China and the United States forming a de facto common currency area?
Yes and no. This does not help U.S. exporters that the yuan is undervalued, as is the case. Moreover, a collapse of the dollar would not help the Chinese holding huge quantities of greenbacks. This is not a question of complicity with globalization, everybody is held by the goatee! Let us make it for the better.
Q. Seen from Europe, where foreign exchange is not it worse? Europe has the lowest return and the currency most expensive ...
They are in any case the Europeans who complain most of the value of their currencies. The IMF also believes that the euro is probably a bit much, but it is very difficult to determine beyond doubt the equilibrium value of currencies. The Europeans, however, must further assert their economic strategy if they do not let the Sino-American couple dominate the global debate next twenty years.
Q. What can Europe do to exist against the Sino-American couple?
To be an economic power today, it takes two strengths: effect of number is what makes the strength of China - and a technological advance - which gives a comparative advantage in the United States. The enlarged Europe has a large population, with 500 million inhabitants, but the technological matters have not advanced sufficiently since we launched the Lisbon Strategy in 2002. And I note that the technology debate today focused particularly on energy, is much sharper in the United States and Europe.
Q. By promising to zero for a long time, the Fed encourages Does not a form of speculation from the dollar?
The purpose of Ben Bernanke is to facilitate the U.S. recovery. He's right. Its monetary policy is correct. But any solution has its drawbacks. The carry trade is to say, speculation on the differences in interest rates is a source of instability in emerging markets because their currencies are appreciated. But the number one priority today is the return to growth.
Q. What is now the level of unrecognized losses of banks?
It is important undisclosed losses: 50% may still be hidden in the balance. The proportion is higher in Europe than the United States. I repeat: the history of banking crises, including Japan, demonstrates that there will be no strong and healthy growth without a complete cleaning of banks' balance sheets.
Q. Should there be a size limit for banks?
I do not think we should impose size limits. However, if a bank takes risks as it endangers the entire financial system, it is not illegitimate to ask a financial contribution. The insurance premium would have a double advantage: to encourage bank in question to take fewer risks, and collect resources to meet any future banking crisis. The IMF considers all proposals for taxation of the financial system, as requested by the G20 and will report in April.
Q. Should we not then cut into two banks?
I agree with the objective of limiting risk but, if the party investment bank is monitored and if it pays an insurance premium, the interest banks to cut in half fades.
Q. Must type more on bonuses?
Ethically, after public support enjoyed by the banks, I understand that this is happening seems outrageous. Economically, the bonuses are also a systemic problem because there is a link between excessive salaries and excessive risk-taking even if there are other problems to solve, starting with the level of bank capital . Politically, finally, the bonus issue is critical because a new financial crisis can still occur and the reaction may not be the same: we will not see twice the hundreds of billions of dollars of public money and dumped on the financial sector!
Q. For lack of means?
No! Because public opinion and parliaments are not willing to pay twice such a bill. Hence the importance of a new financial sector regulators such as insurance premium. Limit bonuses, moralize finance is also preparing for the future.
Q. Governments have deployed huge resources to fight against the crisis. How to get out in concert?
It will be more complicated than has been the coordination of support measures. But it is essential to avoid distortions of competition. Politically, the post-crisis will not be easy to manage either. I have no concern for central banks. The output of recovery plans by the government is technically and politically more difficult ...
Q. You are the opponent of Nicolas Sarkozy's most popular France. What do you care?
It's always nice that you love your people well, but this is not my topic today.