Posted on 03/13/2008 8:56:03 PM PDT by Texas Songwriter
IMF tells states to plan for the worst By Krishna Guha in Washington
Published: March 12, 2008 23:55 | Last updated: March 12 2008 23:55
Governments might have to intervene with taxpayers’ money to shore up the financial system and prevent a “downward credit spiral” from taking hold, the International Monetary Fund said on Wednesday.
John Lipsky, the IMF’s first deputy managing director, said: “We must keep all options on the table, including the potential use of public funds to safeguard the financial system.”
EDITOR’S CHOICE US will avoid deep recession, Fed says - Mar-12Maverecon blog: why make things simple? - Mar-12Video: Michael Mackenzie says Fed is not off the hook yet - Feb-27Comment: The Fed is delaying day of reckoning - Mar-12Analysis: Fed must try harder to restore confidence - Mar-12Central bank action brings mild relief - Mar-12The statement by the senior IMF official marks the second radical policy intervention from the IMF this year. It had previously called on governments to consider using fiscal policy to offset the impact of the credit crisis on growth.
Mr Lipsky said: “I fully recognise an appropriate role for public sector intervention after market solutions have been exhausted.”
He urged policymakers to “think the unthinkable” and prepare now for what they would do if the worst case scenarios materialised and “low probability but high impact events” threatened to jeopardise global financial stability.
He warned of the risk that a “global financial decelerator” could take hold, in which rising defaults and margin calls from lenders triggered forced asset sales, driving down the value of collateral and forcing further forced sales.
The IMF deputy managing director’s comments make it clear that the fund is open in principle to the possibility of taxpayer-funded intervention in the market for mortgage securities as well as intervention to save individual banks from bankruptcy.
Mr Lipsky warned: “The risks of further escalation of this crisis are rising and decisive policy action will be needed.”
He said this crisis was different from recent past crises because both the financial markets and the banking system “have faltered simultaneously”. The first priority had to be to reverse the “spreading strains” in global financial markets and restore the functioning of the financial system in advanced economies.
Mr Lipsky said there should be no let up in the pressure on financial institutions to disclose losses but said pressure to deleverage “needs to be kept orderly”.
He also urged banks to recapitalise to avoid shrinking their balance sheet.
Stressing that this was a global problem – not one confined to the US – he said it would have to be addressed in a “global context”.
Mr Lipsky said the “first line of defence” remained monetary policy and interest rates. But monetary policy was “hampered” by problems in the credit markets and “there is a risk of a broader and more intense tightening in credit conditions”.
This was why the IMF was making the case that “there is likely to be a role in some countries for stepped-up counter-cyclical macroeconomic policy measures to help support demand”. Fiscal policy was the “second line of defence”.
But Mr Lipsky said “macroeconomic policies may not be sufficient to cushion the blow if an extreme event occurs” – making it essential that policymakers prepared for the possible need to intervene. Copyright The Financial Times Limited 2008
Just print more money. Problem solved. Haaaahahaaahahaaaaaa!
Anyone who has cash has better hang on to it. In a credit collapse, when vast amounts of “money” suddenly disappear from the system, Cash is King, and Real Property is Queen. If the system hits the canvas, your stock options won’t buy you groceries, and all the commercial paper in your portfolio won’t keep the rain off your head if your bank goes under and takes your spending money down with it.
There have already been bank runs in the UK. It can happen here. To pretend that it can’t is to whistle past the graveyard of history. Of course, I’m hopeful that we can somehow get through this crisis, but let’s not throw out prudence in our distaste for panic.
well I have some cash, decent credit, and my parents have a low interest fixed rate mortgage. I really need to cash out all my bonds though.
I really DO hope this (minor) episode has scared the crap out of the right people. Because if it hasn’t - if a federal bailout has been incorporated as a more robust assumption in risk models but it is otherwise business as usual - then we will bear witness to a collapse devastating enough to make one pine for the days of even the Great Depression.
Good evening Mr. Phelps....
Good eventing. I am not Mr. Phelps, though. I am Dr.Russell.
He urged policymakers to “think the unthinkable” and prepare now for what they would do if the worst case scenarios materialised and “low probability but high impact events” threatened to jeopardise global financial stability.”
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Unthinkable....well, a good start would be to kick all the bums off welfare, shut down the Endowment for the Arts and similar tax guzzlers, lock the border down, and let the greedy folks who knowlingly bought more house than they knew they could afford take their hits.
Can we expect rampant inflation? If that is a danger, wouldn’t it be better to put your assets into precious metals than cash? That is why gold is so high now, isn’t it? Because of the decline in the value of the dollar and expectations of increasing inflation and declining dollar value.
The USDX is 71 and change. Eight to 10 months ago the USDX was 91. That math does not confound anyone. It is going to .52. Financial systems cannot stand that kind of strain. Worldwide commodities are rapidly inflating while the dollar is taking it in the rectum. We find ourselves in a position which has very little in terms of choice. Given the fact that Bernanke has shown his hand and will monitize the debt rather than fight inflation. He will destroy Grandma's savings, and your retirement, and your childrens' future.
Jefferson said he had rather face standing armies than have Central Bankers in charge of the money. We are witness the why he asserted his position. Money changers have soulless hearts.
Inflation is what we’re getting now. as the Fed dumps cash into the system in a desperate bid to make sure the underpinnings of the mortgage market stay solvent.
