Massive Warning From IMF: US Could Head For Deep Recession.

Makes me chuckle for it was not long that OUR so-called local expert lambasted Warren Buffett for being a lousy economist! ( see past postings Tan Teng Boo Declares Warren Buffett to be a lousy Economist! and Is iCapital Views Consistent? Is Warren Buffett a Lousy Ecomist? )

IMF has now has released a report stating that US could be heading for a deeper recession!

• OTTAWA -- The U.S. is likely headed for a deep recession, the International Monetary Fund warned Thursday in a report in which it notes that the current banking crisis is the type that's most likely to lead to such a downturn, and suggesting the government's proposed bailout of the banking system is the right course of action.
  
  "Episodes of financial turmoil characterized by banking sector distress are more likely to be associated with severe and protracted downturns," the world's lender of last resort said in a chapter in its world economic outlook, released in the wake of Wednesday evening's vote by the U.S. Senate supporting the revised $700-billion US bailout but in advance of Friday's second vote on the rescue package by the U.S. House of Representatives.
  
  "Financial stress is more likely to be followed by an economic downturn when it is preceded by a rapid expansion of credit, a run-up in house prices and heavy borrowing by households and non-financial firms," it said. "The current situation of the United States bears some resemblance to previous episodes of banking-related financial stress episodes that were followed by recessions."
  
  The report, which looks at past episodes of financial stress and their implications for subsequent economic activity, ranks the current crisis "as one of the most intense for the United States and one of the most widest affecting virtually all countries in the sample."
  
  "Based on a comparison of the current episode of financial stress to previous episodes, there remains a substantial likelihood of a sharp downturn in the United States," it warned.
  
  "Not all episodes of financial stress lead to economic slowdowns or recessions," it added, noting that in fact only about half of the episodes of financial market stress were followed by economic slumps.
  
  "However, when a slowdown or recession is preceded by financial stress, and especially when the stress is concentrated in the banking sector, typically it is substantially more severe than slowdowns or recessions not preceded by financial stress," it said. "In particular, slowdowns or recessions preceded by bank-related stress tend to involve two to three times greater cumulative output losses and tend to endure two to four times as long."
  
  The odds that a banking-related crisis is followed by a slowdown or recession is associated with the extent to which house prices and outstanding credit have risen prior to the eruption of the crisis, it said. Further, while greater reliance on borrowing by non-financial corporations is associated with a sharper downturn in the aftermath of financial stress, the indebtedness of households is "crucial in determining whether the downturn will turn into a recession."
  
  However, the relatively strong positions of corporate balance sheets at the onset of the crisis and the aggressive monetary easing by the U.S. Federal Reserve may provide some cushion in the U.S., while the relatively strong balance sheets of European households offer some protection against a sharp downturn there, it added.
  
  "In the current circumstances, strong actions by policy-makers to deal with the stress and support the restoration of financial system capital seem particularly important," it concluded, adding that of special importance is the restoring the capital bases of core financial intermediaries, including broker-dealers and investment banks to help alleviate economic downturns.

Source: http://www.financialpost.com/story.html?id=856044