STOCK MARKET WATCH -- Tuesday, 18 June 2013

[Demeter]

7. IMF urges repeal of 'ill-designed' U.S. fiscal cuts BUT CUT SS ANYWAY!

http://uk.reuters.com/article/2013/06/14/uk-imf-usa-idUKBRE95D0LJ20130614

The International Monetary Fund urged the United States on Friday to repeal sweeping government spending cuts and recommended that the Federal Reserve continue a bond-buying program through at least the end of the year. In its annual check of the health of the U.S. economy, the IMF forecast economic growth would be a sluggish 1.9 percent this year. The IMF estimates growth would be as much as 1.75 percentage points higher if not for a rush to cut the government's budget deficit. The IMF cut its outlook for economic growth in 2014 to 2.7 percent, below its 3 percent forecast published in April. The Fund said in April it still assumed the deep government spending cuts would be repealed, but it had now dropped that assumption.

Washington slashed the federal budget in March, adding to the drag on the economy created by tax increases enacted in January. The IMF said the United States should reverse the spending cuts and instead adopt a plan to slow the growth in spending on government-funded health care and pensions, known as "entitlements." The Fund would also like the United States to collect more in taxes.

"The deficit reduction in 2013 has been excessively rapid and ill-designed," the IMF said. "These cuts should be replaced with a back-loaded mix of entitlement savings and new revenues."

The IMF warned cuts to education, science and infrastructure spending could reduce potential growth.

While the Fund said total debt across all levels of government would likely decline after 2015, public finances are nevertheless on an unsustainable path due to an aging population and higher spending on health care.

"Now our advice is not just to slow down (budget cuts)," IMF Managing Director Christine Lagarde said at a news conference. "Our advice is also to hurry up: hurry up with putting in place a medium-term road map to restore long-run fiscal sustainability."

She said effects of higher spending on health care and other programs build up over time, so it was important to act quickly to address them....

SEE KRUGMAN'S RESPONSE IN YESTERDAY'S THREAD