Face falling markets with more economic risk taking – says IMF

IMF says the key to growth is commitment to innovation but industry opinion is split.

A lack of economic risk-taking in support of growth, combined with increasing excesses in financial risk-taking, is threatening global financial stability, says IMF’s José Viñal but not everyone is in agreement.

According to Viñal, low interest rates have been sending the wrong signal to investors. Where reduced rates were supposed to stimulate the economy and encourage new investment, the surfeit of money is serving only to bid up assets and once these assets climb too high, it’s inevitable that they’ll come crashing back down.

Unsurprisingly, billionaire investor Carl Icahn made his fortune doing just that and recently urged Apple to use their profits to bid up the price of its own shares rather than invest them in developing new products or technology.

“We believe Apple is dramatically undervalued in today’s market, and the more shares repurchased now, the more each remaining shareholder will benefit from that earnings growth,” wrote Icahn, in a letter released late last week.

This might sound tempting to a short-term shareholder but as IMF’s head of monetary and capital markets, Viñal is convinced it’s this attitude which has created the problem of global financial instability.

“The best way to safeguard financial stability and improve the balance between economic and financial risk taking is to put in place policies that enhance the transmission of monetary policy to the real economy—thus promoting economic risk taking—and address financial excesses,” advises last week’s IMF report. 

Business writer Don Pittis agrees - he thinks we should be investing in the innovative and says it’s the time to shine for investors who place their faith (and funds) in new products and inventions.

For many people, patiently sitting on your nest egg will seem like the safest way to save but more and more key players are saying this type of conservative investing is threatening global financial stability. Which side are you on?