Daily Management Review

Progress on too-big-to-fail Rules Cited by Fed's Fischer, IMF Views US Economy in “Good Shape”


Progress on too-big-to-fail Rules Cited by Fed's Fischer, IMF Views US Economy in “Good Shape”
Defending the US Federal Reserve Bank’s approach to the too-big-to-fail issue, the Vice Chair of the bank - Stanley Fischer said that the central bank's proposals would limit the fallout from a major failure and take taxpayers off the hook while delivering a lecture at a conference in Sweden recently.
Fischer told a banking conference in Sweden that the shock from the failure of any of the United States' 8 globally systemic banking firms would be minimized by ensuring firms have a plan for resolution and a "thick-tranche" of debt to absorb losses. Fisher further said that compared to the time when the collapse of Lehman Brothers in 2008 helped touch off a global crisis, the process would run more smoothly thanks to a government liquidity authority and special bankruptcy rules.
He said that since the money would not be injected as capital and any losses would be imposed on other large financial firms, the provision of liquidity from a government fund would not amount to a bailout in a crisis. Insurance against fire sales of derivatives and other financial contracts would be ensured by other rules which are in the process, he said.
There were no comments from Fischer on monetary policy or the U.S. economy in prepared remarks released by the Fed.
On the other hand, the International Monetary Fund is of the opinion that the U.S. economy is in 'good shape'.  With growth set to accelerate from recent setbacks despite an overvalued dollar, the IMF said that the U.S. economy was "overall in good shape".
However the Fund issued a warning over the fact that too many Americans were living in poverty.
With inflation rising slowly toward the Federal Reserve's goal of two percent, the IMF expects U.S. growth to be 2.2 percent in 2016 and 2.5 percent in 2017.
The Fund said this in a statement at the conclusion of its annual review of U.S. economic policies.
"At today's level of the real effective exchange rate, the current account deficit is expected to rise above 4 percent of GDP by 2020, pointing to the U.S. dollar being overvalued by 10-20 percent," the IMF said in its report.
Declining participation in the labor force as the population ages, too many Americans living in poverty, about one in seven people and one of every three households headed by a female and another downdraft in global demand are among the biggest risks to future U.S. growth, the IMF said.
In order to draw more women into the workforce, pursuing immigration reforms and reworking the disability insurance program to allow for part-time work, the IMF urged U.S. policymakers to take steps to increase labor force participation, including improving child-care and other family-friendly benefits.
While urging the US government to provide a more generous earned-income tax credit, and improving early childhood education, the Fund also called for the United States to raise the federal minimum wage.

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