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Do you think the IMF is now overcompensating for not spotting the crisis earlier, by publishing some of the most pessimistic GDP forecasts around?

For regulators to become independent they really need to use transparent, objective measures - the Bank of England for example has an explicit inflation target and uses its published forecasts to set interest rates. Hopefully the IMF can come up with some of those.

According to Lord Turner, a major element in the crisis was the irrational optimism of investors - thus I believe that a regulatory response has to take account of that. One way in which this could be done is suggested at

Funny Stephanie - your joke about at the beginning about the IMF made me laugh out loud. But it's a really interesting point as well.

The G20 leaders are borrowing money, to provide the IMF with an extra USD250bn, which will allow the IMF to clean up a crisis of over-indebtedness.

We continue to go round in circles.....

The IMF says the G20 must clean up their banks' balance sheets, in order to facilitate more lending and borrowing. This never ending obsession with debt.

Round and round we go; where it stops, nobody knows....


Unfortunately, the "powers that be" confuse the creation of money with the creation of wealth. They try to create liquidity, but all they do is destroy wealth.

CPI is 3% but interest on savings is only 1%.
CPI is 3% but wages are falling, and unemployment is increasing.
The cost of living increases but household incomes are falling and corporate profits are falling......

The US and UK governments hope that cheap borrowing will boost their economies. However, they forget that the marginal productivity of debt is currently less than one. (You should only increase debt if it directly leads to an increase in productivity, which allows you to repay the debt plus the interest and still have money left over).

The UK government has no reserves. Therefore, it must borrow in order to fund any fiscal stimulus or financial rescue plan. As it borrows it will run into the problem of the marginal productivity of debt being less than one - increased borrowing will not lead to increased productivity. The government will have to increase taxation in order to repay its borrowings, and thus private enterpise and consumers will be stifled and punished by the rising tax burden. The rising tax burden will simply cancel out any positive effects of the fiscal stimulus.

And don't forget, the British taxpayer is being forced to underwrite GBP600bn worth of insurance in respect of the bad debts of RBS and Lloyds Group.

The costs continue to spiral out of control.....with no end in sight.


We cannot escape the simple truth that the negatives will out-weigh the positives, until we can find improved business productivity through technological advance. The indebtedness can only be paid off via an increase in business profits and an increase in wages, both of which will only come about through real productivity gains from improved technology.

Greatest Beneficiary? If the G20 think about global financial architecture, one way of splitting up the tasks relevant to the IMF would be: -
- Independent economic early warming system,
- Co-ordination of financial regulation,
- Global lender of last resort,
- Scourge of economically recalitrant regimes.
- Aid for the economically ailing.

If that sort of picture comes out of the G20 process, the IMF will have to admit that it failed at providing the early warnings. It will have to agree that the natural place to build on for financial regulation is the Basel Committee; and will face the truth that the last three functions will all be much more effectively tackled by a single agency with concetrated fiscal and political clout - more a shaken up and re-armed World Bank than an IMF?

"But do they realise quite how independent any new watchdog will need to be? I have my doubts."

The point is that the watchdog will be as independent as its charter and composition allow it to be. We are doomed to repeat history if leaders fail to create an independent watchdog, unfettered by the reliance on the US with its market fundamentalist dogma that has shaped the IMF's decision-making in recent crises, to disastrous effect.

On the one hand now is not the time to deal with these issues for the future, rather to concentrate on the problems at hand. On the other hand, we cannot really trust future politicians to take such drastic actions once the good times return...

Hi Stephanie,

Something strange going on with the links on the main business web page. It took me to an outdated post, rather than this one.

The warning signs were clear to see : I have read the FSA's Financial Risk Outlook 2006 and the BoE's Finacial Stability Report 2006 - its all there. How depressing to be told that timidity and politics was the reason why those employed to shout didnt. Lets forget awards, I cant stomach the thought.

Stephanie wrote:

"All for cleaning up a global financial crisis that it was the IMF's job to prevent. Nice work if you can get it."!!!!

