IMF Gets in Halloween Spirit with Report
Most talk of an “October surprise” is focused on the U.S. Presidential election, but the International Monetary Fund may have beaten political operatives to the punch.
In its October Financial Stability Report, the IMF painted a picture that should send a chill down the spine of consumers, investors and governmental officials with any lingering concerns about the economy. Titled “Steadying the Course: Financial Markets Navigate Uncertainty,” the report presents a vision of a global financial community confronted with a stream of vulnerabilities in a sea of uncertainty.
While acknowledging that current conditions are fairly stable and accommodative, the IMF cannot help but fall back on the central tendency of economists to see the prospect for bad times ahead. This dismally pessimistic perspective informs the report’s conclusions and sets a dark tone for the coming months.
Despite financial and fiscal policies mitigating short-term risks, the IMF said those policies could have a very different impact down the road and “facilitate the buildup of vulnerabilities … which raises risks to financial stability in the future.”
It is this kind of bleak outlook that is a hallmark of economic forecasting and leaves many ordinary consumers feeling cold and depressed no matter how flush they might feel right now. But it is not surprising.
Economists are definitely a glass-half-empty group. In fact, some would look tirelessly for the possibility of leaks in the glass. And few, if any, economists would jettison the traditional cautiously negative posture of the discipline and ever see the glass as hall full —let alone overflowing.
It is also the foundation of a little-too-on-the-nose joke that economists’ predictions are so often off the mark that they make weather forecasters look reliable. But the truth is meteorologists know they can’t control the weather. It is less clear if all economists know they can’t control the economy. But that doesn’t seem to preclude them from focusing on the downside risks as their natural position.
Saying vulnerabilities “are mounting in the financial system,” the IMF report suggests the emergence of non-bank actors in the global economy call for more active regulatory and supervisory engagement by governments. Of course, that recommendation is about as welcome on Wall Street as a skunk in the punch bowl and is as likely to depress economic growth as maintain a level of stability in the banking system.
While most bankers accept the inevitability of oversight as part of the cost of doing business, that doesn’t mean they welcome it with open arms. And though the IMF policy suggesting has merit, the concept as presented creates a lose-lose situation for government regulators and financial services institutions – which even the IMF acknowledges.
“Policymakers should tighten macroprudential tools to increase resilience against a range of shocks while avoiding broad tightening of financial conditions,” the report said. A good idea in principle perhaps, but ultimately as realistic as when the Egyptians told the Hebrews to make bricks without straw or telling a baker to make a cake without breaking any eggs.
