Tom Baker versus the IMF

Lent's over, so it's time to look at the latest pronouncements from dear old Anatole Kaletsky.

Do you remember an episode of Blackadder where Edmund hires an old sea dog to take him around the world? When he turns up for the voyage, he finds that the captain, played by Tom Baker, is planning to do the trip without a crew. "Isn't it normal to have a crew?", asks Edmund. The captain replies, "Opinion is split on the matter. All the other captains say it is, and I say it isn't".

I was reminded of this by a comment from Kaletsky in the Times on April 7, to the effect that he is now just about the only economist in the world not expecting a recession in the US. He's probably right about that, but I'm not sure it's a good thing. Over the years I have encountered quite a lot of economists who take contrary positions just to attract attention, saying that clients benefit from hearing contrary opinions. This is fine as long as your contrary opinion turns out right once in a while, but it's not much good if the consensus that you're bucking is correct.

And the fact is that the consensus, even if it's just a simple average of individual economists' forecasts, usually proves quite accurate. That's one reason why the private sector consensus published each month by the UK Treasury is worth watching. In fact, given Kaletsky's appalling track record since the credit crisis began, I'd value his opinions rather less than those of Tom Baker.

Anyway, the latest body to warn that the credit crisis will get worse before it gets batter is the IMF, in its semi-annual Global Financial Stability Report. It warns that “The critical challenge now facing policy makers is to take immediate steps to mitigate the risks of an even more wrenching adjustment, including by preparing contingency and other remediation plans, while also addressing the seeds of the present turmoil.” Evidently it doesn't agree with Kaletsky, who thinks that George Bush has laid the foundations for resolution of the problem through the fiscal stimulus that takes effect at mid-year. The way this crisis is going, that seems a long way away, and it's hard to be as confident as Kaletsky that cutting taxes for low earners will give much of a boost to anything, apart from the US trade deficit.

In the meantime, the impact on the UK economy continues to grow. Abbey has become the last bank to stop offering 100% mortgages (which should, of course, never have been available in the first place, but that's another issue). The Bank of England will further increase the size of its monthly liquidity injection into the banking system this month, as the spread between official and interbank rates (what used to be called the TED spread) continues to show a fundamental lack of confidence in the financial sector. Maybe Kaletsky will turn out to be right for once, but as Damon Runyon once said, "that's not the way to bet".