I don't accept drinks served by Jim Jones nor economic advice served by the IMF. The common link, of course, is that they both serve things that are poisonous. In all fairness, they don't cause all of the economic disasters they are involved in, occasionally a country is a basket case before they arrive. My long time nickname for them is International Mayhem and Fraud - because it fits. Their specialty is what I call root-canal economics. Accept their drivel at your own risk or learn better if your mind is open.
This article gives them their due. I can provide more articles of very high calibre if there is any interest.
Heck, I'll post the whole thing!
This excerpt from the article posted below is my biggest concern. Fiscal policy is a very limited risk, a major screw-up by the clueless Federal Reserve is a big wildcard...
As long as the Federal Reserve maintains a firm hand on the monetary tiller and a watch on the dollar's value -- as long as Alan Greenspan heeds the Volcker lesson of the 1980s -- then the earnings from U.S. growth and investment should be more than able to repay any accumulating debt. We'd add that if Mr. Greenspan retires, Mr. Bush needs to replace him with someone with Mr. Volcker's starch.
January 9, 2004
REVIEW & OUTLOOK
The IMF Votes Dean
"IMF Warns That U.S. Debt Is Threatening Global Stability"
-- New York Times, January 8, 2004
"U.S. Budget Deficits and Sparse Savings Will Snag Economy, IMF Director Says"
-- Wall Street Journal, March 31, 1982
As the headlines above suggest, at least the staff of the International Monetary Fund is consistent. This week the doughty global bureaucrats once again issued a report predicting disaster unless the U.S. raises taxes. If President Bush's tax cuts are allowed to stand, the Fund declared, interest rates will rise, private investment will be "crowded out" and productivity will fall.
--------------------------------------------------------------------------------
DOW JONES REPRINTS
--------------------------------------------------------------------------------
This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. • See a sample reprint in PDF format • Order a reprint of this article now.
--------------------------------------------------------------------------------
Hmmm, where have we heard this before? To be sure, the IMF has offered this same high-quality counsel to Argentina, Turkey, Russia, and before that to Mexico, Indonesia, Brazil ... (How much reading time do you have?) But specifically regarding the U.S., we have a sense of deja vu. Ah, yes, the year was 1982.
Jacques de Larosiere, IMF managing director at the time, put it like this in late March of that year: "The current borrowing requirements of the federal government ... leave little available for private-sector borrowing. Unless the projected levels of fiscal deficits over the past two or three years can be reduced, only a very large expansion in private saving would prevent serious crowding out and a continuation of the present high rates of interest."
Mr. de Larosiere uttered that dire warning just before the great Ronald Reagan expansion took off. Between 1983 and 1988, the U.S. economy grew by roughly the size of the entire German economy. And, by the way, interest rates gradually fell throughout those years despite large U.S. budget and trade deficits, as Paul Volcker's Federal Reserve broke the back of inflation and the Reagan tax cuts spurred the boom.
Yet here we are back at the same old stand, with the IMF staff once again leaping into a U.S. election tax debate. The IMF economists recommend allowing the Bush tax cuts to expire if they can't be repealed, and then suggest that "energy taxes, which are comparatively light in the United States," could also reduce the deficit. Almost on cue yesterday, Howard Dean issued a press release declaring that "IMF Report Confirms Bush Policies Danger to U.S., World Economy." Guess we know whom the IMF is voting for.
Mr. Dean's assertion, like the IMF warning, has the embarrassing disadvantage of appearing just as the U.S. economy is once again recovering smartly in the wake of the Bush tax cuts. The IMF missed this growth spurt completely, predicting only last April that (as a Journal headline put it) "IMF Says Bush Tax Cut Is Poor Policy, Ill Timed."
Regarding interest rates, the IMF seems to believe the U.S. is no different from Argentina, which has to borrow in foreign currencies to finance its debt. But the U.S. dollar is the world's reserve currency, and American capital markets are the deepest and most sophisticated. The U.S. trade deficit that the IMF also bemoans is a sign that American growth is attracting capital and sucking in exports from the rest of the world.
As long as the Federal Reserve maintains a firm hand on the monetary tiller and a watch on the dollar's value -- as long as Alan Greenspan heeds the Volcker lesson of the 1980s -- then the earnings from U.S. growth and investment should be more than able to repay any accumulating debt. We'd add that if Mr. Greenspan retires, Mr. Bush needs to replace him with someone with Mr. Volcker's starch.
Far from endangering the global economy, the U.S. recovery is now the main force lifting the world out of three years of the doldrums. Far from deploring the Bush tax cuts, the IMF should be exporting them around the world.
URL for this article:
http://online.wsj.com/article/0,,SB107360830184999400,00.html
Updated January 9, 2004
Copyright 2004 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.
No comments:
Post a Comment