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I.M.F. Warns Wealthy Nations about Debt

By Anonymous

From Sewell Chan and Keith Bradsher at the NY Times: I.M.F. Warns Wealthiest Nations About Their Debt

The global economic crisis has left ?deep scars? in the fiscal balances of the world?s advanced economies, which should begin to rein in spending next year as the recovery continues, the No.2 official at the International Monetary Fund said Sunday.
...
For the United States, ?a higher public savings rate will be required to ensure long-term fiscal sustainability,? Mr. Lipsky said.
...
?Addressing this fiscal challenge is a key near-term priority, as concerns about fiscal sustainability could undermine confidence in the economic recovery,? Mr. Lipsky said. ... While it makes sense for the world?s largest economies to continue stimulus spending through the end of this year, ?fiscal consolidation should begin in 2011, if the recovery occurs at the projected pace,? Mr. Lipsky said.

The U.S. deficit can be separated into 1) a cyclical deficit that will start to decline automatically when the economy begins to recover, and 2) a structural deficit that will be very difficult to resolve. But we need a recovery first, and then we can discuss deficit reduction.

Mr. Lipsky also discussed the need for rebalancing the world economy, although he didn't criticize China's currency manipulation (he was speaking in China).

Full post as published by Calculated Risk on March 21, 2010 (boomark / email).