© 2011 International Monetary Fund 

IMF Country Report No. 11/201 

THE UNITED STATES 

2011 ARTICLE IV CONSULTATION

July 

 

 

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 2011 Article IV consultation with United States, 

the following documents have been released and are included in this package: 

 Staff Report for the 2011 Article IV consultation, prepared by a staff team of the IMF, 

following discussions that ended on June 27, 2011, with the officials of United States on 

economic developments and policies. Based on information available at the time of these 

discussions, the staff report was completed on July 7, 2011. 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. 

 Staff Statement of July 18, 2011 updating information on recent developments. 

 Public Information Notice (PIN) summarizing the views of the Executive Board as 

expressed during its July 21, 2011 discussion of the staff report that concluded the Article IV 

consultation. 

The document listed below has been or 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 

Telephone: (202) 623-7430  Telefax: (202) 623-7201 

E-mail: publications@imf.org Internet: http://www.imf.org 

Price: $18.00 a copy
 

 keimn33 

UNITED STATES 

STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION

KEY ISSUES 

Context. With the tepid recovery hitting another soft patch, policies must strike the 

right balance between exiting from extraordinary support and sustaining activity. 

Fiscal policy. Consolidation needs to proceed as debt dynamics are unsustainable and 

losing fiscal credibility would be extremely damaging. However, the pace and 

composition of adjustment should be attuned to the cycle. A politically-backed 

medium-term framework that raises revenues and addresses long-term expenditure 

pressures should be the cornerstone of fiscal stabilization. The official deficit reduction 

proposals could be too front-loaded given the cyclical weakness and, at the same time, 

insufficient to stabilize the debt by mid-decade. 

Nurturing the recovery. Given the central role played by the housing market in the 

sluggish recovery, policies to ease its adjustment are particularly important. Also, since 

protracted high unemployment could erode job skills and hinder the medium-term 

recovery, there is a case for re-examining existing job-training programs and 

considering further tax incentives for hiring the long-term unemployed. 

Monetary policy. Current monetary policy accommodation, including through the 

Fed’s asset holdings, will likely remain appropriate for quite some time, unless inflation 

prospects change significantly, in either direction. 

Financial policies. The U.S. financial system continues to heal, but remains vulnerable 

to key risks, including turmoil in European financial markets and a tail scenario of a U.S. 

sovereign rating downgrade and sharply higher interest rates on federal debt, both 

with significant implications for liquidity. With nearly all U.S. FSAP recommendations 

being addressed, timely and thorough implementation of the Dodd-Frank Act should 

continue, including by ensuring appropriate funding for regulatory agencies. Crucial 

themes are dealing with systemically important financial institutions, including through 

prompt designation and resolution design, and potential migration of systemic risks, 

including to less regulated financial actors and across borders. 

July 7, 2011 
2011 ARTICLE IV REPORT UNITED STATES

2 INTERNATIONAL MONETARY FUND

Approved By 

Nicolás Eyzaguirre 

and Tamim Bayoumi 

Discussions took place in Washington, D.C., during May 27–June 27, 

2011. The team comprised (at different times) Rodrigo Valdés (head), 

Gian Maria Milesi-Ferretti, Charles Kramer, Marcello Estevao, 

Oya Celasun, Nicoletta Batini, Martin Sommer, Evridiki Tsounta, Grace 

Bin Li, and Geoffrey Keim (all WHD); Sally Chen (SPR); Francesco 

Columba and John Kiff (MCM). Ranil Salgado, Nagwa Riad, and Mika 

Saito (SPR) contributed with advice on trade policy and Steve Dawe 

(LEG) with analysis on AML/CFT issues. 

This Article IV Report has an accompanying U.S. Spillover Report 

(www.imf.org) that discusses in detail the spillovers of U.S. 

macroeconomic and financial policies to the rest of the world. Some 

Article IV Consultation meetings were also attended by members of 

the U.S. spillovers team. 

CONTENTS 

BACKDROP: A TEPID RECOVERY AMID STRAINED MACROECONOMIC POLICIES ___________ 4

THE ANATOMY OF THE SLOW RECOVERY _____________________________________________________ 5

OUTLOOK AND RISKS __________________________________________________________________________ 10

POLICY DISCUSSIONS __________________________________________________________________________ 12

A. Fiscal Policy: In Search of a Medium-Term Framework _______________________________________ 13

B. Housing Markets: The Challenge of Easing Adjustment ______________________________________ 19

C. Labor Markets: Lower Unemployment and Improve Matching ______________________________ 22

D. Monetary Policy: Continued Accommodation _______________________________________________ 23

E. Financial Policy: Restoring Financial Resilience _______________________________________________ 25

F. The United States and the World Economy __________________________________________________ 30

STAFF APPRAISAL ______________________________________________________________________________ 31

TABLES 

1. Selected Economic Indicators ________________________________________________________________ 35 

2. Balance of Payments _________________________________________________________________________ 37 

3. Federal and General Government Finances __________________________________________________ 38 

4a. General Government Statement of Operations ______________________________________________ 39 

4b. General Government Financial Assets and Liabilities _________________________________________ 39 

5. Indicators of External and Financial Vulnerability ____________________________________________ 40 

6. Status of Major Financial Stability and Fed Programs ________________________________________ 41 

7. US FSAP Key Recommendations _____________________________________________________________ 42 

 
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 3

FIGURES 

1. The Recovery in Perspective _________________________________________________________________ 44 

2. The Economy Hit Another Soft Patch in the First Half of 2011 _______________________________ 45 

3. Macro Policy Levers are Strained _____________________________________________________________ 46 

4. Real Estate Still Under Stress _________________________________________________________________ 47 

5. Households Shedding Debt Burdens _________________________________________________________ 48 

6. Loss of Household Wealth Weighing on Consumption ______________________________________ 49 

7. Lack of Dynamism in Labor Markets _________________________________________________________ 50 

8. Slow Financial Sector Healing ________________________________________________________________ 52 

9. Corporate Sector Gaining Strength __________________________________________________________ 53 

10. Core Inflation Remains Subdued _____________________________________________________________ 54

11. The Dollar, Financial Flows, and Trade ________________________________________________________ 55

12. U.S. Federal Government Plans to Embark on a Fiscal Consolidation _________________________ 56

13. State and Local Government Finances Are Under Pressure ___________________________________ 57

BOXES 

1. The Future of Securitization in the United States ______________________________________________8 

2. U.S. Policy Spillovers to the Rest of the World _______________________________________________ 13 

3. Long-Term Outlook for the U.S. Federal Government Finances ______________________________ 14 

4. Fiscal Challenges Facing the U.S. State and Local Governments _____________________________ 15 

5. Short-Run Effect of Fiscal Policy on Activity __________________________________________________ 16 

6. Administration’s Response to the Housing Crisis ____________________________________________ 21 

7. U.S. Financial Exposure to Europe ____________________________________________________________ 26 

8. U.S. FSAP Recommendations One Year Later and DFA Implementation _____________________ 28 
2011 ARTICLE IV REPORT UNITED STATES

4 INTERNATIONAL MONETARY FUND

BACKDROP: A TEPID RECOVERY AMID STRAINED 

MACROECONOMIC POLICIES 

1. The U.S. economy continues to 

recover at a modest pace, in line with 

international experience following severe 

financial crises. The recovery of U.S. output 

has in fact been somewhat stronger than in a 

number of other major advanced economies 

during the current cycle. However, 

unemployment in the United States increased 

more sharply than in all other major advanced 

economies during the recession and remains 

high. When judged against past U.S. 

experience, the recovery stands out as very 

modest given the extent of the contraction 

(Figure 1). 

2. Several indicators point to a 

significant growth slowdown in the first 

half of 2011, which appears partly related 

to transient factors. Private consumption has 

lost some impetus since December, reflecting 

to a large extent higher world oil prices. 

Likewise, transient factors such as the 

disruptions to global supply chains from the 

Japanese earthquake have depressed specific 

sectors (Figure 2). The effect of these shocks 

on labor markets and sentiment could carry 

part of the weakness into the second half of 

2011. Core inflation, which weakened to multidecade lows in late 2010, has started to firm 

but remains contained given elevated resource 

slack. 

3. Macroeconomic policies have thus 

far remained supportive, but face tighter 

constraints going forward. An appropriately 

sizable policy response helped prevent 

dramatic output declines in the wake of the 

crisis, and monetary and fiscal policies have 

continued to support demand in the last two 

years. However, unsustainable public debt 

dynamics and the associated risks of interest 

rate pressures or a credit rating downgrade 

have brought the need for fiscal consolidation 

to the forefront, leaving monetary policy as the 

main tool to shore up the recovery going 

forward (Figure 3). At the same time, near-zero 

policy interest rates and a Fed balance sheet 

more than three times larger than at the start 

of the economic crisis, together with firming 

core inflation, suggest limited room for 

significant further easing. A still-wide output 

gap, persistent housing and labor market 

fragilities, and downside risks to the outlook 

call for a cautious approach to unwinding 

macroeconomic support. Thus, the main policy 

challenge is to strike the right balance 

between exiting from extraordinary support 

and sustaining the recovery. 

 
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 5

ANATOMY OF A SLOW RECOVERY

4. The current recovery has been held 

back by significant adverse feedback loops 

between housing, consumption, and 

employment. Housing and labor markets have 

been the weakest links. An overhang of vacant 

houses from the bubble years has restrained 

new construction, and, together with surging 

foreclosures, pushed down house prices. 

Weaker housing wealth and tighter lending 

standards have held back private consumption. 

Weak consumption, in turn, has interacted with 

a sluggish recovery in job creation, with 

unemployment also exacerbating the housing 

market weakness. Financial conditions have 

improved, particularly for large firms that face 

favorable bond financing terms, but remain 

tight especially for small firms and real estate. 

On the bright side, exports and the 

performance of businesses and the financial 

sector have improved significantly.

5. Housing markets remain depressed, 

given a large overhang of vacant or 

distressed properties—a key legacy of the 

housing bubble (Figure 4). The overhang of 

vacant residential units—estimated by staff at 

around 3 million—has pushed new 

construction to historic lows. Residential fixed 

investment, which rebounded relatively quickly 

GDPPersonal consumption expendituresNonresidential structuresEquipment and softwareResidentialExports of goods and servicesNonfarm payrolls 1/ 4/Unemployment rate 2/ 4/Disposable personal income 1/Personal saving rate 2/Nonfinancial corporate profits 1/Manufacturing orders 3/ 4/Bond spread 2/ 4/ 5/S&P 500 equity prices 1/Financial industries profits 1/Change in bank charge-offs 1/ 6/Change in banks' equity/assets 2/ 6/

2009Q2 - 2011Q1 9 10 10 2 9 3 9 7 10 10 4 2 2 3 1 3 2

2001Q4 - 2003Q3 10 9 9 10 6 8 10 9 8 2 3 4 5 10 3 4 5

1991Q1 - 1992Q4 8888 5 5 8 10 9 5 10 3 8 8 5 9 1

1982Q4 - 1984Q3 2 4 3 1 1 6 2 1 3 3 1 10 1 7 9 1 10

1975Q1 - 1976Q4 7 3 7 9 2 9 566 8 5 6 34 4 10 3

1970Q4 - 1972Q3 5 2 6 7 3 7 6 8 4 9 7 1 4 6 7 7 9

1961Q1 - 1962Q4 4 555 7 10 7 4 5 6 8 5 9 9 10 6 7

1958Q2 - 1960Q1 3 6 434 2 3 3 7 7 6 8 9 5 2 5 4

1954Q2 - 1956Q1 6 1 2 6 8 4 4 5 2 4 9 7 6 1 8 8 6

1949Q4 - 1951Q3 1 7 1 4 10 1 1211 2 9 7 2 6 2 8

Key:

5th quintile (strongest recovery)

1/ Percent change from trough. 2/ Change in level from trough. 3/ Level of diffusion index in latest quarter. 6/ Data are montly 

and end 21 months following the business cycle trough 5/ Moody's seasoned Baa corporate bond yield to composite long-term 

treasury. 6/ Data prior to 1991 are annual and the change is measured from the year of the trough to the year six quarters later.

