Monday, October 13, 2014

IMF Warns Global Economy at Risk

If we are in any kind of real recovery it is certainly an unusual one. Once again the IMF comes about with another warning that the global economy is at risk in this CNBC article. Below are quotes and then a comment below that.


"The International Monetary Fund's member countries on Saturday said bold action was needed to bolster the global economic recovery, and they urged governments to take care not to squelch growth by tightening budgets too drastically."
"With Japan's economy floundering, the euro zone at risk of recession and the U.S. recovery too weak to generate a rise in incomes, the IMF's steering committee said focusing on growth was the priority."
"The IMF has flagged Europe's weakness as the top concern, a sentiment echoed by many policymakers, economists and investors gathered in Washington for the Fund's fall meetings, which wrap up on Sunday."
"It called on central banks to be careful when communicating changes in policy in order to avoid financial market shocks. While not naming any central banks, the warning appeared aimed at the U.S. Federal Reserve, which will end its quantitative easing policy this month and appears poised to begin raising interest rates around the middle of next year."
"The Fed has debated a change to its commitment to holding rates near zero for a "considerable time" at its recent policy meetings, but is stepping gingerly to avoid roiling financial markets. It wants to avoid a repeat of the "taper tantrum" it touched off last year when it signaled its easing of monetary policy was drawing to a close."
My added comment: The above underlined quotes simply illustrate something we have been covering here. There is considerable debate and question as to whether any real recovery is happening. By real recovery we mean the real economy. An uptick in GDP just because of monetary stimulus by Central Banks is NOT a real recovery. The economy has to prove it can stand on its own feet without the support of virtually zero interest rates and never ending new money creation. So far, every time the US Fed tries to wean the economy off QE, it starts to quickly fade and prove that ONLY the stimulus is holding it up. Right now stock markets around the world are hinting possible trouble coming once again.
These next several months are going to be huge. If the economy starts faltering yet again with the ending of the Fed's current QE program, it could get ugly this time. The article above is an open admission that officials are very worried about exactly this problem. The global economy simply has not responded to all the massive low interest rates and enormous monetary stimulus around the world. If it starts rolling over again the Central Banks will be in a very tough spot. If they do nothing, a free fall could start to unfold. If they have to admit the recovery is failing again and ramp up another round of QE, they will probably lose a lot of credibility in the markets (people will not believe they can do anything to solve the problems). Keep in mind Jim Rickards predicts that the economy will falter again by early in 2015.
This article is important because it makes it crystal clear that we are very close to finding out if the economy can hold up without stimulus or not. If it doesn't, things could become volatile fairly rapidly once the markets sniff that out.
One thing for sure, if things go south, the IMF can say they warned us. But very few are paying much attention so far.

Update - added news link:  The Guardian runs this article titled: World Leaders play war games as the next financial crisis looms

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