Yet another of the failed men who along with Mervyn King and most of the World's regualtors were educated and trained as economists and bankers to do the WRONG thing and manage the WRONG things.

Resignations are called for.....

Economics is not based on any genuine solid laws - they might like to think that it is but events always prove them wrong. It is not a science in any sense but a from of witchcraft.

These men are wrong - their training trained them into incorrect beliefs and they must fact the personally cataclysmic realisation that their whole life's work has been based on a falsehood. The shibboleths have proved to be made of paper rather than stone and at the first sign of challenge they have been burnt in the flames of the economic collapse - that they themselves caused.

The problem is that they are still doing the wrong things. They are pitiable but our pity should not blind us to their error.

It is not bank liquidity that matters it is the liquidity in productive assets that matters for only productive assets can from the basis of trade and employment. It is absolutely insane to prop up institutions that hold on to assets whose value in their books is higher than the market price. Thus the way in which the banks have been rescued is deepening and prolonging the recession and turning it into a depression and slump.

Get the assets into the market for what ever price they will fetch and let the productive and trading skills of the World's people (NOT Bankers) get things going again. (Indeed Bankers are absolutely the WRONG people to get things going!)

The banks and financial institutions had destroyed money and they must not be allowed to prevent recovery and that is exactly what the present arrangements are causing.

PS Interest rates must also be restored to a sensible 4-6 percent level too so that money is used efficiently - what they are presently doing with interest rates gives rise to an almost absolute (at zero percent) inefficiency in the use of investment capital.

Unless and until these things are realised things will just drag on and on....

Yet more reason to downgrade its current leading shareholders and upgrade others that have more reason to be up there !!

Five of the eight major voting powers (France, Germany, Italy, UK and US) are in deep doo-doo and the remaining three (China, Japan and Saudi Arabia) are not keen to shoulder all the responsibility. The five errant powers, between them, control 49.96% of the votes. The other three control 12.84% of the votes.

China 3.66%
France 4.86%
Germany 5.88%
Italy 3.19%
Japan 6.02%
Saudi Arabia 3.16%
UK 4.86%
US 16.77%

US, UK and Italy have no more money to contribute to the IMF. France will have a Second Revolution if it did try to contribute and Germany would prefer to keep the money much closer to home !! Japan had already contributes 100 billion and China refuse to contribute unless there are changes to the SDRs and the voting structure and Saudi is just watching what the others will do.

Add in the second tier voting powers, i.e. those with about 2% of the votes or more -

Russia 2.69%
Netherlands 2.34%
India 1.89%
Canada 2.89%
Belgium 2.09%

Notice the unfairness of the distribution of the voting powers. Is it any wonder that President Lula blames this mess on the "white, blue-eyed people" ?

The BRIC countries, between them, have 9.62% of the votes but are expected to carry the rest on their shoulders while US (16.77%) and UK (4.86%) are the main culprits in this crunch.

Furthermore, each country is entitled to draw SDRs in proportion to its voting powers; *NOT* according to what it contributes/can contribute !! That is why it appears to the others that Big Bad Brown want the cash-rich countries to cough up to the IMF coffers so he can grab his share of it before the others can lay a finger on it !!

That is also why the Russians and the Chinese, with the support of the Brazilians, want a total overhaul of the voting structure and SDR entitlement and the use of the SDRs as a new reserve currency since this means that any country that wants its currency to have *real* value will have to cough up *real* assets into the IMF coffers, not quantitatively eased bits of paper !! Gold and other tangible assets are quite acceptable !!

Naturally enough, the US is fighting a desperate rearguard action because much of its "wealth" are in bits of paper that it has already quantitatively eased by about $1 trillion at least !!

For more information -

and -

The problem you suggest with early warning systems could be overcome by a 'college of coastguards', so that any given country will not be too powerful or have an effective veto on preventing the build up of asymmetric imbalances in the global economy. This requires that the deliberations of such as the IMF or this 'college' are secret rather than transparent so that markets do not arbitrage against the weakness.

I am by instinct against any reduction in transparency but don't see a way around this given potential for destabilisation through markets.