Recovery Comparisons, Seven Quarters After Business Cycle Trough

2nd quintile

3rd quintile

Real GDP and components 1/

Households and 

employment

Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Institute for Supply Management; Board of Governors of the 

Federal Reserve System; Federal Deposit Insurance Corporateion; and Fund staff estimates.

Business sector

4th quintile

1st quintile (weakest recovery)

Financial

Fixed investment
2011 ARTICLE IV REPORT UNITED STATES

6 INTERNATIONAL MONETARY FUND

after most post-war recessions, has thus been 

a drag on output and employment in the 

current recovery. House prices are also weak, 

having dropped again after the expiration of 

homebuyers’ tax incentives in mid-2010. The 

decline in house prices is in part a natural 

consequence of past excesses—as reflected in 

a still-significant inventory of houses for sale. 

But it is also an outcome of elevated 

foreclosures, which have a large negative 

effect on prices (beyond the usual effect of 

adding to the inventory of houses for sale), 

and continue to weigh heavily on house prices 

in many regions. Many analysts expect price 

declines of 31⁄2 percent in 2011 on a fourthquarter over fourth-quarter basis (with staff 

slightly more pessimistic), coupled with a very 

subdued recovery over the medium term 

(Selected Issues Paper, Chapter 1). 

6. Household balance sheets have 

suffered considerable damage from the 

housing bust. The leverage of the household 

sector—the ratio of liabilities to net worth—

surged as asset prices plummeted during the 

crisis and has been declining since then, but 

remains elevated (Figure 5). Household debt, 

which steadily increased in the years before 

the crisis given a sense of ever-rising house 

prices, peaked at 133 percent of disposable 

income at the end of 2007, declined to 

119 percent as of the first quarter of 2011, and 

remains above the pre-bubble average of 

about 90 percent of disposable income. The 

decline in debt has occurred mainly through 

defaults, with subdued new loan originations 

also contributing. 

7. The state of the housing market 

plays an important role in explaining the 

weakness of U.S. private demand. Housing 

wealth—which accounts for about one quarter 

of household assets—is an important driver of 

private consumption; the recent literature 

suggests that the sensitivity of consumption to 

housing wealth is about twice the sensitivity to 

net financial wealth.i

 The estimates presented 

in Chapter 2 of the Selected Issues Paper 

similarly point to sizable effects—a 10 percent 

house price appreciation is estimated to raise 

consumption by 1.5 percent over the medium 

term. While the overall net worth of the 

household sector has improved since the start 

of the recovery (from about 455 to 500 percent 

of disposable income between the second 

quarter of 2009 and the first quarter of 2011), 

this reflects a rebound in stock prices that 

offset the decline in real estate wealth. If real 

estate and net financial wealth are weighted by 

their estimated impact on consumption (by 9 

and 4 cents per one dollar, respectively), there 

has been no sustained improvement (Figure 6). 

8. Job growth has been held back by 

the weak recovery of aggregate demand as 

well as by the low employment intensity of 

output gains (Figure 7). Employers responded 

to the crisis mostly by laying off workers rather 

than by shortening the workweek, and the 

recovery has featured a relatively rapid 

increase in productivity but sluggish job 

creation, for reasons not yet well understood. 

The unemployment rate peaked at 

10.1 percent in October 2009 and has 

fluctuated around 9 percent in 2011. As of May 

2011, aggregate employment was 6.6 million 

below the pre-crisis peak, and more than 

40 percent of the unemployed have been out 

of work for six months or more—a record level 

of long-term unemployment for the United 

States. Broader measures of labor 

underutilization (including individuals
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 7

marginally attached to the labor force and 

those working part-time for economic reasons) 

also remain near the historic peaks reached in 

2010. The labor market participation rate fell 

significantly since the crisis given the bleak job 

market, and the employment-to-population 

ratio has fluctuated around its cycle-trough, 

the lowest level in more than 25 years. 

9. Major labor market dislocations 

may have pushed up the structural 

unemployment rate. Even if the bulk of the 

increase in unemployment is cyclical (with staff 

estimating the output gap at around 4 percent 

in 2011) , mismatches between labor supply 

and demand originating from large sectoral 

shocks (especially the decline of construction 

activity) and weak housing markets appear to 

have put upward pressure on structural 

unemployment, especially in regions where 

both effects are present.ii So far, the recovery 

has produced uneven employment gains 

across sectors, suggesting that structural 

changes could be at play (Selected Issues 

Paper, Chapter 3). Long unemployment spells 

(which erode work skills) and evidence of a 

decline in the efficiency of the matching 

process between vacancies and job seekers are 

also consistent with some increase in structural 

unemployment.iii

10. Improving financial conditions have 

helped underpin the recovery, but healing 

is still incomplete (Figure 8). Liquidity is 

abundant thanks to near-zero policy rates and 

unconventional easing. Stock prices are about 

15 percent above their August 2010 level, and 

market volatility has been contained. However, 

lending standards remain tight, especially for 

residential mortgages, small enterprises, and 

commercial real estate. Commercial banks are 

highly capitalized and the quality of their 

assets has improved slowly, although the 

coverage ratio and the ratio of risk-weighted 

assets to total assets are both low. The 

financial sector still faces the challenges of 

subpar bank earnings and asset shedding by 

nonbanks. Net borrowing by the domestic 

private sector turned positive in the second 

half of 2010, but the household sector is also 

still shedding debt. 

11. Securitization activity remains 

substantially below pre-crisis levels, with the 

virtual disappearance of private-label 

residential mortgage-backed securities (RMBS) 

and complex structures (Selected Issues Paper, 

Chapter 4 and Box 1). The market for 

mortgage-backed securities guaranteed by the 

GSEs fared better than other residential assetbacked securities (ABS) classes, largely as a 

result of government support, while private 

issuance of RMBS is still basically nil. Much of 

the decline in residential ABS issuance is a 

result of reduced demand for housing as well 

as a rise in investor risk aversion. 
2011 ARTICLE IV REPORT UNITED STATES 

8 INTERNATIONAL MONETARY FUND

Box 1. The State of Securitization in the United States

Since the onset of the financial crisis, ABS 

supply has fallen to a fraction of its peak. In 

particular, the issuance of MBS—the largest of 

the ABS classes—has declined sharply amid 

high levels of home foreclosures and stillrestrictive mortgage credit. Agency MBS 

issuance has remained strong on the back of 

government sponsorship and the overwhelming 

funding advantage of the GSEs, while private 

MBS supply has fallen sharply. In addition,

uncertainties over the future of the GSEs are 

muddying the outlook for private-label housing 

finance. 

 

Much of the decline in ABS issuance is a 

result of reduced demand for housing and 

reduced investor appetite following the 

financial crisis. Sizeable legacy assets still 

sitting on balance sheets have dampened 

investor interest. Household deleveraging has 

reduced demand for loans and correspondingly, 

the supply of ABS collateral. 

The Dodd-Frank Act could also affect securitization incentives. Specifically, it will require originators to 

retain at least five percent of the securitized credit risks, in response to concerns that there was poor 

alignment of securitizer and investor interests. Securitized mortgages that meet “qualified residential 

mortgage” (QRM) criteria will be exempt from retention requirements. How strict the criteria will be has not 

yet been determined, but few private-label loans are likely to meet the criteria. Preliminary estimates 

suggest that the impact of these proposed new rules on the cost and availability of consumer credit will be 

limited. Furthermore, in order to ensure the effectiveness of the retention requirement, the regulatory 

agencies have proposed that if the securitizers sell the unretained securities at a premium (i.e., for an 

amount greater than par) they must place some of this premium into “premium capture” cash reserve 

accounts. Industry professionals argue that this provision could severely reduce securitization activity by 

significantly shrinking upfront profit realization and cost recovery. 

A number of other factors may have also reduced incentives to securitize loans. These include: 

 historically-low funding rates;

 recently introduced accounting rules which make it difficult for banks to remove securitized assets from 

their balance sheets and get regulatory capital relief;

 the demise of resecuritization vehicles such as structured investment vehicles (SIVs). Markets for these 

products are unlikely to revive, given the new higher Basel III risk weights on resecuritization vehicles. 

Also, investors are shying away from complexity, as evidenced by the relative simplicity of the products 

that have weathered the crisis (e.g., auto ABS).

0

1,000

2,000

3,000

4,000

5,000

6,000

0

1,000

2,000

3,000

4,000

5,000

6,000

2000 2002 2004 2006 2008 2010

Credit card, student loan, auto, and other

ABCP

Agency MBS

CDO & CDO2

Private-label MBS and CMBS

Sources: Board of Governors of the Federal 

Reserve System, JPMorgan, SIFMA, and Fund staff 

calculations.

Total U.S. Asset-backed 

Securitization Issued per Year

(Billions of U.S. dollars)
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 9

12. While corporate spending remains 

relatively weak, firms have had record-high 

profit growth and large firms face easy 

financing conditions (Figure 9). The deep cuts 

in labor input during the crisis were associated 

with sharp increases in labor productivity as 

the recovery progressed. The flip-side has 

been a record-high growth of profits and 

stronger corporate balance sheets, with firms 

retiring older debt in favor of newer bond 

issuance at lower interest rates. Private 

investment in equipment and software has 

picked up relatively early in the recovery given 

strong replacement demand after the plunge 

in the crisis. Investment in nonresidential 

structures, however, remains very weak. 

Overall, non-residential private fixed 

investment remains somewhat low in 

comparison with pre-crisis averages 

(9.9 percent of GDP in 2011Q1 as opposed to 

11.4 percent on average between 1997 and 

2007). While it is hard to pin down the exact 

causes for this weakness, uncertainties on 

future demand and widespread unused 

capacity utilization seem to be relevant factors. 

Importantly, historical correlations suggest 

that elevated cash hoardings signal higher 

investment going forward (Selected Issues 

Paper, Chapter 5). 

13. U.S. exports have been buoyed by 

strong external demand, even though the 

external sector has not added to growth.

With the recovery in external and domestic 

demand, both exports and imports rebounded 

strongly in 2010, and the current account 

balance deteriorated slightly to -31⁄4 percent of 

GDP in 2010, also reflecting sharply higher oil 

prices. Nevertheless, the current account 

balance remained well below the average -

53⁄4 percent of GDP in the three years 

preceding the crisis (Figure 11). After 

appreciating in the first half of 2010, when the 

European sovereign crisis boosted flight-toquality flows to the United States, the dollar 

has weakened substantially over the past year, 

with the real effective exchange rate index 

reaching its lowest level in decades. This 

depreciation should help support U.S. exports 

and current account adjustment going 

forward. 

