Can It Get Worse – IMF Warns Of Fallout From Credit Crunch

| October 8, 2007

A few weeks ago the Fed massively cut rates, essentially stepping in to free up money that the banks and large investment firms could not or would not. Most observers would expect that the credit crisis had largely passed, and in fact the press trumpeted such.

In my opinion all they did was kick the can down the road, and in doing so raised the debt of pain we will have to pay later. Honestly, I hope the money people of this world are sitting on some big super cool secret that will ensure we don’t have to have a big nasty global downturn to try and correct the excesses and imbalances of the past 10 years or so, but I don’t think my hope will carry the day.

So now to back up some of my “gut” with words from the International Monetary Fund (IMF) who are likely more in tune with what is happening than I am.

From the Financial Times of London: IMF head warns on impact of credit crisis

The credit squeeze will force governments worldwide to make substantial changes to their budget plans, Rodrigo Rato, outgoing managing director of the International Monetary Fund, has warned.

Mr Rato said the credit squeeze was a “serious crisis” that was not over yet and would curtail growth worldwide.

“Policymakers should not think that the problems will stay at the desk of the bankers,” he said. “Problems are going to come to the real sector, come to the budgets – that is something we keep telling people.”

The credit crisis was “not a storm in a teacup,” the IMF managing director said.

Mr Rato said emerging markets with large current account deficits would be much more vulnerable to changes in the availability and price of credit than those in a “more balanced situation”.

How this whole thing turns out is anyone’s guess. The slow down is not being led by reductions in consumer spending (see prior posting about consumers burning through credit cards), but by the biggest, most sophisticated financial players in the business. If nothing else it will be amazing to watch unfold. If you want to prepare, minimize debt and maximize liquid cash (probably good news for any time).

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Category: Credit Backlash, Economics, Geopolitics

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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