We Stopped The Collapse!

INTERNATIONAL Monetary Fund (IMF) chief Christine Lagarde has warned greater efforts are needed to get the global economy back on track.

"We stopped the collapse, we should avoid the relapse, and it's not time to relax," Lagarde said at a news conference at the multilateral institution's Washington headquarters on Thursday.

"There's still a lot of work to be done."

The IMF managing director, while pointing to signs of economic improvement, noted deterioration on the jobs front, which she called "critical from an economic point of view but also from a social point of view".

"We need growth for jobs and jobs for growth," she said.

The eurozone, the centre of the public debt crisis dragging down global growth, and where the IMF together with the European Union (EU) has rescued Greece, Ireland and Portugal, has to do more to address its challenges, she said.

Financial firewalls erected by the EU and the European Central Bank (ECB), such as the European Stability Mechanism (ESM) rescue fund and ECB bond purchases, "have not proven operational".

"Progress needs to be made on the banking union," she added.

Lagarde suggested further monetary easing in Europe may be appropriate to sustain demand.

As for the United States, the IMF chief called on bitterly-divided politicians to reach a compromise on the nation's borrowing limit and deficit-reduction plans.

"All sides should pool together in the national interest" to avoid another "avoidable political mistake", she said.

My view:

Ms. Lagarde could not be more mistaken.

The EU and IMF increasing sovereign debt levels to bail out a highly leveraged banking system of interconnected banks.  

They burdened over-indebted countries with even more debt who have no hope of ever repaying for the sake of saving the Euro currency, a mad currency construct if ever one was envisioned.

And now they talk about further progress needed toward a banking union.

This is equivalent to giving a juvenile delinquent matches and a can of gasoline when he in on probation for burning down the school.  In the end, the delinquent will only cause a greater fire.

So Ms. Lagarde, consider again your rationalization about stopping the collapse.

You have only succeeded in delaying it.

But the next time the collapse comes, the damage will be greater than the first as debt deflation resumes with vengeance.