IMF’s Christine Lagarde on the U.S. Fiscal Cliff


by iMFdirect

The head of the IMF Christine Lagarde has weighed in on the ongoing U.S. fiscal cliff debate. Three weeks before a series of automatic tax increases and spending cuts are due to kick in if lawmakers don’t reach a new deal, Lagarde said she favors a comprehensive fix, rather than a quick one.

“My view is that the best way forward is to have a balanced approached that takes into account both increasing revenues and cutting spending as well.”

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United States: How Inequality Affects Saving Behavior


By Oya Celasun

(Version in Español)

The incomes of U.S. households have become more unevenly distributed over the past three decades. For example, the Congressional Budget Office estimates that after-tax income almost tripled for the top 1 percent of households between 1980 and 2007, but grew only 22 percent for the bottom 20 percent.

Recent research has focused on the link between income inequality and growth, but less attention has been paid to the link between inequality and savings. So together with a few colleagues we have looked at how income distribution is linked to saving behavior.

Saving rates matter because they are an important factor for the U.S. economic outlook. The decline in the saving rate in the years leading up to the crisis (from 10 percent of after-tax income in 1980 to 1.5 percent in 2005) is the mirror image of the unsustainable boom in consumer spending during the bubble years.

Following the crisis, sharp losses in the values of houses and financial assets, as well as difficulties in obtaining new credit, forced American families to save more and rebuild their wealth. The ensuing rise in the saving rate, which stood at 4 percent in the second quarter of 2012, has been an important reason why the recovery from the 2008–09 recession has been sluggish.

Therefore, our study looked at which types of households drove the aggregate saving rate down before the crisis and those that drove it up afterwards, so as to improve our ability to assess the potential for future U.S. growth.

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Global Financial Stability: What’s Still To Be Done?


By José Viñals

(Versions in Español, عربي)

The quest for lasting financial stability is still fraught with risks. The latest Global Financial Stability Report has two key messages: policy actions have brought gains to global financial stability since our September report; but current policy efforts are not enough to achieve lasting stability, both in Europe and some other advanced economies, in particular the United States and Japan.

Much has been done

In recent months, important and unprecedented policy steps have been taken to quell the crisis in the euro area. At the national level, stronger policies are being put in place in Italy and Spain; a new agreement has been reached on Greece; and Ireland and Portugal are making good progress in implementing their respective programs. Importantly, the European Central Bank’s decisive actions have supported bank liquidity and eased funding strains, while banks are reinforcing their capital positions under the guidance of the European Banking Authority. Finally, steps have been taken to enhance economic governance, promote fiscal discipline, and buttress the “firewall” at the euro area level.

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