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Tag: Pierre-Olivier Gourinchas

  • International Money Fund Warns on U.S. Debt ‘Something Will Have to Give’

    International Money Fund Warns on U.S. Debt ‘Something Will Have to Give’

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    David Lienemann, Public domain, via Wikimedia Commons

    By Brett Rowland (The Center Square)

    The International Monetary Fund warned the United States that government spending and increasing national debt are not sustainable and could hurt the global economy.

    The Washington, D.C.-based group that represents 190 member countries also called the U.S. economy “overheated.” The debt warning follows several other high-profile calls to address growing U.S. debt. 

    “Amid mounting debt, now is the time to bring back sustainable public finances,” according to the latest IMF Fiscal Monitor report. 

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    In its latest World Economic Outlook, the IMF warned that the U.S. national debt and deficit could push inflation levels higher.

    “The exceptional recent performance of the United States is certainly impressive and a major driver of global growth, but it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability,” according to the report. “This raises short-term risks to the disinflation process, as well as longer-term fiscal and financial stability risks for the global economy since it risks pushing up global funding costs. Something will have to give.”

    In a blog post, IMF Chief Economist Pierre-Olivier Gourinchas said the U.S. must take a gradual approach.

    “The strong recent performance of the United States reflects robust productivity and employment growth, but also strong demand in an economy that remains overheated,” he wrote. “This calls for a cautious and gradual approach to easing by the Federal Reserve.”

    David Walker, former Comptroller General of the United States and a member of the Main Street Economics Advisory Board, said Congress must take action.

    “The International Monetary Fund is the latest independent entity to voice concern regarding the U.S. federal government’s overspending practices and failure to take steps to restore long-term financial stability,” he said. “Despite that fact, our federal elected representatives continue to turn a blind eye to the soaring national debt and federal financial mismanagement. As Americans, We the People must engage with our Congressional representatives and demand that they take steps to restore federal fiscal sanity and sustainability.”

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    Similar warnings about U.S. debt have been coming from both inside and outside the government. 

    In November 2023, Moody’s Investors Service gave the federal government a negative credit outlookciting large deficits, high interest rates and waning political interest in addressing the nation’s deficit. The other two credit-rating agencies, S&P Global and Fitch, grade U.S. credit at AA+. In August 2023, Fitch Ratings decided to downgrade the government’s credit rating from the highest level of AAA down one tier to AA+. Fitch pointed to the U.S. government’s high national debt and deficits and an “erosion of governance.”

    In February, a Congressional watchdog told President Joe Biden and Congress that the federal government is on an “unsustainable long-term fiscal path.”

    The report from the U.S Government Accountability Office highlighted the challenges. And a Congressional Budget Office report from February found federal spending is projected to remain unsustainable in the decades to come.

    “The federal government faces an unsustainable long-term fiscal path,” according to the U.S Government Accountability Office report. “We project that debt held by the public as a share of the economy will more than double over the next 30 years and will grow faster than the economy over the long term if current revenue and spending policies are not changed.”

    Syndicated with permission from The Center Square.

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  • India will have a difficult task as G-20 chair, says IMF chief economist

    India will have a difficult task as G-20 chair, says IMF chief economist

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    India, which will hold the G-20 presidency next year, will have a difficult task as the group’s chair to bring countries together on some of the key challenges being faced by the world, Pierre-Olivier Gourinchas, the chief economist of the IMF, said on Wednesday.

    “One of the challenges for the G-20 right now, as we’ve seen, is of course how to deal with geo-economic fragmentation. And geo-economy fragmentation is just reflecting the fact that we’ve seen enormous tensions following the Russian invasion of Ukraine,” Gourinchas told PTI in an interview.

    “To some extent to the G-20, it’s much harder to have these kinds of conversations around the common goods in the current environment because there is all this tension related to geopolitical considerations. And so, India will have a difficult task, but also, I would think one of the important objectives will be to keep the countries at the table, to keep the discussion going, keep progress being made on important issues,” he said in response to a question.

    Describing G-20 as a very important institution, Gourinchas said the group is the one place where there is governance representing the majority of the global economy coming together.

    It is not just a group of rich countries. It is really something that has multiple voices. A lot of progress can be made by G-20, he said.

    “One of the things that we talk about quite often in the context of the G 20 is the common framework. It’s a very important initiative. It’s still finding its footing. We at the fund are somewhat frustrated with sometimes a lack of progress on the common framework,” he said.

    But it’s a really important initiative that could be made at the level of the global community, coming together and finding ways in which sustainability problems could be addressed, the chief economist said, adding that that is something which the IMF is looking at very closely.

    Observing that at a venue like the G-20, multilateralism can really have discussions on common goods and make progress and common goods, Gourinchas said: “So what are the common goods that where progress could be made? Prominent among those include the issue of climate change and debt sustainability.”

    Digitalisation, he said, is very much at the forefront. “The whole issue of how the emergence of digital currencies, crypto assets, how is this going to stabilise, destabilise? How should we be doing? There are enormous externalities at the global level regarding the emergence of these new instruments. So how are we as a global community should we organise this space,” he said.

    “Should we regulate it? How should it be regulated? The cross-border aspect is going to be very important. So that’s obviously a common good,” Gourinchas said. 

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