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.”

Lagarde said the uncertainty of a quick fix would fuel doubt, which prevents investors, entrepreneurs, and households from making decisions.

Watch the CNN interview




In an interview with the BBC, Lagarde said people around the world are concerned about the fiscal cliff, and a subsequent sudden drop in U.S. growth would have global repercussions.

7 Responses

  1. Reduce demand. She has asked to reduce the demand and not to extinguish the demand. An overdemanding child, if not curbed in time, becomes uncontrollable and later on, an almost incorrigible one — just as we have some in the European Union!

    • Reduce demand? Really?
      I suggest a re-reading of Fisher’s The Debt-deflation Theory of Great Depressions.
      Please be specific about which of the steps in the debt-deflation part of the cycle you are going to reverse by, at this time, reducing any demand.
      Otherwise you are feeding the spiral.

      • The United States does not have a revenue problem, rather it has more of a spending problem. And it is now proposed in Washington to slash $100 billion in discretionary spending in January, a cutback that might continue for ten years. Moreover there is an urgent need to strike a balance between domestic and military programs. If there are no spending cuts, the debt will drag down any hopes of success. Tax cuts for the middle class will be extended and the tax cuts for the top two percent be stopped. Now it is reported (NEP Blog) “that printing presses are pounding out US$85 billion a month — a time will soon come when engine will seize on the smoke of printing presses”.

        The bottom line is that some austerity will have to be adopted, which means self-denial.

      • Totally agree about the problem of the military budget. But to say that the real problem of the U.S. economy is one of too much government spending -– when there are idle resources of every economic nature -– is just incomprehensible.

        Spending cuts – i.e. further reductions of demand – will only exacerbate the debt repayment problem for those with REAL debts, like homeowners and businesses.

        The place where debt needs to be slashed is in the shadow banking system, where the assets are paper and the debt-to-job relationship does not exist.
        What is needed in the national economy is “purchasing power” , the stuff we call money. Because of the deb-based system of money, we cannot have money without having debt. A major monetary conundrum not yet lighting the lights of the IMF economists.
        Read the Benes Kumhof paper at the IMF for a real solution.

  2. The Democrates and the Republicans need to work it out; easier said than done!

    What happens is that each side will blame the other and reject every idea!

    In reality a fair tax system needs to be in place, if the business elites keep all the money as it is now, then there will be less money flowing, meaning less growth, fewer jobs — “real jobs” as we have now.

    • A realistic approach. Instead of hovering around the Cliff let both the Democrats and Republicans re-fix the taxation system — if you earn more, you pay more. No tax and as such no democracy.

  3. Madame Managing Director says: Balance with either taxes or other revenue and reduced spending.
    Either taxes or other new government revenue MEANS that the government is reducing private sector spending, therefore reducing demand.
    Reducing government spending MEANS – because every government dollar spent end us in a private bank account – less private sector spending, therefore reducing demand. So, the only solution the IMF chief has for the largest national economy is … reducing demand.

    And, this is considered balanced in what sense exactly?
    In case the IMF people wonder why their standing is reduced in the world, please have a thought on this.

    Whereas the research work of Drs. Benes and Kumhof at the IMF has shown that the cause of this debt-deflation paralysis can be found in the monetary system itself.

    Here’s a clue for the balance of IMFs economists.
    The problem is that there is too much debt — and not enough money. The money system requires MORE debt in order to have more money with which to pay that debt.
    Can you say monetary conundrum?
    Back to the 1930s drawing board, and unfinished business.

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