The IMF's Plan To Fix The World Economy, Now Is A Good Time To Die

Investing

Published: September 2, 2010 5:48 am

Last Updated: September 2, 2010 6:50 am

The IMF seems to believe that if it showers the world with enough information about the finances of developed and emerging nations that it can fix their economies by the power of its arguments. If it were only that simple.

The agency issued its “Staff Position Note” about the “Long Term Public Finances in the G-7 Countries.

The last period in which major nations build up deficits was from 1965 to 1985, and then the money was used to improve healthcare and other social benefits. Aging populations will cause these kinds of expenditures to rise just as the red ink created by stimulus packages hits nation’ debt. The IMF has nothing new here. It is not more than what most college educated people have known for over a year.

The answer to the conundrum that the IMF describes is stronger financial systems, eventually more austerity, and what the agency calls “an appropriate degree of burden sharing across all stakeholders” This a complicated way to say that the tax burden will rise unusually high in the G-7 countries and will not come down during the foreseeable future.

The IMF expects that economic expansion among G-7 nation will be slow enough that the public debt as a percent of GDP will go from 70% in 2007 to 115% in 2015. Among emerging nations, growth will allow public debt to fall from 38% of GDP to 35% over the same period. This is the estimate for the G-20 nations less the G-7.

The IMF prescription is as facile as it is impossible. Grow of die. Tax or default. The agency fails, like all public institutions that analyze the sovereign debt problem, to offer any real solutions. That is because there is none, which could be stated at the start of most analyses and left at that.

Politicians in major countries have become fond of boasting that their stimulus packages saved the world from financial ruin. Instead, the financial situations of most major nations will simply bleed out slowly and the problem of their debts will be passed from one generation to another. But, it is not that simple. People in these countries will live in a level of “poverty” as they age compared to those born before 1945 and who will die in the next decade. Although deceased, financially they will have been the lucky ones.

Douglas A. McIntyre

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