Disclaimer: I am by no means an economist, and admittedly a skeptic by nature.
That said, which is it, International Monetary Fund: Is the world headed for steady growth through 2018, or is the global economy facing imminent risks that could cause a global collapse? The much-maligned IMF can’t seem to make up their mind.
On October 10th, the Wall Street Journal published an article with a somewhat deceptive headline:
IMF Raises Global Economic Outlook for This Year and 2018
For those who aren’t completely aware, the IMF is a branch of the United Nations, whose member nations are many, both rich and poor. According to their own site, they carry out several tasks that help explain why so many blame them when events – a world economic collapse, as one example – occur.
Here’s the IMF’s own definition of the tasks they carry out:
‘Surveillance involves the monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention. The IMF also lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also aimed especially at poverty reduction. Third, the IMF provides countries with technical assistance and training in its areas of expertise. Supporting all three of these activities is IMF work in economic research and statistics.’
Without using so many words, they are tasked with remaining constantly vigilant regarding the soundness of financial practices and developments worldwide, especially ones that could lead to financial crises such as a crash.
In addition, they lend money to countries – primarily developing, third-world, resource-rich countries, often handing that money to corrupt governments who rarely use the funds for the intended purpose that would, in theory, better their people and nation’s standing.
Keep in mind that the IMF works in conjunction with the World Bank in order to lend out the money it does. The Heritage Foundation elaborates on why the IMF’s system of lending money, and the World Bank’s role in providing said money is ‘the problem, not the solution’ to global poverty.
On their lending practices:
‘their lending practice deters growth because the money they loan removes incentives for governments to advance economic freedom, and breeds corruption. For these reasons, the vast majority of recipient countries have been unable to develop fully after depending on these institutions for over 40 years.’
They go further in their scathing reviews, adding into the mix the International Financial Institutions Advisory Commission, or IFIAC.
‘The IMF has given too little attention to improving financial structures in developing countries and too much to expensive rescue operations. Its system of short-term crisis management is too costly, its responses too slow, its advice often incorrect, and its efforts to influence policy and practice too intrusive.’
But that isn't it…
‘High cost and low effectiveness characterize many development bank operations as well. The World Bank's evaluation of its own performance in Africa found a 73% failure rate.... In reducing poverty and promoting the creation and development of markets and institutional structures that facilitate development, the record of the World Bank and the regional development banks leaves much room for improvement.’
A 73% failure rate in even just reducing poverty. So, why do we need the IMF again?
If they are so inept at their mission of lending money to poor countries to reduce poverty and enhance the financial systems in those countries, why do we put faith in them to fulfill their other stated mission of monitoring financial and economic developments, as well as administering financial advice to, among others, investors?
The quick answer: we shouldn’t trust them. They are a multi-national organization which lends yet also professes to be a watchdog of lending practices. It’s a contradiction of interests. And, lately, their contradicting reports on how the global economy will perform in the unpredictable, yet likely near future expose just how untrustworthy the IMF is.
The headline I mentioned previously, that the IMF expects steady global economic growth through the next couple years, has been undercut by more recent reports, including their own, and even a simple accounting of world events and economies.
As someone who is not an economist, I cannot say that growth and financial stability of major national economies are linked, but I would think that they would have some significant connection. Even if not, the IMF-release report implied a rosy future that screams ‘Invest!’ to the world’s citizens. Yet, only two days before that announcement on worldwide economic growth, the IMF had announced a much more dire accounting of how the financial climate will look going forward. In light of this, their report on ‘global economic growth’ seems inconsequential at best, and deceptive at worst.
The headline from (the admittedly low-brow) Daily Mail reads:
Debt binge of £203 Billion threatens to sink the UK economy as the IMF warns of a new financial crash looming
In the case of England, unsustainable household levels of debt – one of the core causes of the 2007 recession – are likely to lead to a situation where the borrowers cannot pay their lenders, with mortgages at the center of this unpayable debt.
The housing market’s irresponsible lending practices leading to global economic collapse. Sound familiar?
Weren’t we (and by we, I mean financial institutions such as the IMF and World Bank) supposed to have learned from our mistakes that caused the 2007 recession?
Even two years ago, The Guardian reported on the IMF’s warnings of a ‘global financial crash’ soon to come. Don’t take this as proof that the Guardian cried wolf and that all is fine and dandy. Take this as a sign that the potential crash is closer than ever.
Yet, another article in The Guardian illuminated how the IMF, the Fed, and other financial regulatory institutions have again put worldwide investors, their personal savings, and the global economy at risk by, apparently, not learning from the lessons of the past at all. It’s almost like some people might stand to gain from global financial meltdowns, perhaps via the process of shorting (betting against) certain markets and economies.
This time, the Guardian couched an IMF warning in far too favorable terms:
Won't get fooled again: IMF warning shows it's learned from past errors
The article notes that prior to 2007, the IMF ‘failed to notice’ that the world’s economy was about to crash. Could they really be that incompetent? But, now, the IMF is warning us of a similar crash only ten years later. So what lessons, exactly, did they learn from 2007? Because, if potential collapse is to come in the near future, clearly vigilance toward the world marketplace, sound lending and investing practices, etc. were not one of the practices they ‘learned’ to adopt as a result of 2007.
The warning is nice. But for many, it represents only ‘too little, too late,' especially as this ‘warning’ was not even front page news in respected news outlets such as the Wall Street Journal. This looks more like a cover-their-ass maneuver than one that signals ‘true change’ within the long-incompetent – and some would say malevolent – IMF.
Insolvent or near-insolvent governments, the economic effects of Brexit, and long-too-low interest rates and overzealous Quantitative Easing are the primary factors the IMF attributes to the looming market crash. Which are all things that the IMF should have been not only spotting sooner, but regulating and protecting the public against.
Because, after all, they ‘learned’ from 2007, right?
Which, again, makes one wonder how they could have announced that they predict growth through 2018. Perhaps they are being genuine, and the global economy will remain largely unaffected until, say, slightly after 2018. But in the end, it doesn’t matter. At the end of the day, the IMF, World Bank, and Fed have failed investors and regular citizens once again.
Nigeria is in trouble. The (admittedly tiny) Bahamian economy faces a stock “death spiral.” Brexit and the tenuous state of the EU signals financial chaos, which will further expose several failed states currently propped up by the more prosperous EU members. Venezuela speaks for itself. To boot, one of the world’s most ‘successful’ hedge funds, Bridgewater, has been called by analyst Richard Grant, essentially, a Ponzi scheme. That is a gigantic threat to the American economy in and of itself.
As for the global state of debt? Phoneix Capital Research has likened it to a ‘global debt Ponzi scheme.' That was back in 2015.
And yet, the IMF was supposed to have learned to prevent such massive problems after 2007. Somehow, they seem to have proliferated in the past ten years.
But hey, at least they are warning us of their incompetence/willful malevolence juuust before the shit hits the fan. A lot of good that does investors, most of whom are insufficiently aware of these collective threats to their savings, and will only find out when it is too late.