Snappy newsletters. Simple Facebook sharing. Spirited comments. Sweet features are waiting… GET THEM NOW!

How the US Became a Banana Republic

America is a textbook IMF case—but one without a solution

By Jason Farago, Newser Staff

Posted Mar 30, 2009 2:51 PM CDT

(Newser) – As chief economist at the International Monetary Fund, MIT professor Simon Johnson saw a pattern in bankrupted countries from Argentina to Indonesia: "The powerful elites within them overreached in good times and took too many risks." The current US crisis, Johnson writes in the Atlantic, is "shockingly reminiscent" of an emerging-market basket case—and just as in developing countries, financiers are using government connections "to prevent precisely the sorts of reforms that are needed."

In a typical IMF case, the troubled country has no choice but to swallow its medicine, squeezing oligarchs and breaking up troubled banks. But while the US has the woes of an emerging economy, it has the hubris of a superpower and "could very well stumble along for years." The upshot: We face a crisis that could be "worse than the Great Depression" unless government breaks up the system that currently has it in a stranglehold.

[Images (4)]

[Quotes (1)]

The United States bears the hallmarks of an emerging market economy on the verge of collapse, according to the former chief economist at the IMF. (©Nrbelex)

IMF chief Dominique Strauss-Kahn delivers a speech in Paris on March 27, 2009, ahead of the upcoming G20 meeting in London. (AP Photo/Jacques Brinon)

JP Morgan Chase CEO Jamie Dimon, left, and Goldman Sachs CEO Lloyd Blankfein leave the White House on Friday, March 27, 2009, after a meeting between chief executives and President Obama. (AP Photo/Evan Vucci)

U.S. Treasury Secretary Henry Paulson speaks about China to the World Affairs Council in Washington on Dec. 2, 2008. (AP Photo/Gerald Herbert)

« Prev« Prev | Next »Next » Slideshow

If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up. - Simon Johnson in The Atlantic

« Prev« Prev | Next »Next » Slideshow

To report an error on this story, notify our editors.

More Newser Stories

Jobless 'Wasteland': Europe, US on Brink of Social Revolt

Recession left 'gaping wounds' says IMF head

(NEWSER) - To those who think the worst of the recession is over, the head of the IMF has this to say: "We are not safe." An astounding 30 million jobs have been lost since the beginning of the financial crisis , three-quarters of those in richer economies, a new report shows. This "wasteland of unemployment," now at 210 million worldwide, puts both the United States and Europe at serious risk of a social revolt, says the IMF's Dominique Strauss-Kahn . More»

It's 1938 All Over Again

And World War II isn't walking through that door

(NEWSER) - The US economy has been crippled by financial crisis, and the president’s too-cautious policies have failed to stem the bleeding. More stimulus is needed, but the public has soured on spending and plans to kick Democrats out of office. Sound familiar? That was the situation in 1938, writes Paul Krugman of the New York Times . And this time, World War II’s not walking through that door to save us. More»

IMF: Global Recession Is Over

World economy is growing, but recovery will be slow

(NEWSER) - The global recession is over, the International Monetary Fund said today, revising its economic forecasts in response to Asian growth and more than $2 trillion in stimulus packages worldwide. The IMF now says the world economy is growing and will expand by 3.1% in 2010, with China growing at a 9% clip and the US at 1.5%. Nevertheless, the institution warned that growth will be "sluggish, credit-constrained and, for quite some time, jobless." More»

G20 Near Deal to Open Economies to Scrutiny

'Peer review' system will let nations assess each other's policies

(NEWSER) - The G20 is on the brink of a deal this morning that will require members to "peer review" one another's economic policies—a substantial shift that will expose the US and China to wider scrutiny from less wealthy countries. The new top table for international negotiation wants less American borrowing, more Chinese consumption, and more European investment. But while the IMF will assess whether those plans are working, the G20 won't introduce any enforcement mechanisms, such as sanctions, reports the Wall Street Journal. More»

Uncertainty, Not Poverty, Behind Recession Blues

It's not the lack of funds, it's the lack of knowing that brings us down

(NEWSER) - Americans are worrying more than they were last year, and happiness is down while sadness is up, writes Daniel Gilbert in the New York Times. But it’s not the lightness of our pocketbooks that’s weighing on us; it’s the uncertainty of the times. While most of us still have more than our grandparents ever did, the possibility of losing it makes us sick. More»

NEWS FROM OUR PARTNERS

What is Newser?

Face it: there's too much news. At Newser, we choose the most thought-provoking and entertaining stories from hundreds of US and international sources and reduce them to a headline, picture, and two paragraphs. And we do it 24/7—you can come back morning, noon, night (and in between) for something new that matters. Read less, know more.

Learn more »

Partnering with: Slate

View Newser on the mobile website

How the US Became a Banana Republic