Will all the Bank losses please stand up

The head of the IMF, Dominique Strauss-Kahn, was interviewed by a French newspaper on Wednesday. While Human Action treats all IMF analysis with caution, particularly as the institution is forecasting global GDP growth for much of the coming five years (which we think unlikely), Strauss-Kahn’s comments were notable. If his estimate simply hits the dartboard, it will have very material policy implications. Strauss-Kahn commenting on the health of the banking sector:

“There are still some important losses that have not been unveiled…

It’s possible that 50 percent (of bank losses) are still hidden in their balance sheets. The proportion is greater in Europe than in the United States.”

Of course, the major reason for his concern is the suspension of mark-to-market accounting rules, whereby banks can now tell us what their assets are worth. So in the real world banks are running at a loss and will be getting some TLC from the local lender of last resort (read:central bank bailouts) down the road, in the world of accountants and ignorant analysts they’re running at a profit, and all’s honey and cream.

Basically, what this quote from Strauss-Kahn tells us is that you can rest assured that the exit strategy for Western central banks is  so far off you won’t see it with a Hubble Space Telescope. It also means that Europe may well be following the US Fed into more advanced stages of the money printing game.