14. Despite a string of very large 

current account deficits, the U.S. net 

international investment position (IIP) has 

deteriorated only modestly during the past 

decade, and the net income balance 

remains positive. Since 1999, the cumulative 

value of U.S. current account deficits exceeded 

US$6.3 trillion. This notwithstanding, the U.S. 

net IIP (the difference between U.S. financial 

claims and liabilities vis-à-vis the rest of the 

world) was only -$2.5 trillion (17 percent of 

GDP) as of end-2010, in part thanks to 

substantial valuation gains due to dollar 

depreciation and asset price changes.iv In 

addition, given the preponderance of lowyielding debt instruments in U.S. liabilities and 

favorable return differentials on foreign direct 

investment, the net income balance is still 

positive. 
2011 ARTICLE IV REPORT UNITED STATES 

10 INTERNATIONAL MONETARY FUND

OUTLOOK AND RISKS

15. Looking ahead, the recovery is 

expected to continue despite the expected 

fiscal tightening, helped by accommodative 

monetary policy, while inflation should 

remain subdued. Staff expects GDP growth 

between 23⁄4 percent and 3 percent from 2012 

onwards. This implies a slowly narrowing 

output gap, in contrast to the rapid narrowing 

seen in previous recovery episodes. This steady 

but relatively slow recovery is consistent with 

the ongoing repair of household balance 

sheets and sluggish aggregate labor income 

growth (given the slow decline in 

unemployment), as well as the projected 

medium-term fiscal adjustment. Private 

investment in equipment and software is 

expected to continue growing at robust rates 

to make up for the decline in the rate of capital 

accumulation during the recession, while 

construction activity is likely to remain weak in 

the near term. Given the persistent output gap, 

core inflation is projected to remain tame, 

despite the recent pickup in commodity prices 

(Selected Issues Paper, Chapter 6). 

16. Over the medium term, both saving 

and investment are projected to rise, 

leaving the current account deficit broadly 

stable around current values. Household 

saving is expected to soften with the fiscal 

withdrawal in the next couple of years but 

return roughly to its current level over the 

medium term, as fiscal deficits remain high, 

interest rates rise, and incomes recover with 

declining unemployment. Public saving is also 

projected to rise as the output gap shrinks, 

stimulus expires, and some corrective 

budgetary measures come into place. Private 

investment would recover toward pre-crisis 

averages as a percentage of GDP, with 

construction activity rebounding in line with 

the normalization of new household formation. 

The current account deficit is projected to 

remain around 3 percent of GDP over the 

medium term. 

17. Core inflation remains subdued, 

despite some recent firming (Figure 10). 

Against a backdrop of persistently high 

unemployment, wage inflation is tepid. 

Twelve-month core consumer price inflation 

trended up to 1.5 percent in May 2011, after 

declining to 0.6 percent at the end of 2010, 

reflecting some pass-through from commodity 

prices and a number of temporary factors. 

Twelve-month headline consumer price 

inflation climbed to 3.5 percent in May 2011, 

on firmer core inflation and the spike in 

commodity prices. Elevated resource slack and 

stable longer-term inflation expectations 

should keep core inflation trends in check in 

the near term.
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 11

18. Downside risks to the outlook have 

increased. These include: 

 Renewed housing market weakness, with 

the possibility of larger-than-expected 

house price declines. Foreclosure starts 

have come down in past months, but this 

reflects, to a large extent, delays due to 

legal problems with past foreclosures. A 

future uptick in foreclosure starts is thus 

likely, in light of the very large “shadow 

inventory” of houses (estimated by staff at 

around 6 million units),v

 and this may not 

be fully reflected in current price dynamics; 

 Unfavorable fiscal outcomes. These could 

take the form of a sudden increase in 

interest rates and/or a sovereign 

downgrade if an agreement on mediumterm consolidation does not materialize or 

the debt ceiling is not raised soon 

enough.vi These risks would also have 

significant global repercussions, given the 

central role of U.S. Treasury bonds in world 

financial markets. At the opposite extreme, 

an excessively large upfront fiscal 

adjustment could significantly weaken 

domestic demand; 

 Further commodity price shocks, which 

could impact both growth and inflation; 

 Credit supply constraints. The ability of the 

financial sector to support a faster 

economic expansion remains uncertain, 

with weak securitization markets and tight 

loan standards for most sectors;

Average

2000-08 2009 2010 2011 2012 2013 2014 2015 2016

Real GDP 2.1 -2.6 2.9 2.5 2.7 2.7 2.9 2.9 2.8

Personal consumption expenditures 2.5 -1.2 1.7 2.5 2.0 2.3 2.4 3.0 2.8

Gross private fixed investment 0.5 -18.3 3.9 5.3 7.5 9.7 9.4 7.0 6.1

Change in private inventories 1/ -0.1 -0.7 1.4 0.1 0.1 0.1 0.1 0.0 0.0

Government consumption and investment 2.2 1.6 1.0 -1.5 -0.7 -1.9 0.5 0.8 1.5

Net exports 1/ -0.2 1.3 -0.4 0.4 0.3 0.1 -0.2 -0.3 -0.3

Potential GDP 2.6 1.7 1.5 1.6 1.8 2.0 2.1 2.2 2.2

Output gap 2/ -0.4 -6.0 -4.7 -3.9 -3.1 -2.5 -1.7 -1.0 -0.5

Consumer price inflation 2.8 -0.3 1.6 2.8 1.6 1.5 1.7 1.8 1.9

Unemployment rate 5.1 9.3 9.6 8.9 8.4 7.7 6.9 6.2 5.6

Investment rate 19.5 14.8 15.9 16.1 16.7 17.4 18.0 18.3 18.6

Private saving 14.9 17.6 18.2 18.7 18.7 18.0 17.9 18.2 18.6

Household saving rate 3/ 2.9 5.9 5.7 4.7 4.7 4.6 4.7 4.8 4.9

Government saving 0.0 -6.7 -6.6 -6.3 -4.6 -2.9 -2.3 -2.5 -3.0

Current account balance -4.9 -2.7 -3.2 -3.2 -2.6 -2.3 -2.4 -2.6 -3.0

Yield on 3-month treasury bill 3.0 0.2 0.1 0.2 0.4 0.9 1.9 2.9 3.9

Yield on 10-year treasury note 4.6 3.3 3.2 3.5 4.4 5.4 5.8 6.0 6.2

United States: Medium-Term Outlook

Projections

1/ Contribution to real GDP growth, percentage points.

2/ Percent of potential GDP.

3/ Percent of personal disposable income.

Sources: Bureau of Economic Analysis; Bloomberg, LP; Haver Analytics, and Fund staff estimates.

(percent change, unless otherwise noted)

(percent of GDP, unless otherwise noted)

(percent)
2011 ARTICLE IV REPORT UNITED STATES

12 INTERNATIONAL MONETARY FUND

 Challenging conditions for some European 

sovereigns. A renewed bout of instability in 

European sovereign and bank debt 

markets could lead to global financial 

turmoil, including increased tensions in 

U.S. money markets, given their short-term 

dollar funding to major European banks. 

On the positive side, the recovery could 

surprise on the upside if confidence improves 

and pent-up demand for consumer durables 

materializes more quickly, or if hiring picks up 

faster than expected, given healthy corporate 

balance sheets. 

19. The authorities broadly agreed with 

staff’s near-term outlook and risks, but 

considered that the recovery could be 

firmer next year as headwinds lessen. They 

saw subdued residential construction as the 

key impediment to a faster recovery going 

forward, and a less prominent role for further 

household balance sheet repair. The 

authorities were optimistic about a rebound of 

construction at some point in the next few 

years, in view of the expected normalization in 

household formation rates and the eventual 

absorption of excess supply. They also saw the 

risk of unfavorable fiscal outcomes as more 

contained than staff. As in previous 

consultations, the authorities considered staff’s 

medium-run outlook as excessively pessimistic, 

in view of their own higher estimates of 

potential output. Relatedly, they saw most of 

the increase in unemployment as cyclical, but 

acknowledged risks that the natural rate could 

have risen somewhat. 

POLICY DISCUSSIONS 

Discussions focused on the challenges posed by the need to exit from extraordinarily 

accommodative policies with a still fragile recovery, including the urgent task of 

adopting a politically-backed plan for stabilizing public finances in the years ahead; 

the policies needed to secure the recovery over the medium term; accomplishments 

and remaining tasks in financial sector reform; as well as current account 

adjustment and the challenges of global rebalancing. U.S. policy choices are of 

central importance for the global economy—U.S. growth spillovers are uniquely 

large since the United States is the world’s largest economy and has globallydominant financial markets. Policy spillovers have been a particular focus of this 

year’s analysis, as discussed in the relevant sections below and in more detail in the 

accompanying U.S. Spillover Report (see also Box 2). 

 
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 13

Box 2. U.S. Policy Spillovers to the Rest of the World

Process. Spillover reports examine the external effects of policies in five systemic economies (the “S5”): China, the 

Euro Area, Japan, the United Kingdom, and the United States. In each case, key partners are asked about outward 

spillovers from the economy in question, on the basis of which staff choose issues for analysis. To facilitate candor, 

spillover reports do not cite who raised a specific issue. Those consulted were officials and analysts from the other 

S5 and from selected emerging markets—Brazil, Hong Kong SAR, India, Indonesia, Korea, Mexico, Poland, Russia, 

Singapore, and Thailand. The report focuses on a few forward-looking issues raised by partners, brings to bear 

relevant analysis, and describes the reactions of the U.S. authorities. 

Policy issues. Other authorities expressed concerns on U.S. policy spillovers from quantitative easing and its exit, as 

well as ongoing fiscal and financial policies. Interlocutors mainly discussed financial market spillovers, including the 

impact of abundant dollar liquidity on commodity prices, emerging market exchange rates, and associated capital 

flows. This is consistent with the team’s analysis which finds that, beyond close neighbors, U.S. spillovers to foreign 

activity come mainly through financial market links. This underscores the need for clear communication of major 

policy moves, such as the eventual ending of the zero interest rate policy, to avoid financial market disruption. 

Findings. The main messages flowing from staff analysis are: 

 Short-term U.S. spillovers on growth abroad are uniquely large, mainly reflecting the pivotal role 

of U.S. markets in global asset price discovery. While U.S. trade is important, outside of close 

neighbors it is the global bellwether nature of U.S. bond and equity markets that generates the majority 

of spillovers. 

 Spillovers from macroeconomic stimulus supported foreign activity more in 2009 than in 2010. 

Facing global turmoil, 2009 initiatives calmed global markets. In the less fraught environment of 2010, 

similar policies produced a less favorable market response. 

 Overall, U.S. and foreign interests may be better aligned for fiscal and financial policies than for 

monetary ones. For the former, there is a common interest in limiting global tail risks, while for the latter 

low interest rates inevitably support financial risk-taking that can complicate policy options for countries 

with strong cyclical positions. 

