Posts Tagged ‘Spain Portugal’

Notes From Underground: Clarifying the IMF

October 15, 2012

It seems that yesterday’s piece on the IMF left more questions than answers. The point of the IMF moving to break the adverse (negative) feedback loop in the economies of Europe and the impact of austerity budgets results in greater deficits as the economy affected experiences negative economic growth rates, which creates greater deficits. As my readers are well aware, budget deficits can increase by slowing growth as well as increased expenditures. The IMF economic models have used a 0.5% impact on proscribed fiscal retrenchment. The IMF has used that 0.5% number for 30 years. As the IMF has studied the European nations and other countries during the recent Great Recession, it seems that the organization’s models are flawed and the impact is far greater, resulting in ever greater deficits amid less economic growth. The IMF believed that for ever 1% drop in government budgets the result would be a drop in GDP of that beloved 0.5%–the multiplier that the models use.