It would be hard for the news about the financial status of the US to be worse. The debt cap may not be increased by August 2. Rating agencies have warned of cuts in the grade of US paper. Jobless claims have not improved. Q2 GDP was no better than 2%
The IMF has decided to pile on. It has just released its “Concluding Statement of the 2011 Article IV Mission to The United States of America”, which was finished on June 20.
The agency predicts US GDP growth will be below 3% for six years, much worse than the long-term predictions of the Administration or the Congressional Budget Office.
The report states that:
Looking ahead, we expect growth to remain relatively modest, as private demand recovers only slowly and fiscal policy support is withdrawn. We project GDP growth of 2½ percent in 2011 and 2¾ percent in 2012, with a slow decline in unemployment. With sizeable slack, core inflation should remain subdued, despite recent commodity price increases.
The GDP forecasts remain below 3% through 2016.
The data will make the Congressional debate about austerity versus taxes more heated. The Obama stimulus package which went into effect shortly after he was elected may have worked–slight. A number of economists, which include Paul Krugman, argued that investment was not enough. Obama has begun to push for smaller, more concentrated programs to move the economy higher this year.
If the IMF is right, the efforts to lower the deficit and attack the speed at which the national debt will grow are almost certain to fail.
Douglas A. McIntyre
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