Personal Loans

Washington, D.C., United States (AHN) – The International Monetary Fund plans to meet for its annual meeting Friday in Washington, D.C., only two days after an internal report warned that the economies of large nations face risks of deflation in the coming year.

Meanwhile, the U.S. Federal Reserve Bank is considering a buy-back of government bonds to help the economy’s cash flow. Federal Reserve Chairman Ben Bernanke said he would decide whether to proceed with the buy-back by early November.

Deflation refers to a drop in prices for goods and services and lower wages, which hurt the economy by making it harder to repay debt. Bond buy-backs can reduce the chances of deflation.

The International Monetary Fund (IMF) meeting, which is being joined by the World Bank Group, is intended to help economic leaders figure out strategies to recover from the worst global recession since the 1930s.

“Most advanced economies and a few emerging economies still face large adjustments,” says the IMF’s Global Financial Stability Report. “Their recoveries are proceeding at a sluggish pace, and high unemployment poses major social challenges.”

Challenges facing the United States include helping homeowners recover from defaults on risky loans they took out before the recession started three years ago and balancing the trade deficit by increasing exports.

“Increased net exports in advanced economies imply higher demand and higher growth, allowing more room for fiscal consolidation,” the IMF report said.

A competition among major countries to balance their deficits made Brazilian Finance Minister Guido Mantega warn recently of a “currency war” unless an international fair trade agreement is reached.

Some countries want to let the value of their currencies fluctuate with market conditions while others — like China — insist on subsidizing the value of their currency to give their exports a price advantage over competitors.

Chinese Premier Wen Jiabao this week rejected U.S. and European demands to allow his country’s currency to fluctuate in value. He said that if the Chinese yuan does not maintain a steady price, economies of China and the rest of the world could be destabilized.

The IMF’s agenda for this week calls for an international “safety net” agreement to prevent the kinds of economic crises that have fueled the war of words over currency valuations.

The agreement could include currency swaps to increase liquidity of economies and larger lines of credit.

Reza Moghadam, the IMF’s policy and strategy team leader, said in a recent blog entry that the safety net of a new agreement would help countries with good economic policies avoid being dragged down by the bad policies of other countries.

A global safety net is important for nations “especially when they are innocent bystanders caught up in a financial turmoil,” he wrote.

The IMF’s Global Financial Stability Report criticized the international response to the Great Recession as a patchwork of regional efforts. Financial rescues would have been better with international cooperation, according to the IMF.

The IMF is a cooperative effort among nations to bail out countries with rescue loans when their economies are close to collapsing.

Asian and Latin American countries have avoided IMF loans in recent years because of strict conditions required before they can accept the money.

View full post on All Stories