A. Fiscal Policy: In Search of a Medium-Term Framework

20. Staff and authorities concurred on 

the need for fiscal stabilization, with staff 

emphasizing the urgency of agreement on a 

politically-backed framework. Discussions 

surrounded the desirable pace, extent and 

form of consolidation. It was agreed that 

policies should stabilize the public debt-toGDP ratio by mid-decade and gradually reduce 

it afterwards. But despite the recent health 

care reform and the proposed 5-year freeze on 

non-security discretionary spending, federal 

finances remain unsustainable (Box 3); state 

and local government finances also face 

significant challenges (Box 4 and Selected 

Issues Paper, Chapter 7). This year, the federal 

deficit could reach 9 percent of GDP, with the 

general government deficit nearly 10 percent 

of GDP. vii While this is less than projected at 

the time of April 2011 World Economic 

Outlook due to revenue overperformance and 

lower-than-expected outlays, the deficit would 

remain among the highest for advanced 

economies. 

 
2011 ARTICLE IV REPORT UNITED STATES 

 14 INTERNATIONAL MONETARY FUND 

Box 3. Long-Term Outlook for the U.S. Federal Government Finances

The U.S. federal finances are on an 

unsustainable trajectory. According to the 

authorities’ budget projections, federal debt held 

by the public is projected to increase from 

62 percent of GDP in FY2010 to about 90 percent 

in FY2030, and continue rising thereafter owing to 

pressures from population aging and rapid cost 

growth in the health care sector. The debt 

dynamics are even bleaker under the IMF staff’s 

more conservative macroeconomic assumptions. 

Because the financial crisis is expected by IMF staff 

to cause a permanent loss of output and 

budgetary revenues, federal debt could exceed 

95 percent of GDP already by the end of this 

decade—approaching the levels last seen in the 

aftermath of World War II—and put upward 

pressure on interest rates both in the United States 

and abroad. 

The long-term budgetary outlook remains 

troublesome despite the existing efforts to curb 

deficits. Although last year’s health care reform is 

expected to bend the health care “cost curve” to some 

(highly uncertain) degree, the federal health care bill 

could still increase by 3 percent of GDP over the next 

20 years according to the Congressional Budget 

Office. Other measures proposed by the 

administration as part of the draft FY2012 budget 

such as the 5-year freeze on non-security 

discretionary spending and defense savings are 

helpful, but cannot on their own address the 

fundamental long-term budgetary pressures, because 

mandatory health care, pension, and other spending 

make up a greater share of the budget and are 

projected to grow faster (see Figure 12). 

The authorities have a number of options to achieve fiscal sustainability without large negative shortterm effects on activity. Social Security reform would help reduce long-term fiscal imbalances without 

undermining the ongoing recovery—measures such as increasing the retirement age while indexing it to 

longevity and trimming future benefits for upper-income retirees would have a minimal impact on current 

private spending. Identifying additional saving in health care and other mandatory spending categories 

would also be highly desirable, including through greater cost sharing with the beneficiaries, curbs to the tax 

exemption for employer-provided health care, and targeted savings identified by the President’s Fiscal 

Commission. Meanwhile, the tax system is riddled with loopholes and deductions worth over 7 percent of 

GDP. Gradually reducing these tax expenditures (including eventually the mortgage interest deduction which 

largely benefits upper-income taxpayers) would help raise needed revenue while enhancing efficiency. In the 

longer term, consideration could also be given to introducing a national VAT or sales tax, as well as carbon 

taxes. 

Defense and 

other 

security

24%

Non-security 

discretionary

Social 14%

Security

20%

Medicare 

and federal 

Medicaid

21%

Other 

mandatory

15%

Net interest

6%

Sources: Office of Management and Budget; and 

Fund staff calculations.

Composition of Federal Spending, FY 2010

Source: Office of Managementand Budget.

0

100

200

300

400

0

100

200

300

400

2010 2020 2030 2040 2050 2060

2007

2010

2011

2012

Forecast

change after 

healthcare

reform

Authorities'projection for 

Federal Debt Held by the 

Public from:

Forecast change

during crisis period

Long-Term Debt Projections, 2010-2060

(percent of GDP, fiscal years)
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 15

Box 4. Fiscal Challenges Facing the U.S. State and Local Governments

State and local governments (SLGs) have 

so far managed to cope with the fallout 

from the Great Recession, but at a 

considerable social cost. The recession hit 

tax collections very hard given the exposure 

to very weak housing and labor markets and 

consumer spending (Figure 13). Aggressive 

spending cuts, some revenue measures, and 

reserve drawdown have kept the operating 

budgets roughly balanced as required by 

law, with a significant federal emergency aid 

smoothing adjustment to the lower revenue 

trend. However, the involuntary fiscal 

consolidation at the state and local level has 

imparted considerable social costs, with 

significant cuts in education, health, 

transport, and welfare systems.

Although the tax receipts are now 

recovering, state and local governments 

will need to need to continue fiscal 

adjustment, while addressing unfunded 

long-term commitments. Emergency 

federal aid will be phased out soon, and the 

renewed declines in house prices pose risks 

especially to local governments. Rainy-day 

funds which have been depleted in almost 

half of the states will need to be replenished to rebuild room for maneuver. The state and local government 

will also need to continue addressing their large unfunded entitlements, especially pensions (estimated in a 

wide range of $1–3 trillion), which present a long-term risk in a number of states due to strong legal 

protections of the already-accrued pension benefits. The SLGs will also face structural spending pressures 

from health care, both through higher Medicaid outlays and health benefits for government retirees.

Following a spell of risk aversion in the state and local government bond markets late last year, the 

situation has calmed down significantly (Figure 13). Lower bond supply following the expiration of the 

Build-America-Bond program, stronger tax collections, and adjustment measures adopted by the lowestrated states (California, Illinois) helped improve market sentiment. More generally, defaults are unlikely at 

the state level given low debt, balanced budget rules, and statutory protections for investors. Some 

vulnerabilities remain at the local level, with risks from the housing market and cuts in state and federal 

transfers. That said, local defaults have historically been rare events. 

0

100

200

300

400

500

600

0

2

4

6

8

10

12

U.S. 

S&L 

Gov'ts

Fed 

Gov't

U.S. 

S&L 

Gov'ts

Fed 

Gov't

Deficit as percent of GDP 

(left scale)

Debt as percent of revenues 

(right scale)

Credit

Market

Trade Payables Debt

Pensions

Health 

care

Trade 

Payables

Other 

Current

Liabilities

State and 

Local

Unfunded

Liabilities

Credit Market

Debt

Sources: Bureau of Economic Analysis; Board of Governors 

of the Federal Reserve System, Flow of Funds Accounts of the 

United States; Collins and Rettenmaier (2010); and Fund staff 

calculations.

Notes: Deficit outturns are reported here on the national 

income and product accounts (NIPA) basis, with financial 

liabilities reported on the Federal Reserve' Flow of Funds 

basis. The chart does not include federal unfunded liabilities 

for Social Security, Medicare, and other programs.

Comparison of State and Local & Federal 

Government Finances (2010)
2011 ARTICLE IV REPORT UNITED STATES 

16 INTERNATIONAL MONETARY FUND

21. On the pace of consolidation, the 

authorities’ envisage a frontloaded 

withdrawal, but details remain under 

Congressional debate. The President’s 

February budget proposal would cut the 

federal deficit to 4.6 percent of GDP in FY2013, 

over-delivering on the G-20 Toronto 

commitment to halve the federal deficit by 

FY2013. Deficit reduction over FY2012–13 

would largely reflect expiring stimulus, lower 

military spending, and cyclical recovery. 

However, ongoing discussions over the debt 

ceiling and FY2012 appropriations, the recent 

soft patch in growth, and technical factors 

complicate an assessment of the likely pace of 

adjustment.viii 

22. Staff considered the February 

budget could be too front-loaded given the 

cyclical weakness and downside risks. 

 The staff recommended a broadly uniform 

reduction of the federal structural primary 

 deficit over the next five years within a 

fully-specified and politically-backed 

consolidation plan (Staff Adjustment 

Scenario in table). This strategy would rein 

in the deficit without taking an undue toll 

on the still-sluggish recovery (Box 5). The 

staff’s recommended FY2013 deficit target 

would be around 6 percent of GDP—over 

1 percentage point of GDP higher than 

under the administration’s scenario. 

Although financing conditions are benign 

for now (Figure 3), starting a withdrawal in 

FY2012 would hedge the risk of a 

disruptive loss in fiscal credibility. Absent a 

fully-specified consolidation framework, 

fiscal adjustment should proceed more 

rapidly. The authorities agreed that fiscal 

consolidation should proceed gradually, 

but considered the anticipated growth 

drag from their current plans as 

manageable. 

Box 5. Short-Run Effect of Fiscal Policy on Activity

The pace and composition of fiscal adjustment is important because it matters for short-term economic 

activity. Under the staff projections, expiration of temporary stimulus programs, lower defense spending and new 

deficit reduction measures will help reduce the federal deficit by 33⁄4 percent of GDP over the next two fiscal years, 

subtracting roughly 1 percentage point from GDP growth in both 2012 and 2013. 

 Expiration of targeted spending measures such as infrastructure investment, emergency aid to local 

governments, and unemployment benefits will be felt more with growth multipliers between 0.75–1. 

Expiring tax provisions will have a somewhat smaller effect with multipliers between 0–0.6, with the 

multipliers for corporations and upper-income taxpayers closer to the lower bound. Lower defense 

spending will directly affect output by reducing government consumption and investment. 

 The October 2010 World Economic Outlook finds that while fiscal consolidation is beneficial in the 

medium run, the short-term effects on output are negative. The average short-run multiplier is estimated 

at around 1⁄2, but fiscal consolidation has a larger negative effect in the short run if the perceived risk of 

sovereign default is low, monetary policy is close to the zero bound, and trading partners are also 

consolidating. Consolidation is less contractionary when it relies on cuts in transfers and government 

consumption (multipliers are around 1⁄4). The multipliers are larger for public investment, above 1⁄2. They 

tend to be largest for indirect tax hikes with a more than one-for-one fall in output, because central 

banks tend to tighten in response to inflationary pressures associated with such tax changes. 
2011 ARTICLE IV REPORT UNITED STATES 

 INTERNATIONAL MONETARY FUND 17

 On balance, staff expects some expiring 

stimulus measures to be extended by 

Congress, implying a less front-loaded 

path than in the President’s February 

budget proposal (Staff Baseline Projection 

in table). Staff projects a FY2013 deficit of 

51⁄2 percent of GDP, assuming that the 

temporary payroll tax cut and emergency 

unemployment benefits are renewed. The 

structural primary withdrawal would be 

around 31⁄2 percent of GDP over two years, 

broadly in line with the staff’s preferred 

scenario with a fully-specified 

consolidation plan. Should the growth 

outlook worsen considerably, 

consolidation could proceed at an even 

slower pace over the next two 

2010 2011 2012 2013 2014 2015 2016

-9.6 -9.3 -7.6 -5.6 -4.7 -4.8 -5.3

-8.2 -7.9 -6.2 -3.9 -2.5 -2.0 -1.9

-6.4 -6.5 -5.1 -3.1 -2.0 -1.6 -1.7

62.1 70.2 74.6 78.3 80.7 82.7 85.0

General government net lending 5/ -10.3 -9.9 -7.8 -6.0 -5.3 -5.6 -6.0

General government gross debt 5/ 93.5 99.0 103.0 106.2 108.2 110.2 112.7

-8.9 -10.9 -7.0 -4.6 -3.6 -3.2 -3.3

62.2 72.0 75.1 76.3 76.3 76.1 76.1

-9.6 -9.3 -7.4 -5.9 -4.7 -3.6 -2.4

-6.4 -6.5 -4.9 -3.4 -2.0 -0.4 1.1

62.1 70.2 74.5 78.4 80.8 81.7 81.1

General government gross debt 5/ 93.5 99.0 102.9 106.3 108.1 108.3 108.1

Memorandum item

-8.9 -9.5 -7.4 -5.5 -4.4 -4.1 -4.4

1/

2/ Includes staff's adjustments for one-off items such as TARP valuation changes.

