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Friday, September 21, 2012 11:16 PM

Christine Lagarde, IMF Chief, Warns US About Short, Medium, and Long-Term Problems; Like All Keynesian Clowns, Lagarde Does Not Want to Deal With the Present

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For a brief moment, I almost thought Christine Lagarde, head of IMF, gained control of her senses.

The Telegraph headline IMF chief Christine Lagarde says US needs to rein in its banks is the illusion that briefly (very briefly) led me astray.

Not to fear, in the end, Lagarde proved in spades that she is the same Keynesian clown as before. Let's take a look where she makes sense, and doesn't.

The opening paragraph (below) about "challenges everywhere" makes sense, although there is little substance.

Speaking ahead of key meetings for the IMF and the World Bank early next month, Ms Lagarde called on political leaders to "get beyond the crisis in the eurozone" as "we have challenges everywhere".

I am in 100% agreement with the following paragraph.

"The United States has short-term and medium-term challenges as well, none of which are really properly addressed at the moment," she said.

Then  Lagarde immediately proved she is still a Keynesian clown.

"In the short term, there is the issue of the fiscal cliff, which is a combination of fiscal cuts that will stop early in 2013 and public spending that will be withdrawn in 2013, if nothing happens. That will be automatic, and it will create a major contraction of the deficit, yes, but also of growth, which would be a threat to the global economy. That’s for the short term."

The only reasonable interpretation of that paragraph is that Lagarde does not want the US to address its fiscal problems "now".

Keynesian clowns are very good about pointing out the need to do something in the future. They never want to address the present.

The fact of the matter is US government spending is totally and completely out of control. Something needs to be done now. 

Largarde then continues with complete hogwash, hoping to sound like some sort of fiscal conservative. "In the longer term, there has to be again anchoring of expectations about the fiscal policy of the United States in order to address the issue of the deficit and the debt as well."

Longer Term Never Arrives

Looking for expectations to anchor? Then anchor this: the "longer term" never comes to Keynesian clowns. They are perpetually worried about stopping growth (not that government spending ever creates growth in the first place). It doesn't.

All government stimulus can ever do is create artificial booms while increasing debt. Japan is proof enough. And the irony is Lagarde is now warning Japan to do something.

The Telegraph article concludes "In early October, thousands of policymakers and business leaders will meet in Tokyo to discuss the outlook for the world economy, and how to address the eurozone crisis."

If global policymakers really want to do something about the global economy, I suggest they all stay home and read my blog, that of Acting Man, and that of Michael Pettis at China Financial Market.

Mike "Mish" Shedlock
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