It is funny how so much can be agreed and yet, when conclusions are drawn, how much of a fundamental divide can remain.
These excerpts, fresh off the presses, come from the IMF's World Economic Outlook update:
"Real activity is rebounding, supported by extraordinary policy stimulus. Global production and trade bounced back in the second half of 2009. Confidence rebounded strongly on both the financial and real fronts, as extraordinary policy support forestalled another Great Depression. In advanced economies, the beginning of a turn in the inventory cycle and the unexpected strength in U.S. consumption contributed to positive developments. Final domestic demand was very strong in key emerging and developing economies, although the turn in the inventory cycle and the normalization of global trade also played an important role.
At the same time, there are still few indications that autonomous (not-policy induced) private demand is taking hold, at least in advanced economies.
Continued policy efforts are needed to sustain the recovery and prepare for exit.
Lastly, policymakers are facing major structural policy challenges. In advanced and emerging economies with excessive external surpluses and domestic saving rates, global rebalancing could be fostered through structural policies to support domestic demand and the development of nontradable sectors. On the other hand, economies that relied excessively on domestic demand-led growth will need to shift resources toward the tradable sector."
And this is Andy "they asked arsonists to put out the fire" Xie, formerly of the Roach / Morgan Stanley stable, last week:
"Some of the bright spots, like bank earnings and GDP growth, that governments are touting as results of the trillions of dollars they have spent are misleading...How could banks make such huge profits? The usual explanation is that banks have traded well, like borrowing short-term funds from the Fed at a zero percent interest rate and investing in treasuries at 3.5% interest rate...Just 2% spread from such trades could yield over USD 300 billions in profits. That seems like a miracle: nobody is hurt, and banks make billions.
The pain is actually postponed in two ways. First, the low funding cost for banks' trading will turn into inflation that dilutes everyone's cash holdings: The Fed is just redistributing money from savers to banks, only the savers don't know it yet. Second, the banks' low funding cost has a government-guarantee component...their profits would be wiped out if the debt market doesn't believe in a government bailout...The cost associated with the guarantee is effectively a free insurance policy from the taxpayers. When the next crisis hits, the cost will materialize. The financial recovery that governments are touting is really a sham; it is just another robbery.
The next crisis will essentially be a continuation of the last one...governments and central banks have thrown trillions of dollars towards preventing necessary economic adjustments, believing that stimulus will bring back growth. The money is buying some time, but the costs are (1) that the governments won't have enough money to cushion the pain during the coming economic restructuring and (2) that inflation will increase misery in an economic downturn.
The whole world is drinking poison to quench its thirst. It may feel like relief now, but the sickness will strike in 2012."
Some people are never happy, of course, and their glass is always half-empty. The IMF appears to put great store in the assumption that private demand will "self-sustain" in due course and that inflation will not prove to be a problem. The rest is tricky but careful management etc etc.
Mr Xie, in contrast, assumes the course of private demand does not really matter much: his balances of probability already suggest that the critical action will concern inflation just when it hurts the most.
Fairly mutually exclusive looking outcomes...