3/ Excludes net interest.

4/

5/ GFSM-2001 basis, calendar years.

6/ President's budget proposal, February 14, 2011.

7/ Structural primary withdrawal of 1.5 ppt of GDP a year, with total adjustment of 7.5 pct of GDP.

8/ CBO analysis of the President's budget proposal, April 15, 2011.

 

Federal debt held by public

Structural primary balance 4/

Excludes net interest, effects of economic cycle, and costs of financial sector support. In percent of 

potential nominal GDP.

Fiscal Projections for Federal and General Government

(Percent of GDP, Fiscal Years Unless Otherwise Noted)

Sources: Fund staff estimates; Office of Management and Budget (OMB); and Congressional Budget Office 

(CBO).

Federal budget balance 2/

Federal primary balance 3/

Structural primary balance 4/

Federal debt held by public

Projections using the IMF macroeconomic assumptions. Relative to the President's February budget 

proposal, staff assumes further temporary extensions of emergency unemployment benefits and the 

payroll tax cut, some delay in implementing revenue-raising measures, and a more front-loaded 

spending restraint.

Federal budget balance (CBO projection) 8/

Staff Baseline Fiscal Projection 1/

Authorities Fiscal Projection (President's February draft budget) 6/

Federal budget balance

Federal debt held by public

Staff Adjustment Scenario 7/

Federal budget balance 2/
2011 ARTICLE IV REPORT UNITED STATES 

18 INTERNATIONAL MONETARY FUND

years, provided—crucially—that a 

medium-term framework is in place and 

financing conditions remain favorable. 

23. On the extent and form of 

consolidation, the President’s April speech 

outlined the administration’s medium-term 

strategy. The proposed framework would save 

about $4 trillion over 12 years (some 

20 percent of GDP) and would—according to 

the authorities—put public debt on a 

downward path in the second half of the 

decade.ix Measures worth $1–2 trillion could 

be decided during June and July amid the 

debate on raising the debt ceiling (which must 

be raised by August 2, per the Treasury). In 

addition, a debt stabilization mechanism 

(“debt failsafe”) would trigger automatic 

spending cuts or revenue increases if the debt 

ratio does not stabilize. 

24. Staff considered that a larger and 

wider-ranging consolidation than 

envisioned in the budget and the 

President’s speech would be needed, on the 

basis of staff’s less favorable 

macroeconomic assumptions. 

 Under the staff’s adjustment scenario, a 

cumulative structural primary deficit 

reduction of 71⁄2 percentage points of GDP 

(about 11⁄2 p.p. per year) would achieve the 

objective of stabilizing the debt ratio by 

mid-decade, and then gradually reducing it. 

The President’s February budget proposal 

(based on above-consensus growth 

projections) falls short of this target by 

21⁄2 percent of GDP. Savings identified in 

the April speech would reduce but not 

eliminate the required additional 

adjustment. 

10

12

14

16

18

20

10

12

14

16

18

20

2005 2007 2009 2011 2013 2015 2017 2019 2021

Current IMF Projection

OMB, FY2012 Budget (Feb)

Consensus, Apr 2011

Trend (2.5 pct growth, p.a.)

Comparison of Real GDP Forecasts

(trillions of chained 2005 dollars)

Sources: Congressional Budget Office; Consensus 

Economics; Office of Management and Budget; and 

Fund staff estimates.

2012-16 2017-21

Office of Management & Budget

Real GDP growth 3.9 2.6

10-year Treasury note yield 4.5 5.3

IMF staff

Real GDP growth 2.8 2.3

10-year Treasury note yield 5.6 6.3

Consensus (Apr 2011 Survey)

Real GDP growth 3.1 2.5

10-year Treasury note yield 5.0 5.3

Macroeconomic Projections

Sources: Office of Management and Budget; 

Consensus Economics; and Fund staff estimates.
 UNITED STATES 2011 ARTICLE IV REPORT

 INTERNATIONAL MONETARY FUND 19

 The deficit reduction plan will need to 

include both changes to entitlement 

programs and revenue-enhancing 

measures, given pressures from population 

aging and excess cost in the health care 

sector. Administration proposals would 

already cut the share of non-security 

discretionary spending in GDP to very low 

levels. Additional measures (discussed in 

Box 3) can include Social Security reform, 

additional savings in health care and other 

mandatory spending categories, and 

reducing tax expenditures (which amount 

to 7 percent of GDP according to the 

President’s Fiscal Commission). In the 

longer term, consideration could also be 

given to introducing a national value 

added tax (VAT) or sales tax, as well as 

carbon taxes. The administration agreed 

on the need for broad-based adjustment, 

but noted that given the divided Congress, 

a fundamental reform of entitlements and 

the tax code may need to wait until after 

the 2012 elections. Discussions on deficit 

reduction measures are ongoing in the 

context of the debt ceiling debate. 

25. Staff and the authorities agreed that 

institutional enhancements could play a 

useful role in supporting fiscal 

consolidation. The debt “failsafe” mechanism 

and a multi-year expenditure envelope for 

non-security discretionary spending could help 

keep consolidation on track across the annual 

budget cycles. While welcoming the proposed 

reforms, staff cautioned against 

overemphasizing the failsafe mechanism given 

the mixed experience with automatic spending 

cuts (see Selected Issues Paper, Chapter 8). It 

recommended that the deficit reduction plan 

include as many specific measures as possible, 

and noted that clear specification of the 

medium-term fiscal objectives—formally 

endorsed by Congress—was essential. In 

addition, since the administrations’ growth 

projections remain well above the Consensus 

and CBO forecasts, staff saw merit in attaching 

greater weight to private sector forecasters 

and other outside institutions, as is customary 

in countries such as Canada and Germany. The 

authorities argued that the proposed failsafe 

mechanism would provide a protection against 

deficit overruns in case of weak medium-term 

growth. 

26. Spillovers analysis suggests that 

fiscal consolidation has clear long-term 

global benefits (Box 2). Staff analysis suggests 

that short-term losses are likely small beyond 

close trading partners (Canada and Mexico). 

Indeed, consultations with other authorities on 

U.S. policy spillovers underscored their 

concerns with the possible international 

ramifications of lack of U.S. fiscal adjustment 

on long-term interest rates and the dollar. 

Staff analysis suggests that a credible, phasedin U.S. fiscal consolidation would forestall a 

rise in U.S. (and foreign) yields, and hence limit 

short-term negative spillovers, reinforcing the 

case for such a policy. Authorities agreed that 

U.S. fiscal stabilization would bring global 

benefits, but saw growth spillovers from fiscal 

policy as larger and more wide-ranging than in 

staff’s analysis.

B. Housing Markets: The Challenge of Easing Adjustment

27. With the housing market slowly 

adjusting to past overbuilding, discussions 

focused on whether and how to alleviate its 

strains and the risk of a severe further drop 
2011 ARTICLE IV REPORT UNITED STATES 

20 INTERNATIONAL MONETARY FUND

in house prices. Staff and authorities expect 

the housing market to stabilize over the next 

couple of years, and to gradually recover 

thereafter. However, there is a risk of house 

price undershooting given the sizable shadow 

inventory of potential distress sales. Such sales 

have a disproportionately large effect on 

average house prices (and thus on the broader 

economy), likely reflecting a combination of 

factors including negative neighborhood 

externalities from foreclosed houses as well as 

destruction of value linked to lack of 

maintenance. In turn, administrative 

complexity, capacity constraints, and 

conflicting incentives among banks, servicers, 

and bond investors have thus far hindered 

potentially efficient loan modifications that 

would avoid at least part of the costly 

foreclosures. Taken together, these factors can 

justify further policy action to mitigate distress 

sales, even though the housing market already 

has different forms of subsidies (Selected 

Issues, Chapters I and II). Authorities and staff 

agreed that distress sales are the main driving 

force behind the recent declines in house 

prices—in fact, excluding distress sales, house 

prices had stopped falling. 

28. Staff advocated strengthened 

foreclosure mitigation policies, given the 

common view that the existing programs 

have had limited effectiveness (Box 6). The 

authorities noted that the Making Home 

Affordable programs were not originally 

designed to address underwater and 

unemployed borrowers (the biggest 

proportion of borrowers in default at the 

moment) and pointed to the complexities in 

designing and implementing modifications. 

They also pointed to their efforts to address 

problems related to mortgage servicers, 

including through the establishment of 

national mortgage servicing standards, an 

initiative supported by staff. Staff further 

advocated: 

 Allowing mortgages to be modified in 

courts (“cramdowns”). Implementing this 

long-standing Fund recommendation 

would create incentives for voluntary 

modifications at no fiscal cost. The 

authorities agreed on its potential 

usefulness but noted that a similar 

proposal had failed to garner sufficient 

political support in 2009. 

 Expanding state programs that assist 

unemployed homeowners and adopting 

parametric changes to existing 

programs (e.g., lowering the back-end 

debt-to-income ratios and bringing the 

loan-to-value ratio below 100 percent in 

programs like HAMP-PRA). The authorities 

noted that the former is currently under 

consideration and acknowledged that high 

back-end debt to income ratios raise redefault rates. However, they noted that 

modifications to aggressively reduce loanto-value (LTV) ratios would lead to moral 

hazard, and pointed out that a large 

proportion of negative equity mortgages 

(where the outstanding loan balance 

exceeds the value of the home) remains 

current. Staff suggested to attach clauses 

to these modifications to ensure the 

sharing of gains from future home price 

appreciation between homeowners and 

the counterparty in the modification.
UNITED STATES 2011 ARTICLE IV REPORT

 INTERNATIONAL MONETARY FUND 21

Box 6. Administration’s Response to the Housing Crisis

The Administration has undertaken a variety of measures to tackle the foreclosure epidemic, but so far 

with limited results. For example, as of end-March 2011 only $1.4 billion out of the $45.6 billion allocated 

through the Troubled Asset Relief Program (TARP) for housing support measures has so far been disbursed. More 

specifically: 

 The Home Affordable Modification Program (HAMP), which reduces monthly payments on existing first-lien 

mortgages, provides financial incentives for servicers and investors to perform sustainable modifications, 

including by requiring lenders to consider a Principal Reduction Alternative. HAMP has only completed 

670,000 permanent modifications out of the 1.6 million modifications started since the program’s inception; 

another 2,174 permanent modifications have been completed on Federal Housing Administration (FHA)-

insured loans through the FHA-HAMP program.

 With lenders reluctant to write off second-lien mortgages, the Second Lien Modification Program has only 

completed 21,230 modifications so far. 

