WORLD PRODUCTION TO SHRINK FIRST TIME IN 60 YEARS-WAKE UP CALL TO HELP BUSINESSES

The world's total economy is likely to shrink in 2009 year for the first time in 60 years according to a report from the IMF..

The International Monetary Fund projected the 1.3 percent drop in a gloomy forecast released Wednesday. That could leave at least 10 million more people around the world jobless; ARE THEY KIDDING lets make that 100 million, and 10 million alone in the USA. Where are they getting these numbers?

"By any measure, this downturn represents by far the deepest global recession since the Great Depression," the IMF said in its latest World Economic Outlook. "All corners of the globe are being affected."

The new forecast of a decline in global economic activity for 2009 is much weaker than the IMF had estimated in January.

Big factors in the gloomier outlook: It's expected to take longer than previously thought to stabilize world financial markets and get credit flowing freely again to consumers and businesses. Doing so will be necessary to lift the U.S., and the global economy, out of recession.

The report comes in advance of Friday's meetings between the United States and other major economic powers, and weekend sessions of the IMF and World Bank. The talks will seek to flesh out the commitments made at a G-20 leaders summit in London last month, when President Barack Obama and the others pledged to boost financial support for the IMF and other international lending institutions by $1.1 trillion.

The IMF's outlook for the U.S. is bleaker than for the world as a whole: It predicts the U.S. economy will shrink 2.8 percent this year. That would mark the biggest such decline since 1946.

We believe that these forecasts are not correct as they are made by people who do not really understand the major reasons for why all this is happening, especially in the USA which will have a much longer recovery, if any even next year, 2010. Why would there be a recovery when the US government is looking to add taxes for all businesses, add EPA regulations, add costly compliance with all sorts of new mandates?

Among the major industrialized nations, Japan is expected to suffer the sharpest contraction this year: 6.2 percent. Russia's economy is predicted to shrink 6 percent, Germany 5.6 percent and Britain 4.1 percent. Mexico's economic activity would contract 3.7 percent and Canada's 2.5 percent. we believe that all these estimates are TOO HIGH, these economies will shrink a lot more due to the overall weakness in the US credit markets which drive world trade.

For instance, non-bank lenders who comprise about 40% of all lending in the USA, remain largely out of the business of making new loans. Lending declined overall in 2008, from 2007 by some 24%, while bank lending declined 11% (and that is for 2008!.)

China, meanwhile, is expected to see its growth slow to 6.5 percent this year. India's growth is likely to slow to 4.5 percent. Thse numbers are also too high in our opinion.

The lost output could be as high as $4 trillion this year alone, U.S. Treasury Secretary Timothy Geithner estimated. This again we believe is too low, as this may be the decrease in the top four economies alone.

In addition to trillions in lost business, a sinking world economy means fewer trade opportunities and higher unemployment. It raises the odds more people will fall into poverty, go hungry or lose their homes. And while keeping a lid on interest rates and consumer prices, the global recession increases the risk of deflation, which would drag down prices and wages, making it harder for people to make payments on their debt.

The jobless rate in the United States is expected to average 8.9 percent this year and climb to 10.1 percent next year, the IMF said. We belive that the 10% rate will be reached shortly, and this year, not next.

In Germany, the jobless rate is expected to average 9 percent this year and 10.8 percent next year. Britain's unemployment rate is projected to rise to 7.4 percent this year and to 9.2 percent next year.

The 1.3 percent projected decline would be the first in roughly 60 years. In a report issued in mid-March, the IMF predicted global activity would contract this year "for the first time in 60 years," though it didn't offer a precise estimate then.

Next year, the IMF predicts the world economy will grow again -- but just 1.9 percent. It said this would be consistent with its findings that economic recoveries after financial crises "are significantly slower" than ordinary recoveries typically are. Oh, right on, and if you belive that one, we have a bridge in brooklyn we would like to sell you.

All those factors tend to weigh against prospects "for a speedy turnaround," the IMF said.

In 2010, the IMF predicts the U.S. economy will be flat, neither shrinking nor growing. Germany's and Britain's economies, meanwhile, will shrink less -- by 1 percent and 0.4 percent respectively -- it estimates.

Others countries, such as Japan, Russia, Canada and Mexico are projected to grow again. And China and India should pick up speed.

The crisis entered a tumultuous new phase last fall, shaking confidence in global financial institutions and markets. Total worldwide losses from the financial crisis from 2007 to 2010 could reach nearly $4.1 trillion, the IMF estimated in a separate report Tuesday.

Where have these guys been getting their information, just the losses in the USA stock market exceed that, before real estate value losses.

To date, actions by the United States and government in other countries have helped ease the crisis in some ways. But markets are still not operating normally in any sense of measurement.

The 185-nation IMF, headquartered in Washington, is the globe's economic rescue squad, providing emergency loans to countries facing financial troubles, and has urged countries to take bolder actions to bolster banks.

The IMF also has pushed countries to work more closely together (oh sure like they always do). It favors coordinating fiscal stimulus efforts through tax reductions (NOT THE USA, they do not get it in Washington) or greater government spending to stimulate the appetites of consumers and businesses ( and how does that work exactly-they take our money to stimulate us with that $13 weekly estimate of our tax savings?). And it warned countries to resist the temptation of enacting protectionist trade measures ( like those promoted by our government).

"Fiscal policies had made a gigantic difference," said IMF Chief Economist Olivier Blanchard. Without them, the hit to the global economy would have been much greater and pushed it perilously close to "a depression," he added.

Because the world economy won't be back to normal next year or perhaps even in 2011, Blanchard urged countries to spend money on big public works projects ( that is really smart, especially when it creates gigantic deficits)-- something the Obama administration is doing -- to bolster activity (of government spending, and litle else).

Bold policy actions could set off a mutually reinforcing "relief rally" in financial markets and a revival in consumer and business confidence, the IMF said in its report.

"The problem is that the longer the downturn continues to deepen, the slimmer the chances that such a strong rebound will occur, as pessimism about the outlook becomes entrenched and balance sheets are damaged further," the IMF said in its report.

With the global economy stuck in a recession, the risks of a dangerous bout of deflation -- a prolonged decline in prices that can worsen the economy -- has risen. The IMF cited a "moderate" risk of deflation in the United States and in the 16 countries that use the euro. It saw a "significant likelihood of deeper price deflation" in Japan.

Please note that the worlds largest economies are the USA, China, Japan, Germany, Russia, the UK, India.

The Chinese economy operates by being the cheap supply chain for the others, so when times are tough in the major countries which China supplies, it folds too.

Please check out our prior blog about how the world is dependent on overlapping countries to trade with each other, where we described the problem or having angora goats repossessed by Mongolian banks due to the price of the silky soft fabric dropping.

So far our predictions for investing last year beat all the investment gurus, we suggested and compared putting money into a mattress, versus the stock market and beat all advisers.

The IMF seems to be way off the mark, but then again when you do not live in the real world of real salaries and business problems, it is hard to see the forest for the trees.