Monday, December 26, 2011

IMF Chief Economists Blames Problems on Investors

Olivier Blanchard is a very well-respected academic economist, and currently also Chief Economist at the International Monetary Fund. He sees today's current big problems primarily due to investors.
  • Self-fulfilling outcomes of pessimism or optimism, with major macroeconomic implications.
  • Incomplete or partial policy measures can make things worse.
  • Financial investors are schizophrenic about fiscal consolidation and growth.
  • Perception molds reality.
So, the unsustainability of Euro member fiscal policy is supposedly irrelevant, compared to the insane, self-fullfilling prophesies of investors. As John Cochrane noted, the Euro leaders keep looking for the Big Announcement that will soothe markets into rolling over another few hundred billion euros of debt. Alas, the problem is reality, not psychology.

6 comments:

E Hines said...

Incomplete or partial policy measures can make things worse.

Hmm.... Since no government's policy can ever be complete, they are all, rather tautologically, incomplete and partial. Seems like the best policy, then, is to have none--and government should get out of the way.

I look forward to Mr Blanchard's article espousing this in his next writing.

Oh, wait....

Eric Hines

Anonymous said...

Your comment on Business Insider "perception molds reality" - perception has and continues to disguise reality. Ive followed the market for 35 years. Can't remember another time when euphoric optimism has far outweighed contradictary data.

Anonymous said...

Wonder if Anonymous is short the market, or perhaps underinvested? His/her comments have a shaking-the-cane-at-the-passing-cars tone.

Tel said...

Oh golly gosh, I was expecting him to blame himself.

honeyoak said...

I don't blame him as this is his job - he may not even believe this. all one needs to do is look at the largest shareholders of the IMF and one would not be surprised by the propaganda coming out of his mouth. I suspect that if he were Chinese he would be extolling the virtues of fixed exchange rates. If one reads the economic reports by the IMF on the euro-banks and Greece one sees a very sober story. Oliver can get away with what he says because he spends his days chumming with panicked eurocrats rather than dealing with the real world.

Anonymous said...

Absolutely unbelieveable!
I don't know which is more disturbing:

1) This paid whore saying it's all investors fault the markets are screwed up (like there was never market euphoria or stampedes of fear before now), or

2) Saying imcomplete or partial policy measures can make matters worse, which is another way of saying if you don't allow the banks to continue to rob us, we'll rewrite history and blame it all on you.

- Smiddywesson