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The International Monetary Fund said Monday it sees increased danger of economic fallout from the ongoing financial crisis and urged the U.S. government to review the business model of housing-finance giants Fannie Mae (FNM) and Freddie Mac (FRE).
"As economies slow, credit deterioration is widening and deepening, and as banks deleverage and rebuild capital, lending is beginning to be squeezed, restricting household spending and clouding the outlook for the real economy," according to Jaime Caruana, director of the IMF's monetary and capital markets division.
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In its report, the IMF said it maintains its estimate that potential losses to banks from bad debts in the current crisis will reach around $945 billion, and it reiterated that banks will need to raise further capital to cover these losses. In this context, U.S. and euro area banks are reining in lending, the IMF said.
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INDIREFI
The crisis of U.S. Manufacturing transcends any current set of economic conditions.
The crisis effects and is effected by the currency, energy, and housing crises. The role of U.S. manufacturing is pivotal in solutions to energy and housing, because the dearth of manufacturing has exacerbated both housing and energy. When U.S. industrial might led the way in WWII, the industrial base pulled the U.S. from Depression and made half of the materials and weapons needed in the War effort for all Allies. A crisis of equal gravity is at hand, and an effort to match the gravity of the crisis is needed. Nothing proposed here is any more dangerous than the construction of the Canals of the Washington Administration.
The solution is the reconstruction of the U.S. industrial base. The starting point must be auto and its component industries. The plight of automobile industry is grave enough to warrant help even without externaliztion of auto industry crisis. Externalization of the automotive crisis effects other industries, the environment, the dollar, and economic recovery and trade. We cannot put metal in the ground for wind turbines or drilling pipe when there is no metal to buy. The siren song of the supply chain is over when supply of commodities are short, expensinve, and both import prices and trade debt are so high.
Needed for the auto crisis is a U.S. authority with the capacity and deep pockets to turn around domestic production. Turn-around will focus on manufacture of auto,steel,chips and other native industries, american and foreign. The objective is to provide bridge financing for a distraught industry. The bridge financing authority will seek take-out substition of the loans made by private capital after the factory floor and plant capacity is built and ready, most likely a 2 to 3 year window.
A carefully planned first year budget should be less than the original cost of the Marshal Plan ($45Billion). Net cost to the taxpayer is planned to be zero.
A prime objective is to protect taxpayer funds and recycle loan money in the window. The authority will help in of the early production for federal, state and local government fleets. Without Reconstruction, the goal of creating fuel fleets may exceed ten years.
The Reconstruction will target factory and moveable shop floor capacity for a range of new technology, fuel efficient vehicles. Such vehicles will include the plug-in hybrids, conventional hybrids, fuel-cell vehicles, very high mileage conventional vehicles, natural gas and methanol vehicles and other new technologies still to come.