Fantasyland for the Fund
As I explained in a recent post, the notion that the IMF can act as a global economic policeman is pure fantasy. But that won't stop the Fund from trying. It is sending crack teams to the US, the eurozone, Japan, China and Saudi Arabia to examine how their economies contribute to the worrying global trade and currency imbalances. The IMF will then suggest how governments should change their policies to reduce the imbalances while supporting economic growth. And then?
And then nothing. America is not going to take orders from the IMF to shrink its budget deficit. Contrary to US hopes, China will not bend to Fund pressure to let its currency float. The eurozone is not going to reform and reflate at the IMF's instigation. The most likely trigger for unwinding the global imbalances is a collapse of the dollar - something over which the Fund has no control.
