IMF: World economy to shrink in 2009

Editor's Note: The following report is excerpted from Jerome Corsi's Red Alert, the premium online newsletter published by the current No. 1 best-selling author, WND staff writer and columnist. Subscriptions are $99 a year or $9.95 per month for credit card users. Annual subscribers will receive a free autographed copy of "The Late Great USA," a book about the careful deceptions of a powerful elite who want to undermine our nation's sovereignty.

Economic data continue to indicate the global bank crisis is deepening, not beginning to recover, despite the Obama administration's attempts to promote investor optimism, Jerome Corsi's Red Alert reports.

The IMF has officially announced that the world is now in a severe recession, predicting that the global economy will shrink by 1.3 percent in 2009 in a stunning "substantial downward revision" of its January forecasts, when the IMF had predicted the world economy would actually grow by 0.5 percent this year.

Its projection for the United States was even more severe, with the IMF forecasting the U.S. economy would shrink by 2.8 percent this year.

TRENDING: Is America having a near-death experience, or is this the end?

"These projections are based on an assessment that financial market stabilization will take longer than previously envisioned, even with strong efforts by policymakers," said IMF chief economist Olivier Blanchard and Jose Vinals, the head of the IMF's Monetary and Capital Markets Department, in a joint statement.

This was bad news, Corsi wrote, especially since economists have insisted the world economic downturn will not begin reversing until banks are able to stabilize and begin lending once again.

"Unfortunately, banks around the world appear nowhere near stabilized," Corsi said.

The International Monetary Fund has also reported financial institutions worldwide face total losses of $4.1 trillion on loans and other assets, with losses in U.S. banks estimated at $2.7 trillion, up from the $2.1 trillion the IMF estimated in January.

The IMF estimated banks would bear two-thirds of the losses, with insurance companies, pension funds, hedge funds and others taking the rest, according to the Financial Times.

U.S. banks have so far taken about half the $2.7 trillion losses, while European banks have written down only about one-fifth of their estimated losses, with much of the anticipated losses particularly vulnerable because of the exposure of EU banks to emerging markets in Eastern Europe, as Red Alert has previously reported.

The IMF concluded that if banks were to take all losses faced from toxic assets, the write-offs would wipe out altogether the common equity of banks in the United States, the EU and Japan.

"An inability to bring the bank crisis to closure will certainly prolong the recovery, with the possibility that impending disclosures will end up producing the exact opposite result – namely, deepening the recession," Corsi wrote.

Faced with less than $125 billion in Troubled Asset Relief Program, or TARP funds, Treasury Secretary Timothy Geithner has begun suggesting U.S. banks begin converting federal bailout loans into common equity, according to Bloomberg.

RELATED: Scorching! 'Obamamobile' up in flames

This is a controversial proposal, Corsi noted, because, as common equity shareholders, taxpayers would receive less protection in bankruptcy than if their loans were converted to preferred shares.

"Yet, the proposal reflects the Obama administration's acknowledgment that getting additional TARP funds from Congress will be very difficult, especially in light of the taxpayer revolt threatened by the April 15 tea party protests held throughout the nation," Corsi wrote.

With TARP money running out, the Treasury is trying to finesse the release of the stress test results, so as to give banks the best possible chance of attracting additional private capital.

Red Alert's author, whose books "The Obama Nation" and "Unfit for Command" have topped the New York Times best-sellers list, wrote that at the end of last week, the bank crisis appeared nowhere near finished, with more pain yet to come in a global recession that may have a long time to go before economic recovery.

Corsi received his Ph.D. from Harvard University in political science in 1972. For nearly 25 years, beginning in 1981, he worked with banks throughout the U.S. and around the world to develop financial services marketing companies to assist banks in establishing broker/dealers and insurance subsidiaries to provide financial planning products and services to their retail customers. In this career, Corsi developed three different third-party financial services marketing firms that reached gross sales levels of $1 billion in annuities and equal volume in mutual funds. In 1999, he began developing Internet-based financial marketing firms, also adapted to work in conjunction with banks.

In his 25-year financial services career, Corsi has been a noted financial services speaker and writer, publishing three books and numerous articles in professional financial services journals and magazines.

For more information on bankruptcy plans for GM and Chrysler and for financial guidance during difficult times, read Jerome Corsi's Red Alert, the premium, online intelligence news source by  the WND staff writer, columnist and author of the New York Times No. 1 best-seller, "The Obama Nation."

For the complete report and full immediate access to Jerome Corsi's Red Alert, subscribe now.

Subscribe to Jerome Corsi's new weekly economic newsletter, Red Alert, for one year and, for a limited time get "The Late Great USA" free. (This offer applies only to annual subscriptions for $99.)