Deflation is what we’ll get if the mortgage market fails. As zillions of virtual dollars disappear, solvent companies will suddenly have no cash to pay their bills, and banks will find themselves with no cash to satisfy depositor demands. A run on banks will follow, and the rest of the economy will spiral down with them as the remaining cash is sucked out of the economy like space dust down a black hole.
He’s talking about THE “IMF”, you know, “...your mission - should you choose to accept it...”
Impossible Mission Force - isthisnickcool was making a funny.
I am embarrassed. Not as smart as I think I am. My cassette recorder just self-destructed, with me.
Make sure the people who took out the loans pay for them and the idiots who manufactured the CDOs be responsible for unraveling their GENIUS wonder products and settling their mess.
I did not get involved with over priced housing or sub prime loans so I should not have to pay for other's stupidity!
Oh yea, make sure the realtors, the appraisers, and every one else (including the billion dollar CEOs) cough up their fair share too!
Greenspan, Bernanke, the Boards of Govenors of the FED should all be drawn and quartered, along with congress who encouraged easy credit in the '90's and profligate spending.There is plenty of targets to point at, but you and I and our kids will pay a horrible price for their folley.
Do I grab my ankles before paying, or after?
Last night, I was reading a book on technical analysis.
Chapter 7: Why the U.S. dollar Dictates the Longevity of an American Equity Bull Market.
The DJIA is looking like it could in very deep trouble.
You know, Bernanke has fogotten more that I will ever know. It is said he is a brillient economist. He knows how this ends. He knows he is stealing wealth from everyone who played by the rules to save and plan retirements. He knows, and does not care one wit. The dollar is going to .52. You can bag it. It will be the case before summers end. Yes, the FED will huff and puff. IT will have Paulson say he wants a strong dollar, while the Fed monitizes the debt and steals the life savings from people by the millions. Most will never understand what happened to them. They will be bewildered. Heaven help Washington and the FED if a large number of Americans find out what they have done, by design, to them and their childrens’ future.
It is a tightrope the Fed is walking..as for bank runs the Banks have learned a few things since the Great Depression and during the recessions we have had: what they would do is to go to the 90 day withdrawal rule whereby a customer has to submmit a request in writing before they can withdraw their money..That is probably in their Savings Account Disclosure Statements that most people just throw away...so while inflation could spiral up and up, people would have to cool their heels and hope their bank remains solvent til the 90 days expire...or the government could just nationalize the Banking system and slap all kinds of rules on depositors and creditors...
What will happen if all wake up one morning and find the ATMs all “out of order”? How will we handle it if credit/debit card readers at checkouts and gas pumps also go down? What happens when businesses, utilities, and service providers demand payment in cash, but no cash is available because the bank teller windows all have signs saying NO WITHDRAWALS?
I don’t know, but I do know this: People are not going to watch their kids shiver in the dark with nothing to eat due to a lack of cash.
Inflation is bad, but survivable as long as the printing presses over at the Treasury Dept. are running. But deflation is deadly. Sure, a steak dinner now costs a dollar, but who has a dollar? No money = no means of exchange.
Let’s hope it doesn’t come to that.
Cash is indeed King, and more folks will realize this in the next six months. It would be prudent for them to withdraw a substantial amount out of "whatever" and do what I have been doing. Even setting aside a small amount (grand a month in twenties until this problem levels out) could be a life saver if the S.H.T.F!
There is no way to know what may happen...But!...just like having a gun, better to have it and not need it, than need it and not have it!!!
Prices always revert to the mean and houses will fall back to traditional 3X income in a gradual decline over many years like Japan.
A harsh lesson for a bunch of spoiled brats.
Just be careful what you do with it.
:-)
The problem is that entitlement interests are so deeply entrenched that the system would have to totally collapse before they are dismantled. I personally think it will take mobs of starving citizens storming the Capital before things like prescription drugs for seniors and the NEA are jettisoned. It may sound apocalyptic, but I can see it coming to that. Inflation will spike, wages will not, and this braindead “stimulus” package will do no good at all. Bernake and his ilk are trying to stimulate us out of this mess. The problem is that if people have to pay triple for gas and food, they won’t have $$ for much else.
Somehow, I missed this one.
They don’t just “print money,” they “inject liquidity.” It amounts to the same thing but it sounds so much more sophisticated.
71 of what?
How is that number calculated?
I remember a few days ago it was at 74 and some people were wetting their pants.
Yeah, I know. Boy, such sticklers out there today. I was using the colloquial term, OK? It’s more clear than “expanding M1 and driving the multiplier effect”. :O)
Sounds like bandwagoning to me. These “experts” change their position more often than they change their socks.
23: Chilling. Ditto, hope it doesn’t come to that.
The thing is, it’s bound to “come to that” sooner or later.
It’s a decade to batten down the hatches and prepare for stormy weather.
Scissors cuts CreditCard.
Fortunately, Congressman Ron Paul has introduced legislation to restore financial stability to America's economy by abolishing the Federal Reserve.
Click here to contact your congressional representative and ask him/her to co-sponsor H.R. 2755.
The gamblers on wall street got 38 BILLION in BONUSES last year. Last week, they got another 200 BILLION from the FED. So when are they going to be held responsible for what they've done? I don't see and perp walks happening; I don't see any of the bonuses coming back; I don't see any of the CEOs having to give their pay back or their pensions up.
So where is the justice? What about the people who didn't do the sub prime and saved what little they could from the amount government takes away ever month - they didn’t get bonuses for torpedoing the economy. I just want to know when some of the criminals on wall street are going to get their day with Big Bruce in the slammer!
You understand it as it is. It should enrage all of us. Our children will pay an awful price.
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