Wednesday, April 19, 2006

The Confused Thinking of the IMF

The IMF, with a long track record of calling for countries to pursue policies which then aggravated their economic crisis, have now offered its advice for the ECB. The ECB should according to the IMF "not rush" to normalize interest rates from its current absurdly low levels. In a time when commodity prices are going through the roof, the IMF claims that inflation is "subdued" and that domestic demand is "fragile", overlooking the fact that the switch from a current account surplus to a current account deficit indicates that domestic demand is growing rapidly, more rapidly than supply.

It gets worse, as they in the same report notes that "``Elevated'' house prices in Spain and Ireland could also undermine the economy, it said.". Actually, it's not just in Spain and Ireland that house prices are "elevated" and this imbalance is of course caused by the fact that the ECB have followed the IMF:s advice not to rush to normalize interest rates. Thus, in this report IMF calls for the ECB to aggravate the problem they worry about in the same report. This is a clear example of the incompentence that is behind the fact that countries that implement IMF policies usually see their economic crisis worsen.


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