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KABUL – The world is on the brink of another financial crisis, and the International Monetary Fund (IMF) appears to be in a state of denial, according to a report by ‘The Telegraph.’ With the looming threat of conflict in the Middle East, soaring energy prices, and governments grappling with mounting debt, the perception of an ongoing global crisis is becoming increasingly evident.
The IMF’s chief economist, Pierre-Olivier Gourinchas, insists, “Our projections are increasingly consistent with a soft-landing in the global economy,” despite the turmoil. Tobias Adrian, the head of the IMF’s financial stability division, downplays the recent bond market turmoil that has led to higher government borrowing costs, suggesting that there is “nothing to see here.”
Even Janet Yellen, the US Treasury Secretary, appears unconcerned, stating, “I haven’t seen any evidence of dysfunction in connection with the increase in interest rates.” It seems as though key figures in global economic policy are collectively attempting to maintain a facade of calm in the face of mounting concerns, hoping that the situation will resolve itself before the truth becomes too evident.
However, the historical record offers little support for such optimism. Rarely, if ever, has a rapid and extensive tightening of monetary policy resulted in a soft landing. Furthermore, the global debt burden has reached unprecedented levels, and the world seems to be drowning in it.
Despite these challenges, the IMF seems to maintain a belief in economic levitation. While most major advanced economies are predicted to avoid outright recession in the coming years, the US stands out with its relatively strong growth, primarily due to government spending. This growth, while beneficial for job creation and investment, is also taking a toll on public finances, which are nearing an unsustainable position.
Running a fiscal deficit of 8.2% of GDP, as forecasted for this year, at the peak of an economic cycle, poses significant risks, especially as interest rates are expected to remain high for an extended period. The report suggests that a major bankruptcy, potentially involving a highly leveraged hedge fund, could trigger a collapse of the financial system.
This report highlights the growing concerns surrounding the global economy and the perceived disconnect between the IMF’s outlook and the reality on the ground.