The other obvious question is how are countries to retain sovereignty against such global institutions. There are a lot of people in China dragged from poverty over the last decade who are grateful for our most recent global imbalance. If the IMF had taken potentially painful sanctions against China, who is to make that call (and politically would they have done so?) The perpetual problem is that whether in Democracy or such as China, governments do not have the will to sacrifice the welfare of populations/voters for the common global economic benefit.

An interesting spin on the IMF position!

It will also be interesting to see what actually is agreed at the G20 - certainly there will be loads of spin but I think that the public has become rather cynical and more substance will be needed to quiet fears on the crisis.

Did you get the impression that being in the IMF was a pretty thankless task?

Certainly sounds like they were shouting warnings, but the miscreants chose to turn a deaf ear.

Hardly a valuable position when all you can say is "I told you so" and pointing them in the right direction as if they were naughty teenagers

All part of the plan. One bank, one government.

However, even with a single central bank, the monetary system is still not stable.

The greatest beneficiary of the crisis in the long run will probably be the United States. It will in all likelihood inflate its way out of debt just as it has always done in the past since the great depression. It just hasn't been on a scale as what is required now. The biggest losers, China and especially Europe. The IMF is a minor player at the mercy of donors. It is used like the World Bank for twisting the arms of smaller nations who depend on it to survive. Right now it has its sights set on Ukraine, Latvia, and much of the rest of Eastern Europe. Oil producers like Russia, Iran, and Venezuela have already been hurt.

Most nations will be caught on the horns of a dilemma between government policies they it want to pursue and the economic necessities they have to pursue. In many places, domestic political pressue will confront hard realities resulting in an explosion. Europe will be forced to give up its lavish social safety net and accept reduced living standards as a consequence for its poor productivity. China and Japan will be forced to develop their domestic markets and China to reform and stabalize its banking system. American state governments will be forced to live within their means. For example, California had a 15 billion dollar surplus in 1978 when prop 13 was passed (against the outrageous protests of those in government.) Today it has a 40 billion dollar debt. It has spent 2 billion a year on average more than it has taken in for 30 years (like Argentina did)! That kind of thing must stop. The federal government will probably be forced to bow to demands for some protectionism no matter what the consequences for global trade agreement or the impact on large corporations or foreign relations. And there will be belt tightening everywhere. And there may be a direct link between the cost of energy and the cost of food. The old cry of a bushel of wheat for a barrel of oil may be heard again. You don't hear Europeans screaming about global warming anymore the way they did five years ago. They are no longer willing to make any sacrifices themselves, they feel they've lost too much already. In fact the cuts have barely begun.

Can anyone tell the difference between the verbal and other behaviours of the people going to the Oscars and those going to the G20? ´óÏó´«Ã½ News has been reporting on the G20 as if it were the Oscars. Even the 'protest' today look staged. was it put on by Crisis Management on behalf of the Socialist International attending te G20, if so, they sdhould demand their money back!

Have to agree with John_from_Hendon the IMF and bankers in general are totally the wrong people to lead any form of recovery. Like the majority of accountants (despite their protests otherwise), bankers have little or no real experience of business or commerce. Their concern will always be the financial position rather than the real market position.

But what did we expect from the G20 farce. Now it's out of the way, we are likely to see some even more disturbing figures from a host of countries. The depression will start to become real - even to the man in the street.

MarcusAureliusII would like us to believe that Europe has got it all wrong and that the US will emerge as the greatest beneficiaries. Sadly, for him that is, the dice are falling against the US. After all what have they got to offer us but an overblown military and equally overblown egos.

foredeckdave (#15) "After all what have they got to offer us but an overblown military and equally overblown egos."

That's what happens when parents try to mold their kids into what they think they should be rather than looking carefully at what they are, and just nurture that. In the end, it's all a matter of intelligence and breeding.

poopdeckdave, many others have written off the US in the past and been proven wrong. I think it was John D. Rockerfeller who said anyone who bets against the United States will go broke and he was proven right time and again. What does the US have? Every asset conceivable for success. What has Europe got? Nothing that I can see. We'll just have to wait and see what develops and who comes out ahead.

