IMF Blanchard: fiscal expansion could exceed 3% GDP, if necessary
Olivier Blanchard, IMF chief economist had an interview with Le Monde. If you do not read French don’t worry, below are few quotes taken from Google live translation from French to English? By the way, is translation a dying business, Google seems to be doing a decent job.
“The coming months will be very bad. It is imperative to stem this loss of confidence, revive and, if necessary, replace private demand, if we want to prevent the recession from turning into Great Depression. Of course, under normal circumstances, we recommended that Europe to reduce those deficits. But we are not normal times. […]. The principle of these measures has indeed been accepted by all countries from the G20 meeting in Washington and the European summit in the Elysee that took place in mid-October. Unfortunately, they are being implemented too slowly. The behavior of U.S. authorities lacked consistency and clarity. In Europe, the balance sheets of banks are still partly fictitious and the purchase of assets relates to negligible amounts. The result is that banks continue to liquidate their positions. They repatriate in considerable capital they had invested abroad. . It is estimated that their claims on emerging countries reached 4000 billion dollars [2872milliards euros]. Billions of dollars have left the country in recent months. […] We need governments and central banks clearly indicate they are ready to do everything to avoid another Great Depression. For the moment, a fiscal expansion of 2% seems sufficient. But, if circumstances so require, States must be prepared to do more, 3% or more if necessary. We must think about now, because it is not easy to spend effectively such masses of money!”
Olivier last comment is particularly relevant. The wall of public money involved in fighting crisis topped 12 trillion US dollars (including quaranties), which is equivalent to 15% of the world GDP. Are we using these funds wisely or as we just found that US banks that received state aid did not know where these funds went, as they were not booked properly. If we don’t do it right, the Madoff 50 billion fraud will be a peanut comparing to 12 trillion state bailout using tax payers funds.