The International Monetary Fund is an immensely useful organization, able to deliver substantial amounts of financial and technical assistance at short notice to almost any place in the world. It also has the great advantage of almost always being perceived as incredibly boring.
Unfortunately for the IMF, it now needs a slightly higher public profile to convince the US Congress to agree to some important reforms. The Ukrainian crisis may prove helpful, though that appears less likely now – which may be a good thing to the extent that one unintended consequence could be a loan to Ukraine that is larger than it really needs.
With regard to financial reform, the outcome of the November election seems straightforward. At the presidential level, the too-big-to-fail banks bet heavily on Mitt Romney and lost; President Obama received relatively few contributions from the financial sector, in contrast to 2008. In Senate races, Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio demonstrated that it was possible to win not just without Wall Street money but against Wall Street money. Read More »
Most current policy discussion concerning the euro area is about austerity. Some people, particularly in German government circles, are pushing for tighter fiscal policies in troubled countries (i.e., higher taxes and lower government spending). Others, including in the new French government, are more inclined to push for a more expansive fiscal policy where possible and to resist fiscal contraction elsewhere.
The recently concluded Group of 20 summit meeting is being interpreted as shifting the balance away from the “austerity now” group, at least to some extent. But both sides of this debate are missing the important issue. As a result, the euro area continues its slide toward deeper crisis and likely eventual disruptive breakup…
The news from Europe, particularly from within the euro zone, seems all bad.
Interest rates on Italian government debt continue to rise. Attempts to put together a “rescue package” at the pan-European level repeatedly fall behind events. And the lack of leadership from Germany and France is palpable – where is the vision or the clarity of thought we would have had from Charles de Gaulle or Konrad Adenauer?
The summer debate that has dominated Washington seems straightforward. Under what conditions should the U.S. government be allowed to borrow more money? The numbers that have been bandied about focus on reducing the cumulative deficit projection over the next 10 years, as measured by the Congressional Budget Office.
But there is a serious drawback to this measure because it ignores what will probably prove to be the U.S.’s single largest fiscal problem over the next decade: The lack of adequate capital buffers at banks.