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For nations living the good life, the party's over, IMF says
The message from the IMF is that the card is about maxed out and that the imbalance in trade flows needs to be corrected.
How to do it? One way is for China -- or Asian exporters, more generally -- to let their currencies rise on world markets. The other way, which IMF economist Blanchard raised this week, would be to devalue the dollar, the euro and other developed-world currencies.
"The advanced economies as a whole may need to depreciate their currencies so as to increase their net exports," Blanchard said.
The less well-advertised side of the equation: If the dollar is worth less, then imports, regardless of their source, will cost more. U.S. exports will be proportionately cheaper -- a good thing for American businesses trying to become more competitive in overseas markets -- but everything from iPods to jeans to the latest Barbie doll would jump in price.
The ideas offered by the IMF "could certainly reorder the balance of the international economy, but not in a way that benefits the average person in the U.S.," said J. Craig Shearman, vice president of government affairs for the National Retail Federation.
He continued: "If a few factories have an increase in exports, that is good for them, but it leaves the vast majority of people paying more for consumer goods. Talking about consuming less and saving more is a nice, ivory tower approach. But it is not real world economics. People have to put clothes on their children's backs and food on the table."
Wal-Mart declined to comment.
"Fiscal consolidation" is another idea promoted by IMF leaders. Again, the aim seems unobjectionable: The United States and other developed-world governments ran record deficits during the crisis, both to pay for stimulus programs and because tax and other receipts cratered. Across the developed world, the IMF says, government debt will rise from about 80 percent of economic output before the crisis to roughly 115 percent of output in 2014.
That's considered a dangerous trajectory, and IMF officials say that by next year, governments need to announce "credible" plans to cut their annual deficits, turn them into surpluses and start paying off what is owed.
The level of the correction needed is large, perhaps 10 percent of gross domestic product. In the United States, that would amount to roughly $1.4 trillion annually, to be cut from government programs or raised through new taxes.
Better-than-expected growth would help, or increases in productivity, or even surprises in the form of new technologies. But what's on the horizon is, more likely, a difficult reckoning -- one that Greece is facing and that other developed nations know is in the offing, French Finance Minister Christine Lagarde said in an interview Thursday.
"We're all in the same boat," Lagarde said as she looked ahead to a tough debate in France over changes in pension rules that will make not just government workers but also many in the private sector add years before their expected retirements.
The IMF is studying issues such as which taxes should be raised and which programs should be cut to make "consolidation" as painless as possible. But it views a longer working life as an important tool -- one that would save large amounts of money in the future without cutting spending and decreasing economic activity today.
In the United States, a new fiscal commission is beginning to study how to bring U.S. government debt into line.
"You will see many headlines complaining and moaning and stirring the pot," Lagarde said, as issues such as pension reform are debated. But ultimately, she said, "there is no way out."