Lurking in the Shadows—The Risks from Nonbank Intermediation in China


By Nigel Chalk

(Version in 中文)

One of my all-time favorite movies is “The Third Man” starring Orson Welles and Joseph Cotten. It is a British film noir from the 1940s. Perhaps the most striking part of the movie is the shadowy cinematography, set in post-World War II Vienna. Strangely, it springs to mind lately when I have been thinking of China.

Many China-watchers looked on in awe in 2009 as the government’s response to the global financial crisis unfolded, causing bank lending as a share of the economy to expand by close to 20 percentage points in less than a year. This, subsequently, led to a lot of hand-wringing about the consequences of those actions and the eventual credit quality problems that China would have to confront and manage.

However, around the same time, a less visible phenomenon was also getting underway. One that, like Orson Welles’ character in the movie, resided firmly in the shadows. Various types of nonbank financial intermediaries—some new, some old—were gearing up to provide a conduit through which China’s high savings would be tapped to finance the corporate sector. The available data on this is terrible—the central bank’s numbers on social financing are the only credible and comprehensive public source, but even that gives only a partial picture.

Talking to people in China, and looking at what numbers are available, one cannot help but have an uneasy feeling that more credit is now finding its way into the economy outside of the banking system than is actually flowing through the banks. Continue reading

Resolve and Determination—How We Get Out of This Together


By Christine Lagarde

(Versions in  عربي,  中文,  日本語 and Español)

This past weekend, 187 countries came together in Washington D.C. to focus on the economic crisis facing the world.

They were here for the 2011 Annual Meeting of the IMF and World Bank, at which finance ministers and central bank governors mix with businesspeople, civil society, labor leaders, and parliamentarians to discuss the critical issues we face.

Coming in to this Meeting, I had warned of a dangerous new phase now facing the global economy and had called for bold and collective action. Coming out of the Meeting, I feel strongly that the global community is beginning to respond.

Why? Three reasons: a shared sense of urgency, a shared diagnosis of the problems, and a shared sense that the steps needed in the period ahead are now coming into focus. Continue reading

Global Recovery Strengthens, Tensions Heighten


By Olivier Blanchard

The world economic recovery is gaining strength, but it remains unbalanced.

Three numbers tell the story. We expect the world economy to grow at about 4.5 percent a year in both 2011 and 2012, but with advanced economies growing at only 2.5 percent, while emerging and developing economies grow at a much higher 6.5 percent.

On the good news side. Earlier fears of a double dip—which we did not share—have not materialized. Continue reading

Who’s Talking About the Future of Macroeconomic Policies


By iMFdirect

Open, wide-ranging, and balanced discussion. For Olivier Blanchard—and co-hosts David Romer, Michael Spence & Joseph Stiglitz—that was the goal of last month’s conference at the IMF on the future of macroeconomic policies after the global financial crisis. And it is exactly what they got.

The crisis was a wakeup call for theorists and policymakers… Economic models, policy tools, and how they are applied need to catch up with changes in the global economic and financial system.

 You’ve heard here about views from the conference, but there’s plenty of discussion going on outside the IMF. Here’s a snapshot…. Continue reading

Observations on the Evolution of Economic Policies


Guest post by Michael Spence, New York University,
Professor Emeritus Stanford University, and
co-host of the Conference on Macro and Growth Policies in the Wake of the Crisis

It was a privilege to participate in the IMF conference devoted to rethinking policy frameworks in the wake of the crisis. Highly encouraging was the openness of the discussion, the range of views, the willingness to question orthodoxy, and the posture of humility.

One gets the impression that the crisis has triggered a response that it should trigger, and we have embarked on a path of rethinking conceptual frameworks and policy choices in a way that will contribute to the stability of the system.

That said, the good news is that we recognize that in finance and parts of macroeconomics the models or frameworks are incomplete. That represents a challenge to the academic community. But it also means that, in the short run, participants and regulators will be operating with incomplete models. This will require judgments (which will be uncomfortable in contrast to the earlier sense of certainty). There will be mistakes. And, as Olivier Blanchard said in his excellent summary, we will proceed step-by-step, evaluating the impacts of policy choices and sometimes reversing course. Continue reading

The Future of Macroeconomic Policy: Nine Tentative Conclusions


By Olivier Blanchard

(Version in Français, Español)

The global economic crisis taught us to question our most cherished beliefs about the way we conduct macroeconomic policy. Earlier I had put forward some ideas to help guide conversations as we reexamine these beliefs. I was heartened by the wide online debate and the excellent discussions at a conference on post-crisis macroeconomic policy here in Washington last week. At the end of the conference, I organized my concluding thoughts around nine points. Let me go through them and see whether you agree or not. Continue reading

iMFdirect–Must Reads on Global Finance and Budgets


While 2011 is still shiny as a new penny we thought you might like a quick review of 2010’s hot topics in the global economy.  The iMF Direct Blog has picked our list of must read posts covering the highs and lows of global finance and government budgets and spending.

  1. The Ten Commandments for advanced economies to keep the economic recovery on track 
  2. The financial world remains the Achilles Heel of the global economic recovery 
  3. We explain the right mix of ingredients for countries to provide sufficient support to economic activity, and reassure markets in How to Bake a Fiscal Pie 
  4. Fixing the financial sector – Just Do It  
  5. Stable prices and financial stability go hand in hand, or do they? A Marriage Made in Heaven or Hell   
  6. What Must Be Done – the top five reforms to the financial system 
  7. When it comes to supervising the financial rules of the global economy, It’s Hip to Be Square 
  8. Watch This Fiscal Space  to figure out how much room to maneuver governments have when it comes to controlling debt and deficits 
  9. Financial markets and regulators need to break their Credit Rating Addiction
  10.  The global financial tornado means We’re Not in Kansas Anymore, but what will the future financial system look like?
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