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IMF paper warns of 'savings tax' and mass write-offs as West's debt hits 200-year high
I read in the paper this morning the following headlines in the morning daily blat: "Manufacturing Expands" and "Fewer Apply for Jobless Aid"--the usual AP Pollyanna business headlines you'd expect from AP (also known as Aw-Pee) to show how good the recovery is doing that is coming from the Obama administration. The following article paints a far more dismal picture. Maybe it is time to take the greenbacks out of the safety deposit box and spend them on a big screen TV and new car since they are looking like they will become worth less and less. Of course, the IMF says a lot of things.Much of the Western world will require defaults, a savings tax and higher inflation to clear the way for recovery as debt levels reach a 200-year high, according to a new report by the International Monetary Fund. The IMF working paper said debt burdens in developed nations have become extreme by any historical measure and will require a wave of haircuts, either negotiated 1930s-style write-offs or the standard mix of measures used by the IMF in its "toolkit" for emerging market blow-ups. "The size of the problem suggests that restructurings will be needed, for example, in the periphery of Europe, far beyond anything discussed in public to this point," said the paper, by Harvard professors Carmen Reinhart and Kenneth Rogoff. The paper said policy elites in the West are still clinging to the illusion that rich countries are different from poorer regions and can therefore chip away at their debts with a blend of austerity cuts, growth, and tinkering ("forbearance"). The presumption is that advanced economies "do not resort to such gimmicks" such as debt restructuring and repression, which would "give up hard-earned credibility" and throw the economy into a "vicious circle". Financial repression can take many forms, including capital controls, interest rate caps or the force-feeding of government debt to captive pension funds and insurance companies. Some of these methods are already in use but not yet on the scale seen in the late 1940s and early 1950s as countries resorted to every trick to tackle their war debts. The policy is essentially a confiscation of savings, partly achieved by pushing up inflation while rigging the system to stop markets taking evasive action. The UK and the US ran negative real interest rates of -2pc to -4pc for several years after the Second World War. Real rates in Italy and Australia were -5pc. Posted by: JohnQC 2014-01-03 |
| http://www.rantburg.com/poparticle.php?ID=382916 |