Investing

IMF: Budget Cuts Will Hurt Growth

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Among the profound conclusions in the IMF’s new “World Economic Outlook” is that “initially fiscal retrenchment typically has contractionary short-term effects on economic activity, with lower output and higher unemployment.”

The statement is obviously true. The economies of the world’s developed nations are already beset by slow GDP improvement and high unemployment. Actions by governments to put into place austerity measures and withdraw stimulus might burden some economies more than they can bear.  That could plunge some nations back into deep recessions.

The IMF’s assumption is that austerity will eventually be its own reward. In some distant future, deficits will come down, and with them the need for higher taxes. That, in turn, should help stimulate GDP growth.

The IMF’s best suggestion as the world waits for a recovery is that statutory retirement ages should be linked to life expectancy and that entitlement programs should be more efficient. This is academically a reasonable point of view. The populations of many large nations have begun to age. People on average live longer. The poor are sustained to a large extend with government aid. The same is true of the ill and disabled.

The IMF’s suggestion has a great deal of support in economic theory but nearly none in the political and social realities of countries such the US and the nations that make up the EU. Politicians in America are appropriately frightened to ask voters to take less in Social Security, Medicare, and Medicaid. People who want to be elected or re-elected to the Congress know that they must stand in favor of these programs, even if it means they face insolvency at some time in the distant future.

The social unrest tied to austerity is worse in Europe, at least for now. There have been labor strikes over plans by governments to cut wages and benefits. That agitation will only get worse.

The IMF has the advantage of being an intellectual body which can analyze and make proclamations about what governments should do to solve their problems. It is clear by its new recommendations that it does not have to face those troubles itself.

Douglas A. McIntyre

Credit Card Companies Are Doing Something Nuts

Credit card companies are at war. The biggest issuers are handing out free rewards and benefits to win the best customers.

It’s possible to find cards paying unlimited 1.5%, 2%, and even more today. That’s free money for qualified borrowers, and the type of thing that would be crazy to pass up. Those rewards can add up to thousands of dollars every year in free money, and include other benefits as well.

We’ve assembled some of the best credit cards for users today.  Don’t miss these offers because they won’t be this good forever.

 

Flywheel Publishing has partnered with CardRatings for our coverage of credit card products. Flywheel Publishing and CardRatings may receive a commission from card issuers.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.

AI Portfolio

Discover Our Top AI Stocks

Our expert who first called NVIDIA in 2009 is predicting 2025 will see a historic AI breakthrough.

You can follow him investing $500,000 of his own money on our top AI stocks for free.