Saturday, February 7, 2009

Some Sense Out of the IMF

In's IMF Says Advanced Economies Already in Depression, Managing Director Dominque Strauss-Kahn said (in addition to talking about a depression):

While the European Central Bank, which left interest rates unchanged this week, may have more room to cut borrowing costs, such a policy may not be as important as restructuring the region’s banks, he said.

“We’re probably not very far from the point where the question of interest rates is not the most important question,” Strauss-Kahn said. “Providing direct liquidity to the market, restructuring the banking sector, may have more influence on demand than interest rates.”

In my humble opinion, the worst thing that Alan Greenspan started and Ben Bernanke perfected (copied by Mervyn King of the Bank of England) was to favor borrowers over savers every time a recession or other crisis (think 9/11) occurred and to lower interest rates to below the rate of inflation. Dr. Strauss-Kahn also stated that stimulus packages won't work with a dysfunctional financial system.

Thank you, Dr. Strauss-Kahn. (And thanks for using the D-word, not the R-word . . . I think.)

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