On the first day of Spring, when the sun shines and the flowers bloom, the IMF decide to poison the world with some more ideological positioning masquerading as economic analysis. I refer to their latest Staff Position Note (SPN/10/11) which carries the title - Fiscal Space. I think after reading it the authors might usefully be awarded an all expenses trip to outer space. It is one of those papers that has regressions, graphs, diagrams and all the usual trappings of authority. But at its core is a blindness to the way the world they are modelling actually works. I guess the authors get plaudits in the IMF tea rooms and get to give some conference papers based on the work. But in putting this sort of tripe out into the real policy world the IMF is once again giving ammunition to those who actively seek to blight government intervention aimed at improving the lives of the disadvantaged. The IMF know that their papers will be picked up by impressionable journalists who are too lazy to actually seek a deeper understanding of the way the monetary system operates but happily spread the myths to their readers.

So already today I read a report in the Sydney Morning Herald (September 2, 2010) - Australia well-placed to handle any shocks: IMF - which claims that upon the basis of the IMF paper that:

Australia is among only a handful of major economies where the government’s budget is best placed to deal with “unexpected shocks”, an International Monetary Fund (IMF) report says …

In an analysis of 23 advanced economies, the Washington-based institution examined a country’s “debt limit” based on its historical track record and its current debt level, which it describes as the “fiscal space”.

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