IMF WARNS OF GLOBAL FINANCIAL CRISIS!

SAYS CENTRAL BANK INTERVENTION CANNOT TO STOP GLOBAL FINANCIAL COLLAPSE

The International Monetary Fund (IMF) today warned authorities worldwide to "think the unthinkable" in planning to cope with a mounting crisis in the global financial system.

John Lipsky, IMF first deputy managing director, called for "decisive policy action" amid a credit crunch that stems from the US real estate meltdown and is spreading throughout the financial markets.

The coordinated actions by the US Federal Reserve and other global central banks on Tuesday to further pump billions of dollars of liquidity into financial markets were "helpful" but stronger measures may be necessary.

Policy actions worldwide to date "may not prove to be adequate" to deal with the "low-probability but high-impact events" that may materialize and undermine global financial stability, Lipsky said in an address at the Peterson Institute for International Economics, a Washington think tank.

"Policy makers as a matter of course need to 'think the unthinkable,' and to consider how they would plan to react if contingencies arise. The need to prepare more systematically for potential risks has been demonstrated amply during the past few months," he said.

"By now, there is little doubt that risks of further escalation of this crisis are rising and decisive policy action will be required to put the global financial system and economy on a firmer footing." He said the first priority was to reverse the spreading strains in global financial markets and to restore the normal functioning of the financial system in advanced economies.

If contingent risks materialize, the central banks together with financial supervisors and regulators will be the first line of defence. The second line of defence lies with fiscal authorities. Finally, public intervention will be considered as a third line of defence, Lipsky said. The IMF "stands ready to use its record liquidity if needed to help cushion the global economy," Lipsky said, adding, "we must keep all options on the table."

Pip pip