IMF says: inflation risks remain, US will tank, EU will be OK, avoid moral hazard
IMF has just released excellent (as always) World Economic Outlook. You can find a chapter on inflation here and on financial distress and recessions here .
The main conclusions are (briefly) as follows:
- Inflation risks remain elevated, especially in EM, policy failure to address this risk may worsen inflation output trade-off in the future
- Banking sector crises tend to produce recessions. They are deeper when households are highly leveraged, when prior to shock housing prices were going sharply up and with growing arms-length financing. Conclusions: US is facing recession, Europe will do better. Another conclusion: recapitalize banks and avoid moral hazard. I wish Mr Paulson and Senate read WEO before they did what they did.
2 responses to "IMF says: inflation risks remain, US will tank, EU will be OK, avoid moral hazard"
I get through the TRAP bill text and I found that Treasury has granded permition not only buy the trubled assets from the banking sector but also to directly inject capital if needed. So the final version of the bill now goes along your call to allow treasury to buy stakes in banks
Correct, this is much more promising path. In the meantime we shal see whether Fed becoming commercial paper investor will make a difference.
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