IMF Chair: Bank Balance Sheets Must Be Cleansed

Jonathan Bronsetin, Talk Radio News Service

Out of the International Monetary Fund’s, Spring 2009 meeting came a simple, but poignant message: the world is still in a recession. But the key to any recovery, according to the IMF, relied upon the restoration of the health of the banking system.

"You never recover before you completed the cleaning up of the balance sheet of the financial sector," said Dominique Strauss-Kahn, Chairman of the IMF.

Strauss-Kahn believes that any nation can postpone cleaning the banks balance sheet, but this will only postpone a full-fledged recovery.

"I don't underestimate the difficulties of the task, but the fact that it is difficult does not make it less necessary," said Strauss-Kahn.

Additionally, Strauss-Kahn applauded the efforts of governments to recognize and quickly deal with this recession through the implementation of successful economic stimulus's. He believed that the stimulus had a 1/3 greater affect because it occurred in a coordinated fashion.

Strauss-Kahn bluntly predicted. “Our [the IMF] belief is that the crisis is far from over, and there are long months of economic distress in front of us.”

IMF: Recession Will Not End In 2009

Jonathan Bronstein, Talk Radio News Service

The dreary, Washington, D.C. weather was matched only by the International Monetary Fund’s, IMF, Spring 2009 edition of the World Economic Outlook. This report was rife with sobering news regarding the future of the economy.

Echoing many statements made by various IMF economists over the past few days during the IMF’s annual Spring meetings, the report expects 2009 to be a year of negative growth, and a year in which many nations willingness to continue to maintain low interest rates and stimulate the economy will be tested.

The report predicted that the global economy will decline by 1.3 percent, as a whole during 2009, which is the greatest rate of decrease since World War II. This also marks a dramatic revision from the IMF’s last WEO report in January 2009.

Economists have recognized that the world is in the midsts of a economic slowdown, but the extent of the recession was worse than expected.

“Global GDP went down by an unprecedented 6 percent at an annual rate in the last quarter of 2008,” said Olivier Blanchard, an economic counselor and director of research at the IMF, “and as far as we can tell, will most likely decline almost as fast in the first half of 2009.”

The six percent contraction of the world economy in 2008 followed four percent growth the previous year.

However, “Growth is expected to reemerge in 2010, but at just 1.9 percent would be sluggish relative to past recoveries,” according to the report.

The WEO attributes this slow growth to financial market stabilization taking longer than to occur then perviously believed, despite the strong and effective efforts by policy makers. The reason for such a long and protracted stabilization of the financial sector is because the amount of “toxic assets” globally will reach $4 trillion, according to the Spring 2009 Global Financial Stability report, which greatly exceeds the previous estimate of $2.7 trillion made in January 2009.

Another piece of sobering news was in regard to the unemployment rate.

“As long as growth is below its normal rate, then unemployment will continue to increase, and therefore our forecast implies that unemployment will crest only at the end of 2010,” said Blanchard.

But all was not entirely negative in the report, as it did stress how the world’s governments have taken the proper steps needed to stem the damage of the recession. The main policy that was universally applauded was the employment of stimulus, which reached 2 percent of global GDP, a level that the IMF encouraged governments to strive for.

Such bold policies are key because they convince the markets that the economic crisis is being dealt with in an effective manner, which leads to “a revival in business and consumer confidence,” according to the WEO report.

Another issue the WEO has become concerned about is in regards to deflation, or a consistent decrease in the prices of all goods with the exception of food and energy. 

The reason deflation becomes so dangerous is that it drives down the prices of goods as people perpetually hold off on buying any goods until they deem that they have reached their lowest level. Thus, commodity prices fall, which ripples throughout the economy.

Economists point to deflation, as the root cause of exacerbating already destructive economic crisis, like in Japan in the 1990s and throughout the world during the Great Depression in the 1930s.

“An indicator of global deflation risk has now risen to well above levels observed in 2002-03, when deflation was also a concern,” according to the WEO.

But, as frightening as this deflation crisis sounds, the IMF believes that it remains but a problem on the distant horizon, which must be overlooked when dealing with problems that are more pertinent in the present, like stimulation of the economy.

Regardless of the morose news, Blanchard remained upbeat, when he said “The need for strong policies on both the macroeconomic and financial is as acute as ever, but with such policies in place there is light at the end of the tunnel. World growth can turn positive by the end of this year and unemployment by the end of next year.”

Pelosi and Representatives Release Draft Of Clean Energy Act

by Christina Lovato, University of New Mexico-Talk Radio News Service

This afternoon Speaker Nancy Pelosi along with Congressmen Henry Waxman (D-CA), and Ed Markey (D-Mass.), released a draft of comprehensive energy legislation, known as the American Clean Energy and Security Act of 2009.

Speaker Pelosi says the act will create jobs, help end our dangerous dependence on foreign oil, and combat global warming.

“We have an obligation to future generations to preserve this planet and a moral obligation to preserve it as God’s creation,” said Pelosi.

Speaker Pelosi said today that the climate crisis we are facing is not only an environmental health issue, but that it is a national security issue and a moral issue.

“Energy independence and fighting climate change are flagship issues for this Congress. It will also be the impetus for new jobs and a new economic revival for our country,” said Pelosi.

Rep. Markey said that we need to look at this legislation as a good opportunity and if it gets passed it can create 3 to 5 million jobs all across the country.

“The planet is running a fever but there are no emergency rooms or plans so we have to act in a preventative way.”

Rep. Waxman said that Congress has a unique historic opportunity to pass legislation that will make our country more energy independent so that we can protect our national security.

Waxman said “This legislation will try to avert the terrible consequences of global warming.... legislation that will renovate and transform our economy for many many new jobs to give our people the jobs they need to get out of this recession/depression.”

