Monday, September 13, 2010

IMF Expresses Fears of Social Turmoil

From the Telegraph comes an IMF warning.

The article indicates that the IMF is fairly optimistic that the global economy has avoided the abyss for the moment. Perhaps that is the case. I think an apt analogy would be that the economy had veered off the road and was heading for the precipice at about 90 mph. We have now slowed to about 45 mph, but we haven't changed directions.

What the experts do admit is that unemployment is very high, 20% or so in Spain, nearly 10% in the U.S. and that many have been out of work for six months or more. Worldwide the IMF admits to 210 million unemployed. Knowing a little about how the U.S. rate is calculated, I'd say 210,000,000 is very conservative. In America, the actual rate is nearly double the official rate. We likely have 300 to 400 million unemployed around the globe. This is creating a huge drag on demand.

But, don't worry, Mr. Olivier Blanchard, chief economist for the IMF has a fix for us:

Mr Blanchard called for extra monetary stimulus as the first line of defence if "downside risks to growth materialise", but said authorities should not rule out another fiscal boost, despite debt worries. "If fiscal stimulus helps avoid structural unemployment, it may actually pay for itself," he said.

And Mr. Blanchard is a Keynesian blockhead, but I repeat myself. Our problems are being caused by government debt sucking up all the funds that could be financing private sector expansion, so the solution is to create more government debt. Brilliant.

Chronic unemployment creates unrest. We are seeing that manifest in the United States in the healthy way of a grassroots political movement to "throw the bums out". In other nations, we may see it manifest as violence with the potential to give rise to more autocratic regimes. These regimes will promise relief if they are given enough control. Kind of like what happened here in '08.

While the current trend in America is positive, we can only replace elected officials, not bureaucrats, regulators, or the heads of government-corporate hybrids. If there is too much inertia in the statist system to allow the private sector and especially small business to get back on track and grow, we may eventually see a more destructive uprising in this country.

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