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Fallout: The Financial Crisis

IMF report: We may need more stimulus

Bob Moon Oct 1, 2009
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Fallout: The Financial Crisis

IMF report: We may need more stimulus

Bob Moon Oct 1, 2009
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TEXT OF STORY

Kai Ryssdal: Here’s today’s economic report that makes you go: c’mon, seriously? The International Monetary Fund says the trillions of dollars that have already been spent worldwide on economic stimulus might somehow not be enough. Here’s our senior business correspondent Bob Moon.


BOB MOON: One of the most discouraging assessments in the IMF’s progress report is that we’re still only about halfway through the agonizingly slow unwinding of the banking crisis. So far, the IMF reckons only around 50 percent of all those distressed assets have been written off by banks in the U.S. and Europe.

Citing those and other lingering uncertainties, the IMF advised governments today to “thus stand ready to roll out new initiatives” should they become necessary.

Jose Vinals, who watches capital markets for the IMF, spoke at a briefing in Istanbul.

JOSE VINALS: If we fail to meet the challenges still being faced by the financial system in the present crisis, we risk reigniting systemic risks and even derailing the economic recovery now in train.

One stubborn drag on stimulus efforts and the nascent recovery is that banks keep cutting back on their lending, under the burden of the risks still lurking on their books.

VINALS: If the question is whether banks have enough capital to supply sufficient credit to support the recovery, we believe that the answer is ‘no’.

It may be prudent to be prepared to deal with a worsening scenario. But Colin Bradford, a senior fellow on global economic development at the Brookings Institution, thinks sounding the alarm now is premature.

COLIN BRADFORD: If bank credit really does begin to freeze up again, and if unemployment shoots in the United States well above 10 percent and keeps rising, then you go back to the drawing boards and say, ‘Do we need more stimulus and if so, what kind,’ and so on. But the facts aren’t in yet enough.

Bradford says spending more money would be a tough sell with the American people and Congress, even if things did take a turn for the worse.

BRADFORD: It would be a tough sell, indeed, right now, because of the fact that there isn’t any evidence that the recovery’s not under way.

The IMF report concedes that more stimulus spending could be ruinous for countries already deeply in debt.

I’m Bob Moon for Marketplace.

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