Aristotle & the Archbishop of Canterbury: Overheard at the IMF’s Annual Meetings


By iMFdirect editors

What a week it’s been.  Practical and existential questions on how to do good and be good for the sake of the global economy and finance dominated the seminars at the IMF’s Annual Meetings in Washington.

Our editors fanned out to cover what the panelists, moderators, and audiences said in a variety of seminars, and two big themes caught our eye.

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Heat Wave: Rising Financial Risks in the United States


By Serkan Arslanalp, David Jones, and Sanjay Hazarika

Six years after the start of the global financial crisis, low interest rates and other central bank policies in the United States remain critical to encourage economic risk-taking—increased consumption by households, and greater willingness to invest and hire by businesses. However, this prolonged monetary ease also may have encouraged excessive financial risk-taking. Our analysis in the latest Global Financial Stability Report suggests that although economic benefits are becoming more evident, U.S. officials should remain alert to excessive financial risk-taking, particularly in lower-rated corporate debt markets.

Bullish financial risk-taking bears monitoring

Persistently low global interest rates have prompted investors to search for higher returns in a wide range of markets, such as stocks, and investment-grade and high-yield bonds. This has resulted in escalating asset prices, and enabled issuers to sell assets with a reduced degree of protection for investors (we give you an example below). The combined trends of more expensive assets and a weakening quality of issuance could pose risks to stability.

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The New Global Imbalance: Too Much Financial Risk-Taking, Not Enough Economic-Risk Taking


GFSR By José Viñals

(Versions in Español中文)

I have three key messages for you today:

1. Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.

2. Banks are safer but may not be strong enough to vigorously support the recovery. And risks are shifting to the shadow banking system in the form of rising market and liquidity risks. If left unaddressed, these risks could compromise global financial stability.

3. In order to address this new global imbalance, we must promote economic risk-taking by improving the transmission of monetary policy to the real economy. And we must address financial excesses through better micro- and macroprudential policies.

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Legacies, Clouds and Uncertainties


WEOBy Olivier Blanchard

(Versions in Françaisespañol, 中文Русский日本語)

The recovery continues, but it is weak and uneven.

You have now seen the basic numbers from our latest projections in the October 2014 World Economic Outlook released today.  We forecast world growth to be 3.3% in 2014, down 0.1% from our July forecast, and 3.8% in 2015, down 0.2% from our July forecast.

This number hides however very different evolutions.  Some countries have recovered or nearly recovered.  But others are still struggling.

Looking around the world, economies are subject to two main forces.  One from the past:  Countries have to deal with the legacies of the financial crisis, ranging from debt overhangs to high unemployment.  One from the future, or more accurately, the anticipated future:   Potential growth rates are being revised down, and these worse prospects are in turn affecting confidence, demand, and growth today.

Because these two forces play in different countries to different degrees, economic evolutions are becoming more differentiated.  With this in mind, let me take you on the usual quick tour of the world:

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The Growth of Shadow Banking


By Gaston Gelos and Nico Valckx

Shadow banking has grown by leaps and bounds around the world in the last decade.  It is now worth over $70 trillion. We take a closer look at what has driven this growth to help countries figure out what policies to use to minimize the risks involved.

In our analysis, we’ve found that shadow banks are both a boon and a bane for countries. Many people are worried about institutions that provide credit intermediation, borrow and lend money like banks, but are not regulated like them and lack a formal safety net. The largest shadow banking markets are in the United States and Europe, but in emerging markets, they have also expanded very rapidly, albeit from a low base.

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A Tale of Two States—Bringing Back U.S. Productivity Growth


By Roberto Cardarelli and Lusine Lusinyan 

(Versión en español)

Today’s Pop Quiz: What do Oregon and New Mexico have in common? What could possibly link the spectacular vistas of Crater Lake to the glistening White Sands?

Answer: One link is these two states have the highest share of computer and electronic production in the entire United States. Think Intel in the Silicon Forest or Los Alamos. They also rank similarly in information technology usage by their businesses.

For Crater Lake: (photo: Eye Ubiquitous/Newscom)    For White Sands: (photo: Eye Ubiquitous/Newscom)

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Where Danger Lurks


blanchardBy iMFDirect

Lurking conjures up images of spies, flashers and other dodgy types.  The IMF’s chief economist Olivier Blanchard takes readers into the dark corners of the financial crisis in his latest article ‘Where Danger Lurks’  in our recent issue of Finance & Development Magazine, and looks at small shocks, sudden stops and liquidity.

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