IMF calls for action now to combat global recession

Moderators: Elvis, DrVolin, Jeff

IMF calls for action now to combat global recession

Postby bigearth » Wed Oct 08, 2008 7:32 am

IMF calls for action now to combat global recession

Losses on US sub-prime assets and securities will total $1.45 trillion, warns IMF

By David Prosser, Deputy Business Editor
Wednesday, 8 October 2008


Related Articles

* Brown hails 'bold' £50bn rescue
* Bank of England makes emergency rate cut
* Andrew Grice: Bailing out the banks
* Footsie tumbles further after bank bail-out
* Iceland: dancing on the brink of bankruptcy
* Hamish McRae: Amid all the panic, there is some good news
* Full Treasury statement on bail-out
* Jeremy Warner's Outlook: A comprehensive bailout for banks, but will it work?
* Andrew Grice: Fear, loathing and leaks at the top
* Factory output hits new depths
* £50bn bailout to save Britain's banks (but will it be enough to save us?)
* What is Paulson's Plan B?
* British banks forced into line over Treasury plan to boost reserves
* EU dithers over a 'united response'
* 300,000 British savers left waiting
* GM to cut production in Europe by 40,000 vehicles as sales slide
* Savers' flight to safety continues as panic escalates
* Interest rate cut would not save high street, Bhs's Green says
* Short-sellers turn on pubs and retailers
* Market Report: RBS and HBOS slump on fresh bank fears
* Investment Column: N Brown is well insulated from credit crunch
* Credit crisis diary: The gorilla gets his comeuppance
* Leading article: Darling's package needs to be as big as promised



The global economy faces a much more serious downturn than almost anyone has until now realised unless international governments take immediate co-ordinated action to deal with the credit crisis, the International Monetary Fund warned yesterday.

The IMF said it now believed the losses on US sub-prime assets and securities would ultimately total $1.45trn (£828bn), more than 50 per cent higher than its previous estimate of $945bn, and called for "a comprehensive set of measures that could arrest the currently destructive process".

Britain, in particular, faces some of the worst fallout from the credit crunch, the IMF said, because it is particularly exposed to the problems of rapidly falling house prices and high personal indebtedness. "With house prices falling rapidly, arrears and losses are likely to rise several times over," it warned.

The IMF sounded the alert in its latest Global Financial Stability Report, which was published as it prepared for its annual meeting which begins in Washington today. The body said the crisis which continues to jam up the world's money markets was increasingly likely to lead to "severe and protracted economic downturns" around the world.

It was just these sorts of fears that haunted investors yesterday, and in the US there was another big sell-off in the stock market as it headed towards the close. The Dow Jones Industrial Average slumped 508 points to 9,447, taking its losses from five consecutive down-sessions to 13 per cent.

"Today's report shows how serious a crisis we currently face," Dominique Strauss-Kahn, the IMF's managing director, said. "The time for piecemeal solutions is over – I therefore call on policymakers to urgently address the crisis at a national level with com-prehensive measures to restore confidence in the financial sector. At the same time, national governments must closely co-ordinate efforts to bring about a return to stability in the international finance system."

So far, however, such co-ordinated efforts have been relatively limited. The Bank of England unveiled further injections of liquidity into the money markets yesterday in moves it said were timed to coincide with similar initiatives from other central banks, and Ben Bernanke, chairman of the Federal Reserve, said that US interest rates could be reduced because "the combination of incoming data and recent financial developments suggests that the outlook for economic growth has worsened".

However, the international response has been criticised for its lack of coherency. Many economists believe a round of simultaneous interest rate cuts from central banks including the Bank of England, the US Federal Reserve and the European Central Bank are now necessary. There has also been criticism of the infighting among members of the European Union over the extent to which savers should be given a legal guarantee about the security of their deposits.

The IMF warned that this sort of incoherency was likely to have devastating effects on the world economy.

"Co-ordination of early action to address problems should send a strong signal to boost market confidence and will also help avoid adverse effects that one country's measures may have on others, or perverse incentives in international markets," the IMF said.

"Without such co-ordination, the adjustment process is likely to be more painful and protracted, steps by individual institutions to defuse their own market pressures may spill over to other jurisdictions and concerns about inequitable burden sharing may prevent necessary and costly measures being taken."

The scale of losses the IMF is now predicting from the credit crunch will shock many analysts given how dramatically it has risen since the body made its last forecast in April. However, the IMF said house prices in the US had continued to fall heavily since that prediction was made.

link
. is it a wise man, who knows that he is not wise
. it's good to have cynicism but not be cynical
. the more truth you live with, in your life, the stronger you are
. intelligence is merely an attitude to knowledge and learning
bigearth
 
Posts: 234
Joined: Sun Sep 07, 2008 8:44 am
Blog: View Blog (0)

Return to Economics

Who is online

Users browsing this forum: No registered users and 2 guests