MercoPress. South Atlantic News Agency

Global financial crisis brings together IMF and Stiglitz

Economy Nobel Prize Joseph Stiglitz

Economy Nobel Prize Joseph Stiglitz, a fierce critic of the International Monetary Fund said that “this time” the fund's experts “have it right” in their assessment of the current global financial and credit crisis, which many economists however consider as to harsh and pessimistic.

"I've always been very critical of the IMF, but I think this time they have it right", said Stiglitz in an interview with a Canadian broadcasting station on Thursday. IMF recently stated that the potential cost of the crisis for the financial system is in the range of 945 billion US dollars (close to a trillion US dollars) of which 565 billion are directly linked to United States sub prime mortgages. The former chief economist of the World Bank believes the current financial crisis is worse than the great depression of 1929 and that the consequences of the subprime mortgages are just beginning to be felt. This year an estimated 2.2 million mortgage debtors will loose their homes in the US and house prices, which have on average fallen 10%, are forecasted to loose a further 10 or 20%, "before markets begin to stabilize", argues Stiglitz. He also agreed with the IMF growth forecast for the US economy in 2008, which is estimated to be in the range of 0.6%. However the Federal Reserve believes there's margin to grow more in line with the potential of the US economy. Stiglitz proposed that the stimulus plan for the US economy sponsored by the President George Bush administration should emphasize on unemployment benefits, as requested by Democrats in Congress and rejected by Republicans. "The current package is a mere drop in a bucket". Stiglitz preferred to make no comments on the decisions and performance of the Federal Reserve chairman Bem Bernanke who is "facing difficulties" and who also "inherited a very difficult problem". Nevertheless he did criticize the lack of transparency in the Bear Sterns salvage operation involving JPMorgan with Fed funds (30 billion US dollars), although he accepts the fundamentals behind the rescue.