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IMF Fears $3 Trillion Credit Crunch; Lagarde Warns 'IMF Credibility at Stake'

Interest-Rates / Global Debt Crisis 2015 Oct 12, 2015 - 03:06 PM GMT

By: Mike_Shedlock

Interest-Rates

IMF head Christine Lagarde says "IMF credibility is at stake". She blames the US for that development, and calls on US to give more voting power to China to solve the problem.


Credibility?

I have a simple question: Precisely what credibility does the IMF have?

To address my simple question, please consider the ZeroHedge report This Is How The IMF "Predicted" China's Slowdown

As the following chart compiling the IMF's various quarterly economic forecasts over the past 5 years clearly shows, what the IMF had actually forecast, was a constant hockeystick rebound in China growth starting in 2011... until 2014 when the monetary fund finally gave up.

IMF's Revision of China Growth

Credibility Recovery

In a "credibility boosting" exercise Zerohedge comments ...

"The IMF's forecast of China's growth after the fact is now so negative, it is well below the consensus projections, as the IMF is all too happy to boast ..."

China Real GDP Forecasts

Ta-Da!

The IMF's credibility has been magically restored by impressive revisionist history. But as we see today, that credibility is once again at stake.

3 Trillion Credit Crunch Coming Up

Meanwhile, please note the IMF is concerned that a $3 Trillion Corporate Credit Crunch Looms as Debtors Face Day of Reckoning.

Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.

Emerging market companies have "over-borrowed" by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF's Global Financial Stability Report.

This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF's twice yearly report.

Mercy!

Q. How did this happen?

A. The answer of course is corporations took on insane amounts of debts precisely as central banks and the IMF wanted them to do.

Q. Why did the IMF and central banks encourage this debt?

A. To help stimulate the global economy.

Q. Did it work?

A. Obviously not.

Q. So why do they think still more debt will fix a problem caused by debt?

A. You tell me.

Mish Proposal

If the IMF wants China in the name of credibility, please let them have it.

In return, I ask one simple thing: The US cuts off all IMF funding, as it should have done long ago.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2015 Mike Shedlock, All Rights Reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Shedlock Archive

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