And another IMF blog is out today. This one is specifically for the UK and it represents something of a departure from their usual script
http://blog-imfdirect.imf.org/2012/07/19/m...wth-in-the-u-k/They appear to have tumbled to the fact that cutting spending is harmful. Well I suppose that it is gratifying that they now acknowledge something so obvious that my granny's cat has been saying it for at least two yearsl.
What is galling is the brass neck they display, with such statements as " policy makers are not powerless": given their propensity for taking control of sovereign states and their press release a couple of days ago proposing that they should take a bigger role in "monitoring" how those sovereigns behave themeselves that is nothing but cheek. The hubris is tangible and I no longer think these people have any skills at all. We should disband them.
Anyway, in this blog they note that the uk economy has been flat for two years and it is 6% below its level at the start of the crisis: unemployment is high; and there is real cause for concern about all this. They propose three policies for the uk to sort it:
1. More quantitative easing. Well why not? It is working so well so far. They say "evidence suggests [this] can continue to support demand by lowering long-term interest rates and improving banks’ liquidity. Oh yeah? Be nice to see some of that "evidence" because it is not working here nor anywhere else I am aware of. By "evidence" I think they mean "our quasi religous belief system"
2. Make borrowing easier. Hmm.....what a good idea. In another part of the forest we cannot solve a debt crisis by borrowing more money. But let not 6 impossible things before breakfast slow you down. As it happens there is no evidence whatsoever that anybody wants to borrow more just at present: but I suppose it doesn't matter. It is one's civic duty to borrow!
It is interesting to try to cut through the gobbledygook in this part, too. I think the poppets are saying that the private sector would be willing to borrow but the problem is the banks are charging too much interest. That would be the banks who got all that cheap money under 1. above. That part of the private sector which is sitting on mountains of cash. That part which has led the government to promise them even more money if they will only lend to businesses: but doesn't have any way of getting them to do that? They welcome that policy by the way: but they don't think it is going to work. Well my granny's cat doesn't think so either: so you can see why IMF folk get the big bucks.
Since they don't think it is going to work, they go on to say that
QUOTE
further credit easing measures may be needed, including purchases of private-sector assets on secondary markets.
What do you think that means? Go on, have a guess! I honestly don't know what it means: but I am pretty sure it involves giving more government money to private companies, one way or another. Companies issue shares but they also issue bonds: perhaps they intend that the government should buy those bonds since the private sector won't? Or to put it another way, take on worthless assets for real cash. If that is what they mean then what they are prescribing is that company debt should pass to the sovereign for the sole purpose of allowing the private sector to have or borrow more money. Which they will be perfectly free to sit on: just like the banks. My granny's cat does not think that is a good idea. She does accept there is not much reason to believe the banks are special. as we have been told for so long. But she doesn't think that means that poor people should bail out the private sector as well as the banks. She says she heard that the world doesn't owe you a living: though being a cat she has trouble with that idea....just like the private sector really.
In addition the IMF suggests that the government should borrow more money to guarantee large private sector infrastructure projects. But carefully. They do not seem to like PFI: well they are late to the party. Again. My granny's cat told the family that PFI was a stupid idea when it was first proposed in about 19oatcake. And my granny's cat was so obviously right it didn't seem worth saying even then. I cannot see any good reason for increasing sovereign debt to give to private companies when you could do the same thing directly and cut out the profit. I thought the problem was the deficit: at least that is what the government tells me. That being so the IMF advice that "It is important, however, that the choice of projects and the modalities of their operation—public versus private, and financing by issuing public debt versus guarantees—is based on using public funds as efficiently as possible." is good. So forget the private sector altogether. We can't go about propping up "lame duck industries": or so we are told by neoliberals.
3. Slow down the austerity. This is all good clean fun: what they say is that if the two preferred options of giving the banks loads of money directly through QE; and lending private sector business money directly in huge quantities, taken together, do not work even given time, then the government might have to stop cutting benefits and public services as much as they have planned. As ever with the IMF (see earlier posts) this would not mean they have ever been wrong: rather it means that " The government’s reduction of deficits over the last two years has created the space for recalibrating fiscal policy, if needed." Er..wasn't doing that supposed to work all by itself? Why, I think it was.
The ending is beautiful
QUOTE
The absence of growth, even after additional monetary and credit easing measures, would indicate that the ability of monetary policy to mitigate partially the contractionary effects of fiscal tightening is even more constrained than currently assumed, implying higher and more asymmetric multipliers when the economy is weak. This may occur, for example, if heightened uncertainty, including concern about tail risks, deters the private sector from borrowing, even in response to significantly cheaper and more easily available credit.
In a nutshell, the priority for U.K. policymakers is to implement more expansionary economic policies, important elements of which are now in train. Without such policies, they risk weak demand that leads to persistently slow growth and high unemployment, which in turn will affect decisions made by consumers and investors, and permanently damage the long-run capacity of the U.K. economy.
I translate that as: we gave you our advice based on our principles; but we don't like our principles anymore. Never mind: we have others, and with any luck you will never notice that we ruined millions of lives because we have no idea what we are talking about. Please continue to pay our tax free wages
