10/29/2013 09:55 am ET | Updated Jan 23, 2014

Global Economic Growth Forecast Cut By IMF: Implications Are Sobering

While media throughout the world continues to give the impression that the global economic crisis and its related debt and fiscal issues are on the path to recovery, largely by cherry picking the news, the International Monetary Fund has cut its forecast for 2013. In July, the IMF projected global GDP growth for the current year of 3.2 percent; this has now been cut back to only 2.9 percent, despite the continuation of massive fiscal and monetary stimulus by sovereigns and central banks throughout the world.

For 2014 the IMF now projects global economic growth of 3.6 percent, a reduction from an earlier forecast of 3.8 percent. These reductions come despite the IMF boosting its projection of economic growth in the UK. Contrasting with so-called "green shoots" that some pundits have pointed to since 2009, there continues to be an avalanche of bad economic data throughout the world; supposed economic recovery in one region or country is offset by worsening news elsewhere. In the meantime, central banks throughout the world, and especially in developed countries, continue to flood the globe with unprecedented levels of liquidity, all conjured out of thin air. Without this radical level of monetary easing, the already anemic levels of economic growth, typically substantially below the proportion of fiscal deficits to GDP in many sovereigns, would almost certainly collapse.

According to the IMF, a slowdown in economic growth in major emerging markets, in particular China, Russia, India and Mexico is creating a drag on overall global economic expansion. This seems almost a reversal from the onset of the crisis in 2008, when the United States was the major driver of the global economic and financial crisis and China viewed as the primary savior. The IMF now sees the U.S. as being the sovereign most pivotal for facilitating global economic growth, in the wake of the slowdown in China and other major emerging economies. However, as noted by the International Monetary Fund, political gridlock in the U.S., especially in relation to the extension of the national debt limit, is a foreboding threat for the entire global economy. Even in the absence of political dysfunction, the IMF chose to reduce its forecast of GDP growth in the American economy.

At present, the IMF projects a meager 1.6 percent growth in the U.S. economy for this year, far below the proportion of America's GDP devoted to deficit spending. In other words, the amount of money Washington borrows to fund the federal government remains far above the nominal growth in the GDP. In addition, the Federal Reserve continues its policy of quantitative easing unabated, despite periodic hints of "tapering" the money printing.

What the IMF does not elaborate on (but should) is this point; how much longer can major economies like the U.S. engage in historically unprecedented levels of monetary and fiscal stimulus that provides, at best, levels of economic growth so unimpressively marginal? If the best that such levels of public indebtedness and central bank money printing can provide is anemic growth approaching stall speed, the next major financial crisis to hit will likely be beyond the powers of even the most creative Treasury Secretary or central banker to contain.