IMF: ‘This is Our Last Wake Up Call for Your Savings’

Sunday, January 12, 2014
By Paul Martin

by Sprout Money

Do you remember? The IMF set off the public and the media in October by stating in a report that it would be a great idea to invoke a one-time levy on the savings of the public to get governments’ finances in the industrialized world back on track. That message or that ‘theoretical exercise’ as the IMF called it then, did not sit well with most people and it resulted in a media frenzy. A few weeks later they did try and failed at damage control, which was nothing more than public embarrassment. Meanwhile we have reached 2014 and yes, we have a new document commissioned by the IMF, from two Harvard economists, Carmen Reinhart and Kenneth Rogoff.

IMF: high time for financial repression

Both Harvard economists are not beating around the bush. The idea that the mountain of government debt in the industrialized world is controllable and can be solved over time with enough economic growth is completely unrealistic. Next to that it appears that politicians are suffering from collective memory loss. In Europe and the US, in the period between both World Wars, countries also defaulted. The current mindset that defaults are only reserved for Emerging Markets is completely incorrect, according to Reinhart and Rogoff.

Both economists state that the mountain of debt from the industrialized world is at the highest level in the last 200 years. And that is a problem, a problem which cannot be resolved by economic growth exclusively. The Eurozone’s debt amounts to 95 percent of its GDP and the US is almost at 110 percent. Ultimately, the Eurozone is not that far behind at the rate at which debt is growing. You can bicker about the level at which debt is impossible to pay back, but the consensus is that this lies somewhere between 90 and 100 percent for the industrialized world, because of its low growth figures (1 – 2.5 percent).

Turnkey solution

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