 The Home Affordable Foreclosure Alternatives Program, aimed at encouraging short sales and deed-in-lieu 

for borrowers unable to complete a modification, has so far completed only 5,250 short sales or deeds in lieu 

of foreclosure transfers.

 The Administration’s Home Affordable Unemployment Program, providing temporary forbearance on the 

unemployed, has only 7,400 participants thus far.

 The Hardest Hit Fund Program has committed $7.6 billion to heavily distressed states for foreclosure 

mitigation policies, but so far only $165 million have been spent. FHA’s Short-Refinance Program (an $8-

billion foreclosure prevention and mortgage relief plan launched in September 2010 to assist qualified nonFHA insured underwater homeowners to refinance into an-FHA-insured mortgage if the lender agrees to write 

off at least 10 percent of the first mortgage’s principal balance) had only refinanced 107 loans through endMarch. 

Other policy initiatives were relatively more successful in supporting the housing market. The homebuyers 

tax credit—that expired last summer—has supported, at least temporarily, housing sales while the private sector, 

including the GSEs, has started 2.2 million modifications under Hope Now. The homebuyer tax credit brought 

forward future demand so there has naturally been some payback after its expiration (Figure 4). More than 800,000 

FHA-insured mortgages have avoided foreclosure via loss mitigation plans, while support to Fannie Mae and 

Freddie Mac facilitated continued access by households to affordable mortgage credit. The Federal Reserve and 

the U.S. Treasury purchased more than $1.4 trillion in agency mortgage-backed securities (MBS) through 

independent purchase programs, helping to keep mortgage rates low.

 Encouraging GSEs to participate in 

principal write-downs would significantly 

increase the scope for modifications. The 

Federal Housing Finance Agency (FHFA) 

estimates that, out of its 30 million pool of 

guaranteed mortgages (worth US$5 

trillion), around 600,000–800,000 are 

currently underwater and in default. The 

FHFA, the regulator of the conservatorship, 

has so far declined to allow principal 

writedowns on the grounds that many 

have subordinate liens and mortgage 

insurance, which would mean that the 

benefits of successful modifications would 

mostly benefit others, writedowns would 

impose losses on GSEs, which is 

inconsistent with the mandate of 

conservatorship, and they would induce 

underwater homeowners to 
2011 ARTICLE IV REPORT UNITED STATES 

22 INTERNATIONAL MONETARY FUND

intentionally default. Staff agreed that the 

latter risk existed but noted that the 

positive externalities from lowering the 

housing market uncertainty induced by the 

large shadow inventory of houses would 

likely outweigh these costs, especially 

taking into account the large contingent 

fiscal liability of the U.S. Treasury.x

Furthermore, staff pointed to the analysis 

by the Office of the Comptroller of the 

Currency (OCC) which indicate that 

modifications significantly reducing 

monthly principal and interest payments 

consistently perform better. Staff also 

suggested providing additional incentives 

for further deed in lieu and short sales 

(Selected Issues Paper, Chapter 9). 

C. Labor Markets: Lowering Unemployment and Improving Matching

29. Authorities noted that a number of 

recently adopted measures helped buoy the 

labor market and speed up hiring. The 

administration has enacted several programs 

to speed up hiring, including the “jobs 

agenda” and the December 2010 stimulus 

package, which included a temporary payroll 

tax cut for employees. Authorities attributed 

part of the pickup in hiring at the end of 2010–

beginning of 2011 to the payroll tax cuts and 

viewed past efforts as important to limit labor 

market slack. Staff suggested that some 

measures (extension of unemployment 

insurance and the payroll tax cuts) could be 

extended in 2012 and/or new targeted 

measures to induce hiring of the long-term 

unemployed could be enacted, given the longterm consequences of degradation in work 

skills with adverse effects on productivity, real 

wages, and trend consumption spending. 

Authorities stressed that any deviation from 

existing policies would depend on labor 

market performance in the remainder of the 

year.

30. Staff inquired whether risks of 

higher structural unemployment justify a 

re-evaluation of existing policies to train 

and place the unemployed into jobs. Staff 

remarked that the federal government has 

nearly 50 different programs dispersed across 

nine federal departments geared toward 

helping the unemployed, but with a 

cumulative budget of only 0.1 percent of GDP. 

Moreover, a large part of this budget is 

transferred to states, which have many 

programs of their own.xi Thus, it could be 

important to assess whether some 

consolidation of the system—with better 

funding—would be more effective in 

facilitating the labor market adjustment. 

Authorities recognized that some reevaluation 

of existing programs could be productive but 

stressed that the education system—which is 

not part of this array of programs—also plays 

an important role in re-training the 

unemployed. Officials argued for using 

community colleges (as in a recent 

government initiative geared toward 

manufacturing jobs), which offer flexible 

curricula and are more aligned to the demands 

of local employers, as a way to channel 

training programs.

31. Looking ahead, institutional reforms 

could limit the volatility of U.S. 

employment during the next cycle. The U.S. 

labor market has benefited from great 

flexibility, but at the cost of high employment 

volatility, which may have medium-term 
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 23

consequences when the unemployment rate 

does not recover quickly. Staff and authorities 

agreed that adopting some aspects of the 

short-time compensation programs present in 

other countries (e.g., Germany and, to a lesser 

extent, Canada) could help reduce the cyclical 

burden on employment. 

D. Monetary Policy: Continued Accommodation

32. Staff viewed monetary policy as 

having provided needed support to the 

recovery while maintaining inflation 

expectations well anchored. The strategy has 

included near-zero policy rates, clear 

communication that conditions would likely 

warrant exceptionally low policy rates for an 

extended period, and a second round of 

unconventional easing beginning in the Fall of 

2010 in response to the weakening of inflation 

and growth. Federal Reserve officials 

considered that large-scale asset purchases 

had effects on the real economy through 

conventional monetary transmission channels, 

even if their impact on longer-term yields had 

been more direct than those of conventional 

policy.xii They noted that the impact of the 

second large scale asset purchase program on 

longer-term yields had been harder to detect, 

as markets incorporated the policy into their 

expectations over a period of time, rather than 

in response to discrete policy announcements 

as in the first round of asset purchases.xiii

33. Well-anchored inflation 

expectations and significant resource 

underutilization suggest that the 

extraordinarily low level of short-term 

interest rates will likely remain appropriate 

for quite some time. The mission and the 

authorities agreed on the importance of 

remaining vigilant to the risk of an unmooring 

of long-term inflation expectations in either 

direction. More generally, the speed and 

timing of future actions should depend on 

incoming data on core inflation, longer-term 

inflation expectations, and growth, with scope 

to react to a more aggressive fiscal 

consolidation through a slower withdrawal of 

monetary stimulus. Although temporary 

factors—including pass-through from higher 

commodity prices—had recently pushed core 

inflation up, the authorities anticipated that 

inflation would fall back to more subdued 

levels over the coming quarters as those 

effects passed and as persistent labor market 

slack would keep wages in check. 

Source: Bloomberg, LP.

0.0

0.3

0.6

0.9

1.2

1.5

1.8

0.0

0.3

0.6

0.9

1.2

1.5

1.8

Feb-11 Aug-11 Feb-12 Aug-12 Feb-13

Dec 13, 

2010

April 14,

2011

May 4,

2011

June 21,

2011

Federal Funds Futures Contracts

(percent)
2011 ARTICLE IV REPORT UNITED STATES 

24 INTERNATIONAL MONETARY FUND

34. The mission and authorities agreed

that ending the policy of reinvesting the 

principal of maturing securities seems to be 

a reasonable first step in normalizing 

monetary conditions when warranted by 

the economic outlook. Against the backdrop 

of a passive unwinding of the Fed’s securities 

holdings through ceasing the reinvestment of 

maturing securities, short-term policy interest 

rates would serve as the main active tool to 

fine tune the adjustment of monetary 

conditions. Reducing excess reserves by 

ceasing reinvestments of the principal of at 

least a portion of maturing securities, as well 

as other reserve-draining operations, including 

the use of repos and term deposits, would also 

help tighten the link between the federal funds 

target rate and the interest rate on reserves. A 

clearly communicated and gradual path of 

asset sales would be an additional step in the 

exit process. Federal Reserve officials stressed 

that members of the Federal Open Market 

Committee would continue to weigh the 

relative merits of various sequencing options 

for the eventual normalization of monetary 

policy. 

35. From the perspective of monetary 

policy spillovers to the rest of the world, 

the main risk is a likely reversal of some of 

the inflows to emerging markets if markets 

suddenly bring forward expectations of 

monetary tightening, suggesting a 

premium on clear communication. While the 

second large scale asset purchase program 

had limited spillovers and its ending will have 

even less as it is fully anticipated, there is a risk 

that when the Fed gets closer to tightening, 

e.g., by draining liquidity, Treasury yields could 

jump and there could be sharp capital 

outflows from emerging markets, particularly if 

this were unexpected. This is because such a 

shift would be the precursor to future rate 

hikes (or swift balance sheet unwinding), 

thereby signaling smaller interest rate 

differentials and either greater confidence in 

the U.S. expansion or rising inflationary 

pressures. Senior Fed officials considered that 

most capital flows to emerging markets were 

structural, suggesting limited risk of significant 

pull-backs in response to monetary tightening. 

The spillovers analysis highlights that clear 

monetary policy communication has benefits 

from an international perspective, further to 

the well-known domestic benefits. In this 

context, staff welcomed the introduction of 

regular press briefings to present the Federal 

Open Market Committee’s economic 

projections and to provide further context to 

its decisions. 

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2005 2007 2009 2011 2013 2015 2017

J 2011

Staffforecast 1/

Treasury securities

MBS

Agencies

Credit 

facilities

and AIG

FX

Swaps

Other

Discount

window &

RPs

Sources: Board of Governors of the Federal Reserve System, 

Factors Affecting Reserve Balances (H.4.1); Haver Analytics; 

and Fund staff calculations.

1/ Assumes that reinvestment of maturing securities stops 

early 2012: (a) Treasuries and Agencies run down at 

scheduled maturities; (b) MBS stock runs down (with both 

prepayments and scheduled run-offs) at the pace of $2.8 

billion per week, consistent with the recent trend.

Effects of Ending Principal Reinvestment

on the Federal Reserve Balance Sheet

(trillions of dollars)
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 25

E. Financial Policy: Restoring Financial Resilience

36. Discussions focused on the health of 

the financial system and the policy response 

to the crisis. On financial system health, the 

authorities noted that government 

investments were being steadily repaid, with 

banks paying a net $12 billion so far, and Fed 

financial system support at minimal levels 

(Table 6). Banks’ tier 1 risk-based capital ratios 

stood at 13 percent and the leverage ratio at 

9.1 percent at the end of 2011Q1 (compared 

with just under 10 percent and 71⁄2 percent 

respectively at end-2008), while the tier 1 

common capital ratio for SCAP institutions 

stood at 9.8 percent.xiv Liquidity indicators had 

improved as well, although increased reliance 

on business deposits (boosted by the increase 

in holdings of liquid assets by nonfinancial 

corporates) was a concern. Profits were 

recovering, but largely owing to reduced 

provisioning (with some concerns by the 

authorities that this might be premature). 

Meanwhile, the return on assets remained 

weaker than pre-crisis levels, partly reflecting 

the de-risking of balance sheets (as the share 

of risk-weighted assets declined to low levels), 

and was likely to remain soft given the subpar 

economic recovery. 

