Monday, October 08, 2007

IMF Warns of Serious Crisis

Kevin Depew of Minyanville, quoting from the Financial Times, today offers:

1. IMF Warns of "Serious Crisis"

Rodrigo Rato, outgoing managing director of the International Monetary Fund, warned that the credit squeeze was a “serious crisis” that was not over yet and would curtail growth worldwide, the Financial Times reported.

  • “Policymakers should not think that the problems will stay at the desk of the bankers,” Rato told the FT.
  • “Problems are going to come to the real sector, come to the budgets – that is something we keep telling people.”
  • The outgoing IMF chief said many of the big emerging markets are growing rapidly, but “to what extent they will keep that momentum will depend on how long the slowdown is in the US and Europe."
  • Wait a minute, did we say, "outgoing" IMF director?
  • Indeed we did, which admittedly takes some of the sting out of Rato's warnings.
  • It's a bit like when you take a new job, get drunk at your celebratory party, and blab to everyone about how your old firm is horrible and will probably collapse into bankruptcy without your genius to rely on anymore.

2. But Wait, There's More

Outgoing IMF Director Rodrigo Rato also told the Financial Times the U.S. dollar is now “undervalued” on many measures, a statement which the FT gushed is "an unusually bold assessment."

  • Is it? Is it really an "unusually bold assessment"?
  • We're not so sure.
  • First, the U.S. dollar index is down more than 2% in the past 30 days alone, and down nearly 6.5% year-to-date.
  • Over the past 18 months it's down 14%.
  • And now we're seeing the inevitable stories rushing to embrace the decline as positive for business.
  • Bloomberg boasts "Weak Dollar Boosts Growth Without Fueling Inflation."
  • "The dollar is in a quasi-sweet spot,'' Joseph Quinlan, chief market strategist at Bank of America (BAC), told Bloomberg.
  • "It's dropped enough that it's creating an earnings upside for U.S. multinationals, while I expect many foreign companies to hold the line on prices they charge U.S. consumers.''
  • Too bad those those are two different and unrelated things: earnings upside for multinationals, and domestic pricing power.
Meanwhile, I'm reading Sweezy & Magdoff's "The Irreversible Crisis" (Monthly Review Press). They offer an incredibly compelling framework for understanding exactly what the heck is going on in the world economy. Best 10-bucks you'll ever spend, irregardless of your politics.

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