Skip to main content

IMF Likes Obama's Plan

WSJ: The International Monetary Fund's top economist generally endorsed the incoming Obama administration's approach to economic stimulus, and urged countries to consider offering a kind of "recession insurance."

President-elect Barack Obama's economic team is weighing a stimulus plan that would cost somewhere between $675 billion and $775 billion over two years, and would be used largely for construction and other government spending. The package is likely to include a temporary tax cut of as much as $1,000 for middle-income families.

Olivier Blanchard, the IMF's chief economist, said "the size corresponds roughly to what we think is needed." He backed the Obama approach of targeted tax cuts, saying the money should go to consumers who are "truly credit constrained."

In an accompanying research paper, Mr. Blanchard and three other IMF economists advised against broad cuts in corporate tax rates, dividends and capital gains -- Republican favorites -- which they judge "likely to be ineffective" because profits are low. The changes "are often difficult to reverse," they added.

In an interview, Mr. Blanchard said a general tax cut may be less effective than other measures because many consumers would save the money.

IMF recommendations rarely have much clout in the U.S., but the timing of the paper and Mr. Blanchard's comments may make a difference, as the Obama team is looking to present its plans as responsible and widely acceptable.

The findings pose another hurdle for Republicans. Former Bush White House economist Glenn Hubbard argues that despite the IMF findings, a broad corporate tax cut would spur investment and boost stock prices.

Mr. Blanchard, on leave from the Massachusetts Institute of Technology, has long done research with Mr. Obama's chief economic adviser, Lawrence Summers. A spokeswoman for the Obama transition office didn't comment on the IMF findings, but said "economists across the ideological spectrum agree that the danger is doing too little to get our economy moving again, not too much."

The IMF has long urged China to take similar steps to boost its economy. Overall, the IMF has been campaigning for a global stimulus plan of 2% of world gross domestic product -- or more than $1 trillion.

Not all the IMF's comments supported Mr. Obama. Mr. Blanchard warned plans to bail out car companies could prompt a trade fight if other nations tried to match U.S. aid. He said countries should focus on providing credit in the case of corporate restructurings.

Among the IMF's proposals is a kind of "recession insurance." Under that plan, individual governments would offer insurance to firms and individuals that would pay off if GDP sank below a certain level.

"Widespread use of such [recession insurance] contracts would provide an additional automatic stabilizer because payments would be made when they are most needed, namely in bad times," the IMF paper said.

With such instruments, Mr. Blanchard acknowledged, potential buyers might worry whether, during a downturn, governments would make the payouts.

p/s photo: Jessica Hsuan


Gamelion said…
Wow ! another new way to spend and gamble big in the road to forever inflate the economy toward abundance and prosperity. Or another financial engineering of GREAT PONZI SCHEME in the making ???????
see said…
Stimulus may be better than doing nothing to prevent a collapse. As for IMF, I can't take them seriously after their asinine prescription for the Asian crisis. Now they are saying the opposite of what they lectured to IMF recipients for the Asian crisis. Why no drastic interest rate hikes, deficit cuts, etc? Sorrylah, IMF should podah lah

Popular posts from this blog

My Master, A National Treasure

REPOST:  Its been more than two years since I posted on my sifu. This is probably the most significant posting I had done thus far that does not involve business or politics. My circle of close friends and business colleagues have benefited significantly from his treatment.

My Master, Dr. Law Chin Han (from my iPhone)

Where shall I start? OK, just based on real life experiences of those who are close to me. The entire Tong family (Bukit Kiara Properties) absolutely swear that he is the master of masters when it comes to acupuncture (and dentistry as well). To me, you can probably find many great dentists, but to find a real Master in acupuncture, thats a whole different ballgame.

I am not big aficionado of Chinese medicine or acupuncture initially. I guess you have to go through the whole shebang to appreciate the real life changing effects from a master.

My business partner and very close friend went to him after 15 years of persistent gout problem, he will get his heavy attacks at least…

PUC - An Assessment

PUC has tried to reinvent itself following the untimely passing of its founder last year. His younger brother, who was highly successful in his own right, was running Pictureworks in a number of countries in Asia.

The Shares Price Rise & Possible Catalysts

Share price has broken its all time high comfortably. The rise has been steady and not at all volatile, accompanied by steady volume, which would indicate longer term investors and some funds already accumulating nd not selling back to the market.

Potential Catalyst #1

The just launched Presto app. Tried it and went to the briefing. Its a game changer for PUC for sure. They have already indicated that the e-wallet will be launched only in 1Q2018. Now what is Presto, why Presto. Its very much like Lazada or eBay or Alibaba. Lazada is a platform for retailers to sell, full stop. eBay is more for the personal one man operations. Alibaba is more for wholesalers and distributors.

Presto links retailers/f&b/services originators with en…

How Long Will The Bull Lasts For Malaysia

Are we in a bull run? Of course we are. Not to labour the point but I highlighted the start of the bull run back in January this year... and got a lot of naysayers but never mind:

p/s: needless to say, this is Jing Tian ... beautiful face and a certain kind of freshness in her looks and acting career thus far

I would like to extend my prediction that the bull run for Bursa stocks should continue to run well till the end of the year. What we are seeing for the past 3 weeks was a general lull where volume suddenly shrunk but the general trend is still intact. My reasons for saying so:

a) the overall equity markets globally will be supported by a benign recovery complemented by a timid approach to raising rates by most central banks

b) thanks to a drastic bear run for most commodities, and to a lesser extent some oil & gas players, the undertone for "cost of materials" have been weak and has pr…