A brief review of economic conditions in the UK and the United States per the IMF

The IMF on the British economy

Here is something most interesting because it stands in stark contrast to the failing economic policies of the Obama Administration: over the weekend, the International Monetary Fund (IMF) said that the British government's fiscal deficit reduction plan both "supports a balanced recovery" and is "essential" to the stability of the country. France, Germany, Spain and Greece are among several European nations doing much the same thing. This, in spite of the fact that Mr. Obama took time and the American taxpayer's money to visit Europe earlier this year in an effort to convince them to continue or increase spending allocations.

In its news release, the IMF had this to say: "The government's strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability. The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery." IMF officers admit that short-term growth may be "weakened," but that this will not stop economic expansion in the long term.

The IMF on the US economy

In separate statements, the IMF, also, issued comments directed at the the US economy. Earlier this year, the IMF predicted a GDP growth rate of 3.3% for the coming fiscal year. That was reduced to 2.6%. Understand that net job creation begins at 2.5% and last year's adjusted GDP final numbers came in at a very discouraging 1.7% growth rate (for GDP). The IMF compared this recovery with past recessions and concluded that growth would be "far weaker than in previous recoveries." The report went on to say that “Much of the weakness of this recovery is due to sluggish personal consumption,”which counts for 70% of our national economy.

Several "causes" were cited for this forecast: 1) persistent and low employment numbers, 2) tightening credit, 3) a deterioration in household wealth including falling home prices and 4) a increased desire to save money .

To make matters worse, the IMF sees unemployment averages remaining at high levels. Earlier in the year, the Fund estimated US unemployment would average 8.3% for 2011. In the most recent report, that has been amended to 9.6%.

Midknight Review wonders where the IMF came up with its former prediction in the first place. At the time they made their initial prediction, almost no one in this country thought they were on the right track. The chart to the left presents Labor Department unemployment numbers for the current year. There is nothing on that chart that would even hint at an 8.3% average forecast. In fact, at the time of their April prediction, unemployment numbers were on the increase, yet they waited until now to make the obvious correction.

Leaving that little criticism behind, the Fund went on to make this point: “Market nervousness about the fiscal position of the United States could cause an international increase in interest rates.” They are talking about the continuing and increasing practice of deficit spending. The implicit suggestion in these words has to do with a loss of confidence on the part of those who loan money to the US (China, Japan and others). The IMF is suggesting that a time is nearing when the US will need to promise an increased interest rate in order to sell the bonds it needs to finance its continuing debt. Currently, we finance 43% of our expenses via borrowed money. That eventuality will complicate economic issues for coming Administrations 10 and 20 years from now. Clinton increased the sales volume of 10 year bonds, making life more difficult for the Bush administration when those bonds reached maturity. Bush did much the same thing. Obama is following suit only "on steroids."

Some good news

There is some good news in all this reporting. Business is increasing its equipment investments to the tune of 25%, the highest rate of investment since 1983. All they need is customers !!!

Obama's failed strategy detailed

It is more than astonishing that the current Administration came into office not understanding the critical nature of the economic downturn, doing nothing substantially about the needs of small business and the jobs market. Most people do not know but the so-called "Stimulus" allowed only 3% of its funds to be spent for "infrastructure repair and contracts." A year and a half after its passage, only 53% of this paltry percentage has been spent. Obama's jobs strategy was this, allocate next to nothing, take three years to get that money out into the community and, in the meanwhile, spend like hell to help your friends and union funds. According to Obama's own numbers (found at recovery.gov), the total numbers of people currently working because of the Stimulus is a little over 750,000 people -- not 3.5 million.

Point of post: to offer a brief summary of current conditions as relates to specific considerations regarding the US and British economies. In so doing, we hope to expose the deficit mentality in continuing deficit spending.

Conclusion: mission accomplished.

Text by J David Smithson
Editor

Related article: IMF warns world economies of the critical need to work together.