Sunday, January 18, 2015

Christine Lagarde (IMF) - Excessive Borrowing, High Unemployment Threaten Global Growth

Christine Lagarde was in the news quite a bit the last few days. In this article in CTV News, she is quoted as saying that heavy government borrowing and high unemployment are still big challenges to global growth. Her remarks came just after the World Bank revised its global growth forecast downward. 

In other articles, Ms. Lagarde talks about how low oil prices will not be enough to help out global growth, that she was taken by surprise when the Swiss National Bank announced it would no longer try to cap the rise of the Swiss franc, and that the economy in Great Britain should provide a model for other Euro nations to follow. Below are links to all these articles with a brief quote from the article below each link.


CTV News article - Borrowing and Unemployment threaten growth

"Two problems stemming from the 2008 financial crisis -- heavy government borrowing and high unemployment -- still pose challenges to the global economy and require bold action, the head of the International Monetary Fund said. Christine Lagarde, IMF managing director, said Thursday that cheaper oil and strong U.S. growth aren't enough to counter those threats. "We believe that global growth is still too low, too brittle and too lopsided," she said in remarks before the Council on Foreign Relations."

"A sharp drop in oil prices and a stronger U.S. economy will probably not be enough to brighten the outlook for global economic growth this year, the head of the International Monetary Fund said on Thursday."

CNBC - Lagarde surprised by Swiss National Bank move

"International Monetary Fund chief Christine Lagarde said Thursday the Swiss central bank's announcement that it would remove a 3-year-old cap of 1.20 francs per euro was "a bit of a surprise."

"The IMF managing director, who spoke with CNBC from the organization's headquarters in Washington, said she had not been warned about the move ahead of time, which she found "a bit surprising."
The Guardian - IMF Chief hails UK economic recovery

"The head of the International Monetary Fund has handed David Cameron a helpful pre-election gift, hailing the British economic recovery as “exactly the sort of result” she would like to see.

The prime minister warmly welcomed the remarks by the IMF’s managing director, Christine Lagarde, who said that Britain’s economic performance was providing “eloquent and convincing” leadership for the rest of the EU."
added note: not everyone agreed with her comments about the UK as seen in this article in Russia Today
My added comments:

Just a couple of points to take from these articles. 

One is that even the IMF Managing Director can be "surprised" by actions of central banks. We would assume that a major central bank (like the SNB) would not surprise markets and other financial institutions by reversing what they promised to do in regard to their currency. But that is apparently exactly what happened. This surprise announcement caused significant market disruption all over the world and hurt the credibility of the Swiss National Bank (SNB). Here is a quote from this Bloomberg article on the SNB surprise:

"The lessons for investors: central banks are no longer aligned and again a source of volatility rather than calm in financial markets. Also, forward guidance has its limits as policy can shift abruptly when economic conditions change and officials still like the odd surprise."

Another point related to the Swiss National Bank news is that Egon Von Greyerz of Switzerland had earlier predicted that the SNB would do exactly what they did. He talks about that in this interview at King World News.

This event illustrates why we do what we do here on this blog. We cover events as best we can from a variety of points of view. Sometimes the mainstream view prevails, but sometimes alternative views turn out to right. In this case, the SNB had promised the world they were going to cap the Swiss franc. In December 2014, Von Greyerz disputed that and claimed they would end up doing exactly what they did and that it would cost the Bank billions. He was right on both counts. This is why readers must keep an open mind to a variety of information sources and not just blindly accept the mainstream view. 

In this case, those who relied on the SNB to keep its word and made investments based on that got badly hurt. And even the Managing Director of the IMF did not see it coming. If they don't see these kind of events coming, there is no way we outside the system will get any warning aside from credible alternative sources like Jim Rickards etc. That is why we follow them here. But even Jim Rickards admits he cannot forecast the timing of these kinds of surprises. We are truly on our own and it is vital to stay alert and informed.

Tomorrow we will look at the speech Christine Lagarde gave to the Council on Foreign Relations where she once again mentions the stalled 2010 IMF reforms.

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