The global economy is like a vehicle hurtling towards the edge of a cliff, with US President Donald Trump asleep or inebriated at the wheel. Financial markets are trying to jump off before it is too late but it is not only the US leader who seems oblivious.
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It might be an exaggeration to speak of an official cover-up in the face of extreme danger but the misguided efforts by some officials to play down the risks are reminiscent of attempts in the run-up to the Great Depression to downplay the approaching calamity.
US officials have offered anodyne assurances that, somehow, all will be well. To be charitable, some officials might believe they’re doing the world a service by not creating alarm.
The failure to acknowledge economic and financial reality was evident in a briefing on April 22 by Tobias Adrian, financial counsellor at the International Monetary Fund (IMF) and his colleagues, at the launch of the organisation’s latest Global Financial Stability Report.
The report identifies some potential systemic risks just like the executive summary of the IMF’s World Economic Outlook does. But Adrian framed the recent alarmed reaction of financial markets as a “smooth” absorption of shocks, suggesting that highly nervous US Treasury markets – the linchpin of the global financial system – are operating with relative calm.
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By no means does everyone believe this assertion. Alex Isakov and Adriana Dupita at Bloomberg Economics note the IMF’s tendency to understate the immediate impact on global growth in its initial assessment during times of crisis. “However much the IMF may downgrade the growth forecasts to start, history suggests the ultimate blow will be worse,” they said.