37. Staff and authorities agreed that 

important vulnerabilities remained, 

especially from potential spillovers from 

possible turmoil in Europe.

xv While direct 

credit exposures to the most stressed 

countries were modest (see Box 7), banks had 

substantial exposure to major European 

institutions. These institutions also played 

important roles in U.S. derivatives, securities 

and lending markets, raising additional 

channels for spillovers. Last but not least,

strains among the European banks could 

disrupt U.S. money market funds, which hold 

considerable amounts of their paper. Staff also 

expressed concerns that stress in the U.S. 

Treasury market related to the approaching 

debt limit could severely disrupt global 

financial stability. Treasury officials expressed 

confidence that a budget agreement would be 

reached in time to ward off Treasury market 

volatility. 

38. While banks’ balance sheets were 

strong enough to support lending, a revival 

of securitization was seen as essential to 

supply the needed credit into a stronger 

recovery. Securitization had collapsed to a 

fraction of its pre-crisis level, notably in private 

residential mortgage-backed securities, which 

were weighted down by a combination of 

housing market fragility, weak demand for 

residential properties, and regulatory 

uncertainty. The team and the authorities 

agreed that initiatives to strengthen risk 

retention and disclosure and redefine the roles 

of the rating agencies (with greater emphasis 

on investor due diligence along with steps to 

address potential conflicts of interest) were 

essential. Authorities disagreed with private 

concerns that proposals for risk retention were 

stifling private securitization, noting that 

reforms would over time revive the market by 

improving investor confidence. Authorities saw 

the dominance of the housing GSEs as a more 

important obstacle to a recovery of private 

mortgage securitization, but also as a needed 

support at the current juncture—and thus as 

an issue for the longer term. 

 
2011 ARTICLE IV REPORT UNITED STATES 

26 INTERNATIONAL MONETARY FUND 

Box 7. U.S. Financial Exposure to Europe

U.S. money market funds (MMFs) continue to have sizeable exposures to European financial institutions. 

According to market analysis, based on a sample of the 10 largest MMFs, which represent 45 percent of the total 

prime fund universe, exposure to European banks account for roughly half of total U.S. MMFs assets. French banks 

(at nearly 15 percent of MMFs assets) form the largest country exposure while 40 percent of the funds' total assets 

are concentrated in 15 banks. Therefore, if European sovereign distress reverberated to European banks, U.S. 

MMFs could face significant strain. 

Evidence on exposure of U.S. banks to Euro area peripheral countries is mixed. Banking statistics from the BIS 

and the Federal Reserve indicate limited direct claims of U.S. banks on European peripheral countries at the end of 

2010, while potential exposure—including derivatives, unused credit commitments, and guarantees—is much 

larger. However, estimates of these potential exposures are amplified by the lack of data on the insurance bought 

by U.S. banks against default in European peripheral countries, which would offset default insurance sold. 

Despite heightened sensitivity to the outlook on Euro area sovereign debt, market information suggests 

that investors do not appear overly concerned about the potential spillover to U.S. banks.

1

 Using market 

information, the estimated Conditional 

Probabilities of Distress (CoPoD) 

represent the market’s assessment of 

potential spillovers through a variety of 

channels such as direct exposure to 

governments and banks, deleveraging 

and market confidence.2

 These results 

suggest that U.S. banks remain more 

sensitive to domestic events. 

Specifically, spikes in CoPoDs occurred 

between 2008 and 2009, around credit 

downgrades, the Lehman bankruptcy, 

and the launch of various government 

programs—such as the Term AssetBacked Securities Loan Facility (TALF) 

and aid to the American International 

Group (AIG). Since then, despite rising 

concerns regarding Euro area 

sovereign debt, U.S. banks’ sensitivity to events in Euro area peripheral countries appears modest (chart). The low 

sensitivity may reflect U.S. banks’ modest direct exposures to these countries, as well as their robust investment 

banking returns over 2010. Still, were distress in Euro area peripheral sovereigns spill over to core Euro area banks, 

the potential impact on U.S. banks could be much higher, given their significant exposures to those banks.

Overall, the exposure of the U.S. to Europe via financial linkages is a cause for concern. As discussed in Box 5 

of the 2010 Article IV staff report, financial linkages with Europe are much stronger than trade linkages. While 

exposure of US banks’ to European periphery would seem limited, the main concern is that if sovereign credit 

events in Europe adversely affected European banks, including in core countries, U.S. money market funds could 

be severely strained via their exposure to those banks. 

_______________________________________ 

1 The sample consists of Greece, Ireland, Portugal and Spain, and the three largest banks in the United States by capital: JP 

Morgan, Citi and Bank of America. 

2

 Distress is defined as a (hypothetical) credit event that triggers credit default swap (CDS) contracts, where a credit event could 

be a failure to pay on schedule, default, or, more broadly, a restructuring where bondholders are forced to bear losses. CoPoDs

are estimated as in Segoviano (2006), “Consistent Information Multivariate Density Optimizing Methodology,” Financial Markets 

Group, London School of Economics (FMG, LSE) Discussion Paper 557, Segoviano (2006), “The Conditional Probability of Default 

Methodology,” FMG, LSE Disc. Paper 558, and Segoviano and Goodhart (2009), “Banking Stability Measures,” IMF WP/09/04.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1/1/2008 1/1/2009 1/1/2010 1/1/2011

Citi BoA JP Morgan

Probability of Distress in U.S. Banks Given Distress in Selected 

European Countries1

(probability of distress)

Source: Fund staff calculations.
2011 ARTICLE IV REPORT UNITED STATES

27 INTERNATIONAL MONETARY FUND

39. On the policy overhaul in response 

to the crisis, discussions were shaped by the 

FSAP conducted in 2010, as well as the 

Dodd-Frank Act (DFA) enacted in July 2010. 

The DFA—along with the range of 

international initiatives under the Basel 

Committee, Financial Stability Forum and other 

groups—broadly spanned the issues raised by 

the FSAP. While the authorities noted that 32 

of the 33 key FSAP recommendations had 

been completed or were being implemented 

(Box 8), staff expressed concerns that the 

regulatory system remained fragmented (a key 

unaddressed recommendation), posing 

challenges to coordination domestically and 

internationally. Also the effectiveness of the 

new regulatory framework in stemming 

systemic risk and containing risks from toobig-to-fail was yet to be tested. Moreover, 

headwinds to implementation—including 

funding new activities and making key 

appointments—posed concerns for the team. 

Despite these headwinds, the authorities felt 

that implementation had progressed well, with 

many key regulations issued. They considered 

that the Financial System Oversight Council 

(FSOC) was off to a strong start, with several 

technical level committees (with 

representatives of all agencies) working fully 

engaged. Fed officials noted the work of the 

newly-established Office of Financial Stability 

Policy and Research as playing an important 

role in their surveillance of systemic risks. 

40. The team saw it as essential to move 

ahead expeditiously in three key areas: 

 Dealing with systemically important 

financial institutions (SIFIs): The team urged 

prompt designation of SIFIs—a key FSOC 

responsibility. SIFIs—including investment 

banks and other nonbanks—should face 

tough capital and liquidity standards to 

internalize systemic risks. The authorities 

concurred, noting the key role of measures 

to strengthen the ex-ante resilience of the 

financial system to future crises. They 

thought that banks could meet stiffer 

capital requirements without difficulty, but 

saw enhanced liquidity requirements as a 

higher hurdle (specifics remained to be 

decided). Designation would take time, 

given the complexity of the associated 

analysis. Authorities thought that 

resolution plans (“living wills”) for SIFIs 

could reduce systemic risks and strengthen 

crisis resolution, even though they were no 

substitutes for ex-ante measures to reduce 

systemic risk. Staff was skeptical that 

several large institutions could be resolved 

simultaneously in stressed markets, and 

encouraged officials to use DFA powers to 

preemptively streamline firms that were 

too complex to resolve in a crisis. 

 The potential migration of risks to “shadow 

banking”: the team saw it as essential to 

apply rules and supervision that avoided 

the reemergence of this destabilizing 

dynamic. In addition, steps such as floating 

asset valuation, capital, or backstops are 

needed to deal with fragilities in money 

market funds, to avoid the “runs” that 

occurred post Lehman. Strengthening 

nonbank liquidity management was 

especially important given the possible 

migration of liquidity risks outside banks, 

the fact that nonbank liquidity support was 

limited to emergency facilities (the Fed’s 
2011 ARTICLE IV REPORT UNITED STATES 

28 INTERNATIONAL MONETARY FUND

13 (3) powers), and that DFA required the 

Fed to defer to the fullest extent possible 

to examinations by extant regulators. The 

authorities were vigilant for liquidity risks 

and risk migration, and considered that 

they had adequate tools to respond, with 

the FSOC playing the role of “residual 

claimant” of financial system risks that 

might otherwise fall through the cracks.

Box 8. U.S. FSAP Recommendations One Year Later and DFA Implementation

Nearly all of the FSAP recommendations were addressed by the Dodd-Frank Act, but their 

implementation is an ongoing process and it is premature to assess the effectiveness of the new 

oversight framework. The Dodd-Frank Act (DFA) in July 2010 changed the landscape of U.S. financial sector 

oversight addressing many of the deficiencies identified in the U.S. Financial Sector Assessment Program 

(FSAP) concluded in early 2010 (see Table 7 on FSAP recommendations). As of June 1, 2011, 24 of the 87 

studies required by DFA had been completed. At the same date, as per the estimated 385 DFA statutory 

deadlines for rulemaking, rules had been finalized in 24 instances and proposed in 115, while 28 deadlines 

had been missed and 218 were forthcoming.1

 The lengthy implementation process will likely impede for 

some time a firm assessment of the impact of the new regulation on the financial system and on the 

effectiveness of its oversight. However, a preliminary assessment of the thrust of the progress in meeting the 

six main categories of FSAP recommendations is discussed below. 

First, the FSOC has defined its internal structure and processes and has started work on key issues 

institutionalizing systemic risk oversight. The FSOC established a deputies’ committee to coordinate and 

oversee its work, a systemic risk committee and two sub-committees to analyze emerging threats to 

financial stability, and five standing committees of staff from the member agencies for the regular and 

ongoing responsibilities. The authorities reported that the committees meet frequently and that individual 

agencies are actively involved in supporting FSOC activities and in healthy discussions on systemic risk. The 

FSOC held five meetings and issued three Notices of Proposed Rulemaking: respectively on the designation 

as systemically important financial institutions (SIFIs) of financial market utilities, non banks, and on data 

collection. Two studies were issued, on the Volcker’s Rule and on the concentration limit for large financial 

companies. No systemically important financial institutions to be subject to heightened prudential standards 

have been designated yet. The first annual report is expected to be published in the second half of the year. 

Second, the limited restructuring of the regulatory architecture is progressing. Although the substantial 

simplification of the U.S. regulatory system along functional lines advocated by the U.S. FSAP was not 

pursued, the modest streamlining introduced by the DFA, with the transfer of the responsibilities of the 

Office of Thrifts and Supervision (OTS) to the Office of the Comptroller of the Currency (OCC), the Federal 

Deposit Insurance Corporation (FDIC) and the Federal Reserve (Fed) is on track. The Federal Insurance Office 

(FIO) and the Bureau of Consumer of Financial Protection (BCFP) were established, although the delay in the 

designation of the director of the BCFP poses concerns on the effectiveness of its actions. 

