More Advice from the World’s Greatest Financial Minds

In an op-ed piece for the Financial Times, IMF chief Christine Lagarde wrote about the world’s current economic and sovereign debt troubles: “So there are no easy answers. But that does not mean there are no options.” Lagarde can be thanked for those pearls of wisdom. They are nearly meaningless, particularly in light of the balance of her observations and suggestions.

The IMF MD believes that no one economic or financial solution suits all nations the same. “So fiscal adjustment must resolve the conundrum of being neither too fast nor too slow,” she writes, as if national economies have speeds that can be set by the equivalent of a car accelerator.

Lagarde is worried about the effects of austerity, as nearly every economist is. Government spending cuts married with higher taxes are a formula, many believe, that undermines whatever GDP growth is left in the developed nations. It is worse for those countries with GDPs that have contracted. Government expenditures may be the single most important component to economic expansion.

Lagarde’s most important observation, at least based on emphasis, is this:

In some countries, they seem to be pushing for sharp fiscal adjustments. And some policymakers have decided that is the road to follow. But in many countries a short-term focus would be wrong. We should remember that markets can be of two minds: while they dislike high public debt — and may applaud sharp fiscal consolidation — as we saw last week they dislike low or negative growth even more.

She would find that even in Washington, where there is an argument to be made and capital available to launch a new set of stimulus programs, there is no will to do so. The market for U.S. debt remains unusually strong. But, the deficit issue in America is past the point where federal investment in the economy is an option. And it is much worse in nations from Italy to the UK, which face deep skepticism from global capital markets as to whether they have debt loads they can viably carry in a period of no GDP growth.

Lagarde is new to the IMF job, but not to the world of international finance. She was the finance minister of France. She already knows, no matter what she wrote for the FT, that “short-term” focus has become the core of the fiscal policies of all of the developed nations, and there in no momentum in any other direction.

Douglas A. McIntyre