The International Monetary Fund (IMF) risks devaluing its own advice with a recent overload of warnings. Having failed to predict the 2008 financial meltdown or the euro crisis, it looks eager to avoid another embarrassment. The fund's reports now brim with alerts on everything from growth-killing austerity to risky bets at US pension funds. Flashing too many red lights isn't more helpful than yesterday's insouciance.
Historically, the IMF has suffered from an inclination towards over-optimism. As America's sub-prime crisis mounted in April 2007, the fund's chief economist blithely predicted strong growth for years to come and said he didn't think "the financial tail (was) about to wag the economic dog". This Panglossian disposition was also on show during the Greek financial drama.
The fund's forecast of a 2.6-per cent economic contraction for 2011 fell far short of the near 7-per cent negative growth the country actually experienced. Similarly, the IMF praised the economies of Egypt and Libya a few months before their autocratic regimes were overthrown.
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After those gaffes, the IMF is over-compensating. Managing Director Christine Lagarde set the tone for the spring meeting by saying she was troubled by a 50 per cent surge in foreign exchange borrowing by emerging markets firms over the past five years.
The reports that followed contain an exhaustive list of policy gripes and accidents waiting to happen. Western European nations and the United States risk harming growth by cutting budget deficits too fast. European companies have taken on unsustainable levels of debt. America's public pension funds have piled into hazardous alternative investments, like private equity. That is to name but a few of the perils the IMF sees.
At least the IMF will have its back covered when the next crisis hits. A candid exposition of looming threats is also preferable to forced optimism. Except when there are too many to be credible.