Roger Johnson, the National Farmers Union President said that the union wants to be sure to play a constructive role with this legislation and said that there are already 3600 members doing innovative, and advanced agricultural practices to reduce greenhouse gases.

“Earth Day is something farmers celebrate every day of the year as we work the Earth and we want to make sure that it continues to be protected,” said Johnson.

The bill is expected to pass in the Full Energy and Commerce Committee on Energy before the Memorial Day recess at the end of May.

“On this Earth Day we commit ourselves, not just ourselves, but our nation, to protecting our planet, creating jobs for our workers and by passing clean energy legislation,” concluded Pelosi.

IMF: The Recession May Not Be Over

By Jonathan Bronstein, Talk Radio News

The International Monetary Fund (IMF) released the last 2 chapters of their twice yearly World Economic Outlook (WEO). The report discovered that economic recessions of this global scale generally last 2 years. While this may make people feel optimistic, but when one realizes that the IMF economic recession began in June 2008, the report becomes more sobering.

Therefore, America is still in the thick of its recession.

“Recessions associated with financial crisis are longer and more severe,” said Marco Terrones, a key contributor to the IMF’s economic outlook, who has researched 160 recessions since 1960, and made distinctions between those related to the financial industry and those caused under other circumstances, like manufacturers overproduction.

The IMF believes that the recession began in June 2008, while the Bureau of Labor and Statistics says it began in December 2007. Thus, according to historical data discovered by the IMF, the recession should last until 2010.

But, this report was an analytical study of history and not an economic forecast, which will be released later this April.

Through this research, Terrones discovered that recessions caused by a failure of financial institutions last two years, or 2 quarters longer than all other recessions, and recovery takes about 3 years.

However, the statements made were not a prediction of the future, but a systemic analytical review of 20th century economic history. Also, only 6 recessions like this have occurred so the sample size is incredibly small, according to the IMF researchers who worked on the study.

“The twist of the current crisis is that bank lending linkages are the main driver,” said Stephan Danniger, another contributor to the IMF outlook WEO. As a result, the crisis quickly spread around the world, but nations that had the most connection to Western European banks were most vulnerable.

“The main recipient region was emerging Europe, and in a sense it is no surprise that an emerging Europe was the first to be hit hard by the crisis,” said Danniger.

Danniger stressed that countries, especially emerging ones, should continue to become integrated into the world economy because it is the most effective way to grow ones economy. But, such integration makes these nations vulnerable to external recessions.

So those who hope that the world is beginning the recovery process of the recession must heed the IMF assessment, that “recessions are likely to be unusually severe, and economic recovery will be sluggish,” said Terrones.

IMF Chairman: 2010 Could Be End of Recession

Jonathan Bronstein, Talk Radio News Service

Since the economic crisis began in 2008, many people have been clinging to the hope of hearing positive news regarding to the economy. Recently, Dominique Strauss-Kahn, the current chairman of the International Monetary Fund (IMF), delivered some optimistic news, as he believes that 2010 could be end of recession.

“The free-fall in the global economy is beginning to abate,” said Strauss-Kahn in an optimistic tone.

But Strauss-Kahn believes that the governments must take three steps in order to bring this current recession to a close. 

Firstly, financial sector reform, as “it is essential there is no way in the global economy without this,” said Strauss-Kahn. Governments must work to cleanse the banks balance sheets and attempt to re-capitalize the banks in order to prevent “zombie banks,” banks that keep “toxic” assets on their bank sheets, from taking hold and keeping nations in a prolonged recession.

Secondly, the need for a global and coordinated fiscal stimulus, and the IMF asked for a 2 percent global stimulus, and “I must say that globally the government delivered at the global level,” said Strauss-Kahn, who continued to say, “and for 2009 we [the world] has what it needs.” Not only was Strauss-Kahn pleased that the world heeded the warnings of the IMF, but also implemented them at a similar time, which marked a more unified response.

Thirdly, Strauss-Kahn wanted urgent action taken by the national governments on the financial front in order to keep the banks solvent, and to alleviate any pressure in emerging markets. “This is the area where the G-20 was boldest in tripling the resources of the IMF, its lending capacity, to an unprecedented $750 billion,” said Strauss-Kahn.

However, Strauss-Kahn had sobering news regarding the present, as he believes that no matter how much stimulus is placed into the economy this year, 2009 will be seen by future generations as a lost year of economic growth.

“2009 will almost certainly be an awful year; we expect global growth to enter deeply negative territory,” said Dominique Strauss-Kahn, the current chairman of the International Monetary Fund.

While 2009 may be a bleak year; one must not overlook the positive indicators in the economy, like the NASDAQ recently reaching its 5-month high, which illustrate the resilience and strength of the economy. 

Strauss-Kahn continued to outline the 4 desires of the IMF in order to prevent another economic crisis, they are: better regulation of financial markets, civilian watchdogs on the “corner between main street and Wall Street,” international cooperation and financial arrangements between nations in economic troubles and the IMF so the stipulations that accompany the loan are not too stringent.

“In future time people do believe the United States economy will get better and is most secure,” said Strauss-Kahn, and for this reason the dollar will continue to be seen as the last bastion of security, even during the most tumultuous times. 

In fact, the dollar has continued to appreciate against competing currencies, like the Euro and Yen, even during this crisis, which according to Strauss-Kahn illustrates how at the end of this recession, “the dollar will still be supreme.”

Strauss-Kahn concluded by harkening back to his prediction that the crisis would ease in 2010, when he said “it is time to move forward and if we do move forward in the correct way than the recovery of the global economy in the first-half of 2010 will be a correct forecast.”