Front Matter

Front Matter Page

© 2008 International Monetary Fund

July 2008

IMF Country Report No. 08/255

United States: 2008 Article IV Consultation—Staff Report; Staff Supplement; and Public Information Notice on the Executive Board Discussion

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2008 Article IV consultation with the United States the following documents have been released and are included in this package:

  • The staff report for the 2008 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on June 17, 2008, with the officials of the United States on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 2, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • A staff supplement of July 18, 2008, updating information on recent developments.

  • A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its July 21, 2008 discussion of the staff report that concluded the Article IV consultation.

The document listed below will be separately released.

  • Selected Issues Paper

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

700 19th Street, N.W. • Washington, D.C. 20431

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Price: $18.00 a copy

International Monetary Fund

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Staff Report for the 2008 Article IV Consultation

Prepared by the Staff Representatives for the 2008 Consultation with United States

(In consultation with other departments)

Approved by Anoop Singh and Adnan Mazarei

July 2, 2008

  • Focus. This report centers on the analysis, implications, and policy responses related to the serious stresses in U.S. housing and financial markets. Other long-standing Article IV issues, e.g., trade, aid, and anti-money laundering, are summarized in Table 1.

  • Assessment. The economy has shown remarkable resilience to headwinds from housing, the financial sector and oil prices through the second quarter, but activity is expected to remain weak in 2008, with a slow recovery in 2009 as hits to balance sheets are worked out. Still, the shock is unprecedented and uncertainty over prospects for house prices—key to the outlook—is large. External adjustment is in train, with the external deficit and the dollar falling toward a level consistent with medium-term fundamentals.

  • Policy advice. The staff report advocates to:

    • Keep monetary policy on hold but be ready to raise rates in light of inflation risks.

    • Avoid repeated generalized fiscal stimulus, and instead let the stimulus package work, with any needed further actions targeted at root problems in housing and banking.

    • Avoid excess house price falls by expanding mortgage guarantee programs to catalyze voluntary writedowns, as proposed in Congress, but with further incentives for lenders.

    • Prepare contingency measures in the financial sector—for example, with the Treasury stepping in to support market liquidity with longer-term asset swaps.

    • Reform financial regulation—although detailed recommendations require further analysis, including in next year’s Financial Sector Assessment Program, the process could begin by considering tightening liquidity and capital requirements and bringing large investment bank holding companies under Fed umbrella supervision.

  • Authorities’ position. The flexibility of the U.S. economy, and the rapid policy response, should prompt a faster recovery than in the staff baseline. Additional stimulus is not contemplated, while further action on housing or banking risks impeding needed adjustment and aggravating moral hazard. Reform of financial regulation is a priority.

  • Analytical work. Underpinning the report are several background studies, focusing on the aftermath of housing booms and busts, house price dynamics, macrofinancial linkages, banking spillovers, and corporate balance sheets (see summaries in Selected Issues).

  • Staff. The team comprised (at times) Ranjit Teja (Head), Tamim Bayoumi, Marcello Estevão, Ravi Balakrishnan, Vladimir Klyuev, Koshy Mathai, Hui Tong (WHD); Ashok Bhatia, Christian Capuano, John Kiff, Paul Mills (MCM), and Jean-Jacques Hallaert (PDR). Mr. Singh (WHD) and Ms. Lundsager (Executive Director) joined meetings with senior officials, and with Secretary Paulson and Chairman Bernanke on June 16–17, led on the Fund side by Managing Director Strauss-Kahn and FDMD Lipsky.


  • I. Background

  • II. Balance Sheet Strains

    • A. Housing and Households

    • B. Financial Intermediaries

  • III. Macrofinancial Linkages

  • IV. The Resulting Outlook

  • V. Macroeconomic Policy Responses

    • A. Monetary Accommodation

    • B. Fiscal Support

    • C. Housing Support

    • D. Bank Support

  • VI. Financial Regulation

    • A. Bank and Securities Regulation

    • B. Business Conduct Regulation

    • C. Securitization

  • VII. External Adjustment and the Dollar

  • VIII. Staff Appraisal

  • Boxes

  • 1. International Spillovers

  • 2. Special Considerations in the Assessment of the Dollar

  • Figures

  • 1. Recent Indicators

  • 2. Anatomy of a Housing Boom and Bust

  • 3. Household Cash Flow and Balance Sheets

  • 4. The Banking Sector Leverage Cycle

  • 5. Deleveraging

  • 6. Macro-Financial Linkages

  • 7. Corporate Sector Cash Flow and Balance Sheets

  • 8. Outlook and Risks

  • 9. Monetary Policy Indicators

  • 10. Fiscal Indicators

  • 11. U.S. Competitiveness

  • Tables

  • 1. Long-Standing Fund Policy Advice

  • 2. Measures to Support the Housing Market—Selected Actions and Proposals

  • 3. Forms of Federal Reserve Lending to Financial Institutions

  • 4. Selected Economic Indicators

  • 5. Balance of Payments

  • 6. Indicators of External and Financial Vulnerability

  • 7. Fiscal Indicators

  • Appendix Figure

  • 1. Net Foreign Asset Sustainability: Bound Tests

  • 2. Public Debt Sustainability: Bound Tests

  • Appendix Tables

  • 1. Net Foreign Asset Position Sustainability Framework, 2003–2013

  • 2. Public Debt Sustainability Framework, 2002–2012

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United States 2008 Article IV Consultation Staff Report—Informational Annex

Prepared by Western Hemisphere Department

July 21, 2008


  • I. Fund Relations

  • II. Statistical Issues

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Staff Report for the 2008 Article IV Consultation—Supplement on Government-Sponsored Enterprises

Prepared by the Western Hemisphere Department

(In consultation with other departments)

Approved by Anoop Singh and Adnan Mazarei

July 18, 2008

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Public Information Notice (PIN) No. 08/95


July 30, 2008

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

On July 23, 2008, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the United States. 1

United States: 2008 Article IV Consultation: Staff Report; Staff Supplement; and Public Information Notice on the Executive Board Discussion
Author: International Monetary Fund