IMF chief Christine Lagarde is worried that public finances around the world threaten to undermine the global recovery.
Despite deteriorating finances, the IMF urges strong countries to spend more and the weaker ones to cut budgets less.
The US allegedly has “strong finances”.
Before we get into US finances, please consider IMF Fears Worsening Public Finances Threaten the Recovery.
Public finances across the world are deteriorating, threatening to undermine the global recovery, the International Monetary Fund warned on Wednesday.
Urging nations to find a “comprehensive policy package” to improve growth and public finances, the fund said action was urgently needed to reduce vulnerabilities in the global economy it has been highlighting in Washington this week.
In its twice-yearly fiscal monitor, the fund’s assessment of public finances across the world, the IMF said that the fiscal positions of most of the world have deteriorated with many previously identified risks such as lower growth and higher debt now a reality in both rich and poor countries.
High debt, low inflation and low growth have added to fiscal pressures in advanced economies, increasing the burden of public debt compared with previous forecasts. As a result, the ratio of debt to national income — currently 107.6 per cent of national income — is now only expected to begin to decline in 2017.
[Mish comment: expect massive revisions to the IMF’s forecast improvement between now and 2017]
The IMF endorses a “horses for courses” approach to dealing with growing stresses on public finances and highlights the urgent need to improve sustainable growth and inflation rates as the best way of creating stable public finances in the medium term.
The fund also urged governments of advanced economies to do everything to make their fiscal policies as supportive of growth as possible, even if they were engaged in an austerity drive. It called on countries with strong public finances, such as the US and Germany, to increase investment to raise growth now, while also putting in place a medium term plan to reassure financial markets that spending would not get out of hand.
Spend More Now, Worry About Medium Term Later
USA Fiscally Strong
Like you, I was pleased to learn of the improving US fiscal condition.
Since the IMF always has its facts in order, I almost did not bother looking this one up.
But I did, and I was stunned to discover this Bloomberg report from January 2016: CBO’s Budget-Deficit Projection Widened on Lower Tax Revenue.
The Congressional Budget Office projected a wider deficit for this fiscal year and bigger gaps in the coming years, after lawmakers approved about $680 billion in revived tax breaks over the next 10 years.
The CBO is forecasting a budget gap of $544 billion this year, according to a report released Tuesday in Washington. That compares with a $414 billion deficit projected in August, and the 2015 deficit of $439 billion.
“If current laws generally remained unchanged, the deficit would grow over the next 10 years, and by 2026 it would be considerably larger than its average over the past 50 years,” the office said.
CBO Report
Because I was positive the IMF was right and the above article wrong, I went digging into the CBO Report only to discover things appear more dire than Bloomberg reports.
CBO anticipates that mandatory outlays will be $168 billion higher in 2016 than they were last year. A significant component of that growth is Social Security outlays, which are expected to increase by about $28 billion (or 3 percent) – a percentage that is smaller than last year’s, primarily because beneficiaries did not receive a cost-of-living adjustment in 2016 but did receive one in 2015. Nevertheless, because the program is so large, even that smaller-than-average increase accounts for one-sixth of the growth in mandatory spending for 2016.
Mercy!
- What happens if the Fed gets the inflation it wants?
- What happens if there is a recession?
- What happens if both the above happens?
Wait a second. Forget those questions. I figured out the IMF’s brilliant plan.
IMF’s Brilliant Solution
- Spend more now
- Worry about the medium term later
- Ignore the long term
The IMF’s brilliant plan is guaranteed to work because the medium term eventually becomes the short term and we never have to worry about the long term.
It’s that kind of thinking that gets you the big bucks.
Recall that Christine Lagarde, Who Chastised Greek Tax Evaders, Pays No Taxes.
Lagarde’s brilliance is precisely why she gets paid $550,000 annually in salary and expense money tax free while the rest of us pay taxes.
Besides, it’s not evasion if it’s part of the deal. You just have to be in the club to get deals like that.
How does one get in the club? With brilliant thinking as I outlined above.
Mike “Mish” Shedlock
I’m a big fan of the annotated pictures Mr. Shedlock. Keep up the good work. You might consider adding ’emphasis mine’ below the pictures. I could imagine that some of the photographers might not enjoy them as much as I do. Why doesn’t she pay taxes?
Mz. Christine is exempt from paying taxes as IMF Chief.
Despite deteriorating finances, the IMF urges strong countries to spend more and the weaker one to cut budgets less.
The US allegedly has “strong finances”.
Sounds like LaGarde is trying to cast a Colorado Republican caucus welfare vote while the gitten’s still good.
Just more Keynsian Endgame Gibberish.
Today south Carolina republican delegates appear to have abandoned trump in a contested convention scenario. Trump must win outright on the first ballot and get to 1237 otherwise it would appear cruz is going to become the nominee.
When Goldman Sachs speaks, everybody listens.
And even if The Donald does get the 1237, don’t be surprised if the Grand Old Boys figure out a way to screw him out of the nomination anyway.
Nope, Trump can win on the first round – and will – with a little more than 1,000 delegate votes.
As Woody says to Buzz Lightyear after Buzz says, “This is no time to panic.”
Woody:
“What do you mean?! This is a perfect time to panic!”.
I’m afraid. I’m very afraid.
The French would be an international laughing stock if they did not have so much competition from the likes of Venezuela, Russia, Jamaica, Puerto Rico, Italy, Spain, Greece, Mexico, Chicago, Saudi Arabia, Libya….
Mz. Chrstine is obviously dumber than a bag of broken bricks. The problem with public finance around the globe is that it is SPENDING GOVERNMENTS INTO INSOLVENCY and the SOLUTION IS TO CUT SPENDING DRASTICALLY which is obvious to anyone with even a single functioning synapse.
It is impossible for the US government to become insolvent. Please check your synapse.
1. Mish, you are f*#$ing hilarious! This post had me laughing out loud.
2. The one thing that Mish naysayers and Recession / market crash deniers are right about is that the powers that be have been able to extend this U.S. stock price dream for 7 years, and there is no proof that they can’t keep doing it for 7 more years. The economic numbers cannot be argued – just about everything sucks economically. But that doesn’t mean we’ll have a market correction inside of the next decade. Then again, it could happen this summer. Nobody, not even Mish knows…
I am personally going on record to predict that there will be a recession and market correction in the future. You heard it here first.
“Public finances across the world are deteriorating, threatening to undermine the global recovery, the International Monetary Fund warned on Wednesday.”
There has been no recovery. Public finances are not the economy.
Capital comes from savings. Savings are being destroyed.
The FED has been on ZIRP since 2008. That is not a recovery. That is called peddling fiction.
“Lagarde’s brilliance is precisely why she gets paid $550,000 annually in salary and expense money tax free while the rest of us pay taxes.”
Obama never complains that she isn’t paying her fair share.
I suspect printing asset bubbles is a roundabout way of forcing the fisc to build the Keynesian pyramids that Christine et al want. Trick private industry into building empty McMansions and such by manipulating prices, then demand that the fisc bailout bank loans extended for construction of those Keynesian pyramids.
Of course, Keynes was wrong. Ancient Egypt was successful because of rich Nile banks were good for crops, not because they built pyramids. The whole stimulation thing is based on a fallacy.