Marcus, time moves on. Strategic, comparative and even physical advantages become liabilities. Psychologically I fear for Americans when they finally realise that they are no longer Numero Uno and that other players are commanding the stage.

You seem to forget that the British had a far, far bigger empire comparatively. We could not sustain it and neither will you - it's the way of things. I'm sure JJ can give us the rationale for it.

Yes, I do object to your Euro bashing and disparagement of social economies. However, my thoughts about the future of the USA are not based upon either envy or pity. I'm afraid that you are now on the downslope (despite Rockerfeller) and there is no way out. Harsh but true .

Marcus. BTW thanks for the promotion from the fore to the poop deck!

poopdeckdave;

Britain is an island whose empire was based on theft of other people's resources, labor, their very lives. When it could no longer steal what didn't belong to it, it collapsed. That's what happens to piracy when their buccaneer days are over. The US is a continent sized nation that still has vast resources. For example, it has two hundred years worth of coal. It has 420 trillion cubic feet of natural gas it hasn't even begun to exploit. It is the largest producer of food in the world. And unlike Europe, it is a political and economic unity. It is also politically stable. As a result, it attracts the most ambitious and most talented people in the world like a magnet. It survived worse on its own. Europe has not. I think this is one time it will not get American help to recover. For all the good intentions, when the depression gets worse, nations will start looking out for their own interests regardless of the consequences to others.

If the US had set out to devise a strategy to wage ecnomic war on the whole world, it could hardly have done better than what it did. Everyone is now bankrupt or soon will be. Talk of the crisis being over and recovery later this year is starting to fade. Now ecnomists are talking about recovery next year or the year after. Al Qaeda's attack on 9-11 was a pin prick compared to this stealth total nuclear economic attack. You can see what are just the beginnings of the consequences already. Riots in the City of London. Suicides in Japan. Mass protests among auto workers in Italy. Strikes and Demonstrations in France. The list goes on. Until recently, economists talked of the dimensions of the problem being 2 trillion dollars in the US. Now we're hearing 9 trillion in the US, 14 trillion worldwide. Actually, nobody even knows how big the problem is and it continues to grow with previously sound mortgages facing default through loss of jobs and more toxic mortgages coming to light as their teaser rates continue to expire. Meanwhile, new looming crises face the world. The bond market bubble bursting will be as devastating as the real estate bubble while Eastern Europe could be another disaster. And as I've said Europe is for the most part clueless. The patient is dying on the table and while The US, Britain, Japan, and China are talking about shots of adernalin, France and Germany want to develop a vaccine so that the patient doesn't contract the illness again. It won't matter if it dies waiting. I don't think the stimulus package will work. I think it is much to small given the dimension of the problem but if it does, expect huge inflation and currency devaluation especially in the US. That's the nuclear torpedo that will kill off all of the creditors who made the mistake of making bad loans that could not be paid back. And that includes the Government of China's loans to the US. They'll get paid all right. With cheap newly minted dollars and anyone who doesn't devalue will be priced out of the markets by those who do.

#20 We all know your forecast of how the whole GFC will pan out. Repeating it over and over again doesn't make it any more accurate, why not just shut up and wait and see?

You know crosseyes, I'd been thinking the same thing about you. Why didn't I post it first? I must be getting soft in my old age.

MarcusAureliusII

Take evrything that you have said in your first paragraph concerning the British Empire and relate it to the US actions, military, economic and political since WW2.

Unfortunately I do agree with you rearding the results of the G20 - too little and too late. The 'bottom' of this depression is nowhere in sight. The stimulous packages around the world have failed to have any meaningful effect. However, two major things have changed. Firstly, we are no longer talking about putting things back as they were before. Slowly but surely the brokeness of the world economy is becoming seen as an opportunity to create something new - however the politicos are yet to catch this new wave! Secondly, the world (note that marcus not just the UK or Europe) is no longer prepared to accept the dicate of the USA.