IMF Optimistic on Global Economy, Less So on U.S. Economy

The International Monetary Fund said on Thursday that it expects the world's economy to grow 4.6 percent in 2010, up from a 4.2 percent projected growth that the organization posited in April. East Asia will spur much of that growth.

July 9, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user AZRI fi

The International Monetary Fund said on Thursday that it expects the world’s economy to grow 4.6 percent in 2010, up from a 4.2 percent projected growth that the organization posited in April. East Asia will spur much of that growth.

As for the U.S. economy, “autonomous private demand has also started to gain ground,” the IMF noted recently in a report. “While still modest by historical standards, the recovery has proved stronger than we had earlier expected, owing much to the authorities’ strong and effective macroeconomic response, as well as the substantial progress made in stabilizing the financial system.”

But the IMF also took the U.S. to task like a schoolmarm over a recalcitrant student over the issue of public debt. “Given that we use less optimistic economic assumptions than the administration, we see the need for a more ambitious adjustment to stabilize debt than that envisioned by the authorities,” it said. “Measures to increase revenues will also be needed, which… could include further base broadening via cuts in deductions, particularly for mortgage interest; higher taxes on energy; a national consumption tax; or a financial activities tax.”

TARP Has Paid Off So Far

For all the hubbub about and strident objections to creating TARP to bail out banks beginning in the bleak fall of 2008, a report by the investment bank Keefe, Bruyette & Woods issued this week asserts that TARP’s Capital Purchase Program (CPP) has provided the U.S. government a return of 10 percent on the banks that have paid back the funds.

About $137 billion, which is roughly two-thirds of the original outlay by the government for the CPP, has been paid back. Some $13 billion has been earned for the taxpayer in during the course of the CPP so far, according to the report.

Not every bank has paid back TARP funds, so there’s still the possibility of a reduction in returns for the program. Still, it’s a far cry from the estimate that TARP would ultimately cost the U.S. Treasury $3.5 trillion–a figure published by a Keefe, Bruyette & Woods analyst in January 2009.

Consumer Credit Dips Again

U.S. consumer borrowing dropped in May at an annual rate of 4.5 percent, according to the Federal Reserve on Thursday. The Fed also revised the April consumer credit figure downward. That trend could be interpreted as weakness in consumer spending, as some economists are wont to do.

Or it could be characterized as a continuing rational response to the current economic climate on the part of both consumers and banks. That is, pay down debt if you’re a borrower, or tighten lending standards if you’re a lender.

Wall Street wasn’t quite as chipper on Thursday as on Wednesday, but at the end of the day turned in positive numbers. The Dow Jones Industrial Average was up 120.71 points, or 1.2 percent, while the S&P 500 gained 0.94 percent and the Nasdaq advanced 0.74 percent.