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IMF and Greenspan predict gloom for US economy

Published time: June 17, 2011 17:07
Edited time: June 18, 2011 02:28

In the International Monetary Fund’s latest assessment of the US economy, the IMF warns America that it is “playing with fire” unless it makes some immediate changes.

In April the IMF predicted that the US gross domestic product would grow only a meager 2.8 percent in 2011. Now only two months later, the global lender forecasts that growth will be more along the lines of 2.5 percent. They also estimate that growth in 2012 will only come at around 2.7 percent, compared to the 2.9 prediction they issued earlier this year.

Reuters reports that Jose Vinals of the IMF’s monetary and capital markets department says that "We have now entered very clearly into a new phase of the (global) crisis, which is, I would say, the political phase of the crisis.”

The United States, says Vinals, is one of four countries that has “the biggest homework” to do if they want to restore their public finances to “a reasonable situation” in terms of debt levels. Also in trouble: Greece, Ireland and Japan.

"You cannot afford to have a world economy where these important decisions are postponed because you're really playing with fire,” says Vinals.

The IMF isn’t the only one predicting doom and gloom for the global economy. Speaking to Charlie Rose this week, former Federal Reserve Chairman Alan Greenspan says that a default by Greece is “almost certain” to drive the US back into a recession.

“The chances of Greece not defaulting are very small,” says Greenspan.

Those chances, he adds, are “so high that you almost have to say there’s no way out.” If that default happens, which Greenspan seems almost certain it will, he says some US banks will be “up against the wall.”

The nuclear disaster that struck Japan earlier this year is also one of the “negative surprises” that the IMF says led to disappointing figures in the worldwide economy.

IMF chief economist Olivier Blanchard adds that the little amount of growth it expects in US will not be enough to bring the unemployment rate down from 9.1 percent. That current statistic is more than double what it was in 2006.

The “political stalemate” over the deficit issue is also impeding the nation’s economy from thriving, says the IMF. Lawmakers are less than six weeks away from the August 2 deadline when the Treasury Department says the US will have exhausted its borrowing authority.

The $14.3 trillion debt, says Greenspan, is “horrendously dangerous.”

Although the IMF predict that the GDP will grow — albeit at a staggering speed — Greenspan doubts lawmakers will fix the debt crisis within the next year.

Others are even more certain that these scenarios are more than just hypothetical. Mark Spitznagel is betting his hedge fund Universa on the impending collapse. Business Insider editor Courtney Comstock reveals that Spitznagel predicts that the S&P will fall 40 percent and is so certain that he’s putting his money on it — all $6 billion.