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.” 

By Suzia van Swol-University of New Mexico, Talk Radio News Service
During a news conference discussing prospects for the upcoming G-20 summit meetings and the role of the International Monetary Fund (IMF). Managing Director Domique Strauss-Kahn said among the topics that he would like to see developed and explained during the G20 meeting next week are the financial sector, sustainability of fiscal efforts, needs of the emerging countries, and special needs of the low income countries, and he named fixing the financial sector as the most important of these five goals. Cleaning the balance sheet of the financial sector, and especially of the banks, is “the right thing to do now,” said Strauss-Kant.

Strauss-Kant said that you can put as much money as you want in financial, fiscal, stimulus but if at the same time you don’t clean up the balance sheets at the bank, and you don’t make the financial sector working again, then it will just melt.

Strauss-Kant stated that different countries can use different techniques depending on their history, political constraint, but they have to do it and they have to do it now.
He went on to say that the capital influences that the emerging countries relied on are now dried up, which is why we need to have resources for the IMF and we need to improve our facility to help those countries. “The problem of emerging countries is now becoming one of the biggest problems of the crisis,” said Strauss-Kahn.

Regarding low-income countries, Strauss-Kahn said that, “even if the figures, the needs, are not as big as the needs for emerging countries, the needs are significant and I want to make it possible to double the concessional loan that the IMF is lending to those countries.” He said that he hopes the change in facility that was introduced a few days ago will be helpful and stated that “I would like to see the G20 approving this.”

We are still in a situation where most of the markets are frozen, said Strauss-Kahn, and “everything which can be done by the central banks to try to de-freeze this system is welcome in my view.”

Strauss-Kahn said that it is understandable for China to raise questions about a global reserve currency and stated that, “I don’t see that the role of the dollar is at threat today.”

In response to questions about the Chinese artificially keeping their currency low in order to stimulate their exports, Strauss-Kahn said that the big changes which will take place because of the crisis include the kind of changes which will force countries like China to take more into account domestic demand and as a result to have a re-evaluation of their currency.

Strauss-Kahn said he thinks that what has been announced by Secretary of the Treasury Timothy Geinthner goes in the right direction. He stated that, “fiscal stimulus itself will only be affective if the financial sector is healthy again.”

Strauss-Kahn addressed that the debate about the IMF being more on one side than another is “totally wrong.” He said that there is no domestic solution to what may be the first real global crisis. He stated that we all have in mind examples of countries where the temptation is to keep at home the money which is used to try to boost the economy and it is very difficult to explain that what we are doing has to be done even if it’s for other countries because we will then in return benefit from what they do. “The attempt to say we’re going sort our own problem alone is something which happens everywhere.”

In anticipation of the 2008 Annual Boards of Governors Meetings, popularly known as the ‘G-7’, International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn said “the economic crisis we’re in is very serious, but we can solve our problems if we act swiftly and coordinately.” Both the IMF director and World Bank President Robert Zoellick agree that this is a global crisis, and ‘no country is immune’. The leaders claim confidence and cuts in interest rates are the swiftest solutions to the crisis. Confidence is the first tool to be used in response to the economy, and Strauss-Kahn said “if you have the scope for fiscal stimulus, use it.”

The IMF predicts the global economy will have a slow recovery, but will come back starting in the second half of 2009. In order to initiate this growth, the IMF advises action to rejuvenate economic growth. This is why the IMF activated a ‘high access financial program’ yesterday, which will allow the management board to give fast and easily accessible up front payments, while also defining a long-term macroeconomic plan.

The IMF forecasts that the growth rate of developing countries will decline from 6.6% next year to around 4%. They say this is still an acceptable rate of growth, but the deceleration would be so sharp as to feel like a recession. Zoellick said “with the rising economic powers, the G7 countries can work through this crisis by dealing with bad assets, recapitalizing banks, and providing much needed liquidity.” Strauss-Kahn said that, “you can’t say a crisis affects all parts of the world and then develop economic policies that don’t consider the global economy”.

First deputy managing director of the International Monetary Fund (IMF) John Lipsky says that credit deterioration is widening and deepening in the United States. He also says that economic policy makers will need to employ decisive and innovative measures to safeguard financial stability (:43)

 

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John Lipsky, first deputy managing director of the International Monetary Fund (IMF) says that despite a decline in the value of the dollar, the US currency will retain its position as the dominant international currency in the future, though possibly sharing the role with the euro. (:27)

 

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The Brookings Institution held a discussion this afternoon regarding perspectives on the global economic landscape. The panel addressed concerns over the declining value of the dollar, rising inflation, the role of the International Monetary Fund (IMF) and what these factors mean for the future of the global economy.

According to John Lipsky, first deputy managing director of the IMF said that the Fund predicts global economic growth will drop an entire percentage point to 4 percent this upcoming year. In addition, Lipsky stated that a primary concern for the upcoming year should be increased inflation, particularly in developing economies.

Lipsky also expressed concern over the continued decline in the value of the dollar. While the United States has seen increased exports as a result of this decline, the drop has been one of the largest sustained episodes of dollar decline in the last 50 years. However, Lipsky said that despite drops in the value of the dollar, he believes it will retain its role as the dominant international currency in the long term, though perhaps sharing it with other powerful currencies like the euro.

Lipsky also predicted an economic slowdown in the EU. He said that this could potentially be more devastating than economic issues in the United States, due to a lack of coordination of financial markets within the EU.

Domenico Lombardi, nonresident senior fellow of the Brookings Institution and president of the Oxford Institute for Economic Policy expressed concern over IMF attempts to regulate currency imbalances. While the organization has been particularly useful with developing economies, Lombardi worries that highly developed nations like the U.S. may be less forthcoming with financial information, and less cooperative with policies and oversight from the Fund.

At the Housing Crisis and Lessons for Monetary Policy discussion hosted by the Brookings Institution, Economic Counselor and Director of the International Monetary Fund Simon Johnson predicts a “minor contraction” for the U.S. economy this year, followed by a “slow recovery” next year. He also talks about the spillover effects of the U.S. housing market into other nations, and predicts a decline in global growth projection. (0:43)

 

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At a discussion on the Housing Crisis and Lessons for Monetary Policy at the Brookings Institute today, International Monetary Fund Economic Counselor and Director Simon Johnson predicted a “mild contraction” in the U.S. economy this year followed by a “relatively slow recovery” next year. Johnson discussed the link between housing and mortgage finance and said that the link between monetary policy and housing is stronger because of recent governmental intervention in the current crisis.

IMF Senior Economist Roberto Cardarelli said that over the last four quarters, residential investment has contributed 56% to the decline in U.S. GDP, “and by that standard, we are very much in a recession environment in the United States.” Cardarelli said another cause for concern is the impact of housing prices on the decline in consumption, which further stunts economic growth. He also emphasized that inflation rates need to change in order to stabilize inflation and minimize loss.