Wednesday, April 15, 2009

Krugman on the IMF and stress tests.

Calculated Risk reports on a Krugman interview. I have to say--Krugman might be right on the state of the economy and on the state of the stress tests, but what he says in the interview is quite misleading.

"We have some real real problems. They are not going to go away through self-fulfilling optimism. One of the little things that has been reported is that the IMF now - International Monetary Fund - has upped its estimate of losses on bad loans to $4 trillion."
The IMF upping its losses estimate isn't a problem. Forecasts aren't problems. The causes of low forecasts can be problems. That is to say, the bad stuff happened before, and the forecasts reflect the past. Bad stuff may also happen in the future, but the IMF forecast only reflects the scale of some problem.

"I think we can say pretty clearly that if the stress tests were saying that every thing was fine, they probably wouldn't be eager to postpone the release of that."
Maybe, maybe not. Remember that good results of the stress tests don't mean that we have no problems. Postponing the release of the results of the stress tests may be the treasury's way of keeping optimism in check (as Obama has been trying to do, recently). Or, they may want to make sure to have their report as complete as possible before releasing any information, which is important for both good news and bad news. Really, we can't say anything pretty clearly about the postponement of the stress tests.

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