IMF Warns That World Risks Sliding into a 1930s-style Slump

THE GUARDIAN: Christine Lagarde calls for global unity to tackle financial crisis as French launch verbal broadsides at David Cameron and UK

The world risks sliding into a 1930s-style slump unless countries settle their differences and work together to tackle Europe's deepening debt crisis, the head of the International Monetary Fund has warned.

On a day that saw an escalation in the tit-for-tat trade battle betweenChina and the United States and a deepening of the diplomatic rift between Britain and France, Christine Lagarde issued her strongest warning yet about the health of the global economy and said if the international community failed to co-operate the risk was of "retraction, rising protectionism, isolation".

She added: "This is exactly the description of what happened in the '30s and what followed is not something we are looking forward to."

The IMF managing director's call came amid growing concern that 2012 will see Europe slide into a double-dip recession, with knock-on effects for the rest of the global economy. "The world economic outlook at the moment is not particularly rosy. It is quite gloomy," she said. » | Larry Elliott, Heather Stewart and Nicholas Watt | Thursday, December 15, 2011

To call what happened in the 1930s a “slump” is a bit of a stretch and a misnomer, to say the least. The 1930s was characterized by a 'full-on' depression. The terms “slump” and “double-dip” are far too mild to describe the dire economic situation experienced during that period in history. The IMF and these politicians need to get their facts straight. – © Mark

Simon Heffer: President Barack Obama: Perhaps He Can't Fix It...

THE TELEGRAPH: President Obama has been in power for just over 50 days, but already critics believe his plans to save America from disaster are doomed

Photo by Reuters courtesy of The Telegraph
Even in the worst economic crisis since the 1930s, New York knows how to throw a party. For most of yesterday hundreds of thousands of people made a sea of green that paraded up Fifth Avenue to mark St Patrick’s Day. Tens of thousands lined the street to watch them. The all-day party, fuelled by imports of Guinness and whiskey, seemed the more intensely engaged upon as an escape from omnipresent financial gloom.

Away from the party, the mood in America’s cultural and business capital is more firmly anchored in stark reality, and quite different from the euphoria that pervaded it when I was last here, on election day. President Obama still enjoys the popularity that comes with not being George Bush, especially in a city top-heavy with Democrats. But his initial response to the global calamity that he found on entering the Oval Office has not inspired popularity’s more sober elder brother, confidence. Large constituencies, notably business, are voicing their scepticism openly. The President’s much-vaunted $787 billion stimulus package is being widely interpreted, even by some of those (such as Warren Buffett, America’s second-richest man) who openly supported Mr Obama for the presidency, as a serious failure. And we are only just past the first 50 days.

Mr Obama is lucky that his Republican opponents in Congress are disorganised, incoherent and without ideas of their own. The White House branded Rush Limbaugh, the populist talk radio host, leader of the opposition, following an assault Limbaugh had made on the President’s neo-socialist policies. This remark was designed not just to humiliate elected Republicans for their impotence, but also to attempt to terrify the American public at the thought of a man widely seen as a demagogue and an extremist leading a main political movement. It should worry Mr Obama that while the former part of the strategy has hit home, the latter hasn’t. >>> Simon Heffer | Wednesday, March 18, 2009

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Britain Showing Signs of Heading Towards 1930s-style Depression, Says Bank
THE TELEGRAPH: Britain is showing signs of sliding towards a 1930s-style depression, the Bank of England says today for the first time.

The country is displaying early symptoms of being trapped in a so-called “debt deflation trap” where families find themselves pushed further and further into the red every month, according to a Bank report published today.

The stark warning will cause serious concerns, since it was this combination of falling prices and soaring debt burdens that plagued the US in the 1930s.

The Bank is using its Quarterly Bulletin to highlight the threat posed to the economy by deflation – where prices fall each year rather than rise.

Although inflation is currently in positive territory, it is expected to become negative in the coming months.

The Bank is worried that this may combine with high levels of indebtedness to squeeze families further.

It says that families with high debts could fall prey to the debt deflation trap. This means that the cost of their debts, which are fixed, would rise compared to average prices throughout the economy. While inflation erodes debts, deflation makes them relatively higher.

The Bank’s paper suggests that Britain is particularly at risk because there is a high proportion of families with significant levels of debt, and many of them are on fixed mortgage rate, which means they will not benefit from rate cuts.

Britons’ total personal debt – the amount owed on mortgages, loans and credit cards – is, at £1.46 trillion, more than the value of what the country produces in a year.

Total personal debt has risen by 165 per cent since 1997 and each household now owes an average of about £60,000.

The Conservatives claim this is the highest personal debt level in the world. >>> By Edmund Conway, Economics Editor | Monday, March 16, 2009

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