IMF official suggests reducing debt, but not too quickly

“Pulling out of the global financial crisis may at times clash with the goal of making sure that it does not happen again, making the whole process more difficult, the International Monetary Fund’s No. 2 official said in a speech in London. Ending the crisis means boosting demand and restoring jobs and growth. But creating a stronger global economy requires reducing debt in many advanced economies, which can crimp demand, IMF First Deputy Managing Director David Lipton said in a speech at London’s Chatham House think tank,” a Reuters online article wrote yesterday. The article continued, “‘Deleveraging in many advanced economies … will dampen demand, particularly if it happens simultaneously in many sectors in many countries,’ Lipton said, according to prepared remarks. ‘This crisis is proving very hard to end.’ Indebted households, banks and governments must shed debt, but doing it too quickly will undercut the recovery, he said. Countries should put the break on austerity programs in the short-term if growth is faltering – as long as they have credible plans to cut debt in the medium-term. ‘Deleveraging is necessary, but it should be implemented at a speed and in a way that minimizes the impact on growth,’ he said. The IMF has said austerity programs that cut too far, too fast would hurt fragile growth, and has backed giving indebted euro zone countries like Greece and Portugal more time to balance their budgets.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS

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