IMF official says the world’s advanced nations are already in a depression

IMF Managing Director Dominique Strauss-Kahn’s spoke to reporters after a speech on February 7 in Kuala Lumpur, Malaysia.  He said something ominous, esp coming from a senior IMF official.  File it under “slow but eventual recognition of the obvious.” 

Also Strauss-Kahn’s speech gave no hints that he considered the situation so dire.  Nor did his accompanying press release.  But the press conference was a barn-burner according to the following reports.

Note that he did not explain what he meant by a “depression” (there is no standard definition).  A “depression” is far different than a “Great Depression”.

(1)  Dow Jones News says (dateline Kuala Lumpur):

“We are already in depression … at least for advanced economies,” he told reporters at a briefing. … Strauss-Kahn said there is still downside risk to global economic growth forecasts and the “worst cannot be ruled out.”

(2)  Bloomberg article says (no dateline, by reporters based in Singapore and Kuala Lumpur):

Advanced economies are already in a “depression” and the financial crisis may deepen unless the banking system is fixed, IMF Managing Director Dominique Strauss-Kahn said. … “The worst cannot be ruled out. … There’s a lot of downside risk.”

(3)  The Daily Telegraph (UK) has an article by its Economics Editor, Edmund Conway, that says (with no hint of the source):

Mr Strauss-Kahn also indicated that the world’s advanced economies were now tipping from recession into full-blown depression, cementing fears about the scale of the economic slump in rich nations. … He warned that the economic crisis would intensify unless the financial system was repaired, saying that although he hoped the world could avoid a repeat of the Great Depression, the “worst cannot be ruled out. There’s a lot of downside risk.”

(4)  The Wall Street Journal reports something similar (but no dateline):

{Straus-Kahn} said the world’s advanced economies — the U.S., Western Europe and Japan — are “already in depression,” and that the IMF could slash its global growth forecasts further. The “worst cannot be ruled out,” he said.

Don’t panic, not yet at least.  Wait for government policy mistakes to convert the crisis into a disaster.  There will be many opportunities:  continued slow incremental action, inappropriate actions, and craziness (like protectionism or “beggar thy neighbor” policies).


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To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp interest these days:

Here is the most recent Situation report about the global economy, as the flames break thru the firewalls, 26 January 2009.

Other posts about the crisis on the FM site:

  1. Can the European Monetary Union survive the next recession?, 11 July 2008
  2. The coming collapse in business spending – made visible today, 15 October 2008
  3. More reasons why the government will be taking over allocation of America’s capital, 27 October 2008
  4. The US economy must go to Defcon 1, 13 November 2008
  5. A certain casualty of the recession: the US Government’s solvency, 25 November 2008
  6. The greatness of John Maynard Keynes, our only guide in this crisis, 4 December 2008
  7. Three people look at America’s economy, 5 December 2008
  8. About the state of economic science, and advice from a famous economist, 8 December 2008
  9. Future generations will never understand our shopping madness, 13 December 2008
  10. Destroying houses in order to boost home prices
  11. “A depression is for capitalism like a good, cold douche.”, 17 December 2008
  12. President Bush: “I’ve abandoned free market principles to save the free market system”, 20 December 2008
  13. Words of wisdom about the global recession, from the greatest economist of our era, 29 December 2008
  14. An Epistle to the good savers of America, 6 January 2009
  15. A warning from Paul Krugman of what should be blindingly obvious (but is not obvious to many experts), 7 January 2009
  16. “We are likely enduring a depression today”, 27 January 2009

5 thoughts on “IMF official says the world’s advanced nations are already in a depression”

  1. What if depression is the new normal? What if we are witnessing the end of an illusion, and not some kind of deviation from the norm? Sometimes, when Bad Things Happen, this is reality intruding on lovingly nurtured illusions. The immediate and normal response to such Bad Things is nearly always a frantic attempt to re-establish the illusion. I’m thinking that this is what’s happened, and this is exactly what we are trying to do.

    I’m speaking of the illusion of perpetual growth, of an economy maintained by profligate spending of borrowed money at every level of the economic pyramid. Try this: don’t think of what’s happening as a depression, but of the collapse of a 50-year economic bubble. If you think of it that way, then it’s not a disaster. It will hurt, and hurt badly, but it does not mean the end of the world.

    Given that perspective, it might be easier to see What Should Be Done. Don’t bother trying to shore up the big manufacturing corporations or the banks: they’re either going down, or they will be the millstone tied to our collective neck that drags us even further down. If the government is going to spend a lot of money, then the focus should be on mitigating damage, not on restoring the status quo ante.

    For example, perhaps we should prevent the formation of massive suburban ghost-towns by giving foreclosed mortgage holders first right of refusal on buying back their home at the new, realistic price. Maybe we could raise Social Security benefits a bit to compensate people who lost so much in their government-encouraged 401k plans. Government subsidized jobs might be worthwhile, but only as a temporary measure, until the new, sustainable economy takes root.

    The biggest change will have to come on the personal level: we will have to lower our material expectations, stop buying so much stuff, and stop living on borrowed money.

  2. Is “Buy ‘Murican” dead yet? I’ve read two different accounts. POTUS seems to want to water it down, Chest Rockwell’s old side-kick Sen. Dick Durbin wants it in there to the hilt. GM has done it’s part to perhaps bring it back from disfavor. If the Latin American Herald-Tribune really wanted the Buy ‘Murican Clause to take effect, this how to get it done.

    “General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.

    “According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to “complete the renovation of the line of products up to 2012.””

    Fabius Maximus replies: We will not know what comes out of the Washington sausage factory until the bill is signed.

  3. Absolutely fascinating to observe that while we’re now in a recognized depression with outright deflation, the outrageous 35% interest rates on credit cards cannot be reduced. This is so insane that words do not exist in the english language to describe the full extent of the lunacy.

    Any sensible person will tell that Guido-the-Legbreaker mafia loanshark-level 35% compounded interest rates are going to badly hurt the economy even in a robust business boom…but in a deflationary environment???????????

    35% compounded interest rates??????

    The inflation rate is now negative. Prices are dropping. And yet no one, not one person anywhere, seems to even think it even worthwhile to discuss cutting these crazy interest rates below their current unsustainable 35% compounded rates in a deflationary environment.

    There comes a level of lunacy beyond which words fail. We’re now beyond the level of mere craziness, well into the LSD-induced hallucination level of rampant madness. Yet no one remarks on the fact that all of Washington D.C. considers it just fine ‘n dandy to maintain these crazy sky-high loanshark credit card interest rates in the face of an outright major depression with price deflation.

  4. electrophoresis, Why don’t you start your own company with lower interest rates? Complaining that other people won’t solve the problem is enjoyable, but not extremely productive.
    Fabius Maximus replies: Thank you. I have grown tired of explaining why running a business (finance, energy, etc) is more complex than it seems from the peanut gallery.

  5. @3, 35% is the default rate. You know, for people that skip two months of payments. You don’t make payments on your house? They take your house. Ditto for a car. If you don’t make a payment on your card what are the going to do, take a piece of plastic away? I don’t see any other way to disincentivise people running up a bunch of credit card debt and not paying. If you have an alternative proposal I would love to hear it.
    Fabius Maximus replies: It’s easy to disincent this kind of abusive lending (aka usury, loan-sharking). Either set maximum interest rates for consumers, based upon a premius to treasury or bond market rates, or provide guidelines to bankruptcy judges to zero out liabilities to these kind of lenders. Poof, problem gone.

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