Third, micro-prudential regulation and supervision are being strengthened. The authorities reported 

that supervision for the banking sector within the Fed has taken a more macro-prudential orientation and 

cooperation among banking agencies have significantly increased. The implementation of enhanced 

prudential regulation for designated SIFIs and banking organizations with more than $50 billion in assets is 

also forthcoming. As for the oversight of securities and derivative markets, the Securities and Exchange 

Commission (SEC) and the Commodities Futures Trade Commission (CFTC) have proposed a large number of 

rules and are working closely together to get those implemented. Progress is expected on the 

recommendations on discouraging the use of deposits in the shadow banking system and on the repo 

market, while for money market funds disclosure has already been increased. Finally, in the insurance sector, 

which continues to be a complex state-based regulatory system, a number of rules to strengthen regulation 

are being considered. 
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 29

Box 8. U.S. FSAP Recommendations One Year Later and DFA Implementation (continued) 

Fourth, the oversight of market infrastructure is being reinforced. The Fed is working to implement the 

provisions of the DFA that allow the Fed to offer accounts and services to designated systemically important 

financial market utilities. The Fed is also working with other agencies to bolster the oversight of clearing, payment, 

and settlement systems. The CFTC and the SEC proposed rules to adopt many of the Committee on Payment and 

Settlement Systems (CPSS) and IOSCO recommendation for central clearing counterparties. 

Fifth, crisis management, resolution and systemic liquidity arrangements are being bolstered. Rules 

implementing the new orderly liquidation authority (OLA) of the FDIC over bank holding companies and 

designated SIFIs are being proposed. Rulemaking to implement “living wills” for large and complex financial 

groups is also underway. The size of the Deposit Insurance Fund was allowed to increase, and a limited widening 

of the range of counterparties and collateral in open market operations was pursued. 

Finally, the too-big-too fail issue is being addressed with additional prudential provisions, while reform of 

the GSEs is being contemplated. In addition to OLA and living wills, the Fed is developing heightened prudential 

standards for large banking organizations and non-bank SIFIs. The DFA also provided regulators with authority to 

take pre-emptive actions when the above institutions pose a grave threat to the financial stability of the U.S. or fail 

to submit a credible living will. Various proposals on the future of the GSEs are being examined, most notably 

those laid out in the Administration’s white paper. 

_________________________ 

1 Number of studies and rulemakings estimated, with a judgmental component, by DavisPolk. Where multiple agencies are 

required to issue a rule jointly, the rulemaking requirement is counted for each of the agencies involved. If joint rules are 

excluded, the number of required rulemaking decreases to 243. The number of proposed rules does not include rulemaking 

requirements for which the deadline has been missed.

 Financial surveillance under the FSOC: staff 

saw as essential to have transparent and 

proactive surveillance of systemic risks and 

policy responses under FSOC as it moves 

beyond the initial implementation stage. 

Given the complexity of the supervisory 

framework and the fact that only two of 

ten FSOC voting members have a 

macroeconomic remit, transparency would 

be key to reinforce the focus on systemic 

risk; in this context, the team welcomed 

the forthcoming annual report. The 

authorities saw the FSOC process as 

working well, fostering continuous 

interaction among committee and 

subcommittee members on financial 

stability issues. The authorities stressed 

their commitment to the transparency of 

the FSOC, while they also considered that a 

balance needs to be struck as the 

disclosure of sensitive information could 

precipitate market volatility. The DFA 

requirement that FSOC voting members 

submit signed statements to Congress 

affirming whether they believe that all 

reasonable steps are being taken to ensure 

financial stability and mitigate systemic 

risks would guarantee strong 

accountability. 

41. Authorities agreed that international 

coordination was key to avoid cross-border 

regulatory arbitrage. They saw coordination 

as working well. Supervisors and regulators 

were in frequent close contact under the aegis 

of international groupings such as the Basel 

Committee, Financial Stability Forum, and the 

International Organization of Securities 

Commissions (IOSCO), with overall agendas 

and key principles and standards closely 

aligned. That said, some major issues—such as 

cross-border resolution of SIFIs (given the 
2011 ARTICLE IV REPORT UNITED STATES

30 INTERNATIONAL MONETARY FUND

large number of complex, systemic cross 

border firms and international differences in 

legal frameworks for resolution) and 

derivatives (the level of clearing and rules for 

margining of uncleared swaps) would be 

complex and remained under active 

discussion. Authorities saw their timetable as 

more aggressive than in their overseas 

partners, opening up the possibility of 

regulatory gaps, notably in securities and overthe-counter (OTC) derivatives regulation. 

42. Staff noted that the risk of spillovers 

to and from the U.S. financial system 

strengthened the case for making the U.S. 

financial system more resilient. In this 

connection, the Dodd-Frank Act seemed to 

have reduced the risk of potential knock-on 

effects from U.S. financial instability. That said, 

analysis in the Spillovers Report highlighted 

that the investment banking activities 

(including by non-U.S. firms) could propagate 

shocks internationally via the U.S. dollar 

wholesale funding markets, underscoring the 

need for strong prudential supervision of 

those activities. The authorities agreed that 

cross-border financial linkages remained 

sizeable, but also considered that the domestic 

and international agendas were well aligned at 

a high level, and coordination would continue 

to improve going forward. 

43. Looking to the longer term, 

authorities and staff agreed that the current 

government presence in the housing 

market was neither sustainable nor 

desirable. The Administration’s plans, 

articulated in their February 2011 report to 

Congress (Reforming America’s Housing 

finance Market) would shift the government’s 

focus to (i) oversight and consumer protection, 

(ii) assistance for low- and moderate- income 

homeowners and renters, and (iii) support for 

market stability and crisis response. The report 

offers three long-term options: (i) a fully 

privatized system of housing finance, with the 

government helping low and middle-income 

borrowers; (ii) a privatized system plus a public 

guarantee mechanism that can be scaled up in 

a crisis, with an above-market guarantee fee 

that would be attractive only during market 

stress; or (iii) a privatized system plus public 

catastrophic reinsurance, with first-loss 

insurance coverage from private sources. Staff 

urged that housing finance reform should be 

complemented by gradually reducing 

distortions such as the mortgage interest 

deductions, which are expensive, regressive, 

and bias homeownership towards large 

homes. Congress could deliberate proposals as 

early as this fall.

F. The United States and the World Economy

44. Staff stressed that policy actions to 

raise savings, including by restoring fiscal 

sustainability, and strengthening the 

financial sector would make an important 

contribution to global growth and stability. 

With household saving rates projected to 

remain close to current levels in the medium 

term, higher public savings would help ensure 

that the U.S. current account deficit remains 

moderate as domestic investment gradually 

recovers, as well as forestall the risk of adverse 

global spillovers from higher U.S. interest rates 

driven by public debt dynamics. 

45. Staff saw the medium-term U.S. 

current account deficit remaining at around 

3 percent of GDP, still somewhat in excess 
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 31

of CGER benchmarks (which are around 

11⁄2–21⁄2 percent of GDP), implying some 

dollar overvaluation. The April CGER 

calculations suggested a 0-15 percent 

overvaluation range for the U.S. dollar.xvi The 

authorities broadly concurred with staff’s 

range for current account projections. They did 

not take a view on the appropriateness of the 

level of the dollar, but noted that the change 

in U.S. trading partners towards emerging 

markets with lower costs and prices implied 

that the level of U.S. prices relative to trading 

partners was not as low as traditional real 

effective exchange rate indices would suggest. 

46. The authorities agreed on the need 

for a global rebalancing of demand, but 

expressed some concerns that global 

imbalances may be widening again. They 

agreed that U.S. fiscal consolidation was 

essential over the medium term and would 

contribute to global rebalancing, and argued 

that policy actions in surplus countries to 

boost domestic demand and increase currency 

flexibility were crucial to achieving the goals of 

the G-20 Framework for Strong, Sustainable, 

and Balanced Growth. 

47. The mission encouraged the 

authorities to intensify their efforts to 

secure the future of multilateral trade 

negotiations. With the prospect of concluding 

the Doha Round by year-end diminishing, the 

authorities expressed their commitment to 

engage on concluding a subset of “early 

deliverables.” At the same time, the authorities’ 

trade negotiations will focus on concluding the 

three pending FTAs with Colombia, South 

Korea, and Panama by year-end, and on 

advancing the Trans-Pacific Partnership (TPP) 

with APEC members.xvii The authorities’ 

objectives of these negotiations will remain 

firmly on expanding jobs and economic 

growth by creating new export opportunities. 

Noting that U.S. recourse to protectionist 

measures has remained limited, staff 

welcomed authorities’ efforts to resist these 

pressures and to ensure that any trade-related 

legislation is consistent with WTO and other 

international obligations.

STAFF APPRAISAL 

48. Policies must strike the right 

balance between exiting from extraordinary 

support and sustaining the recovery amid 

renewed headwinds. Fiscal consolidation 

needs to proceed as debt dynamics are 

unsustainable and losing fiscal credibility 

would be extremely damaging for the United 

States and for the rest of the world. With a 

still-fragile recovery, the pace and composition 

of fiscal adjustment need to be attuned to the 

cycle, with the current sizeable monetary 

policy accommodation remaining in place, 

unless inflation prospects change significantly. 

Housing and labor market policies can help 

cushion the ongoing adjustment process and 

help lay the foundations for a more sustained 

recovery going forward. 

49. The key priority for fiscal policy is 

to stabilize the debt ratio by mid-decade 

and gradually reduce it afterwards, 

consistent with the administration’s 

objectives. In this context, staff sees early 

political agreement on a comprehensive 

medium-term consolidation framework based 

on realistic macroeconomic assumptions as a 

cornerstone of a credible fiscal adjustment 

strategy. With a well-defined multi-year 

framework in place, the pace of deficit
2011 ARTICLE IV REPORT UNITED STATES

32 INTERNATIONAL MONETARY FUND

reduction in the short run could be more 

attuned to cyclical conditions without 

jeopardizing credibility. And of course, the 

federal debt ceiling should be raised 

expeditiously to avoid a severe shock to the 

U.S. economy and world financial markets. 

50. Staff’s recommended adjustment 

strategy entails a reduction of the federal 

structural primary deficit at a broadly 

uniform pace over the next five years, 

within a fully-specified and politicallybacked consolidation framework. Fiscal 

adjustment should start in FY2012 to guard 

against the risk of a disruptive loss in fiscal 

credibility, and encompass cuts in mandatory 

spending (including through entitlement 

reforms) as well as revenue increases 

(including by reducing tax expenditures) given 

the relatively limited size of non-security 

discretionary spending and the large cuts 

already envisaged in this area. Consideration 

could also be given to a national VAT or sales 

tax and carbon taxes, consistent with past 

advice by Fund staff. 

51. The fiscal framework should include 

an explicit Congressional endorsement of 

the main medium-term fiscal objectives.

Multi-year expenditure caps on non-security 

discretionary spending would help keep the 

consolidation on track across annual budget

cycles, while a “failsafe” mechanism for the 

debt ratio along the lines recently suggested 

by the President could, if robustly formulated, 

help protect against deficit overruns and other 

contingencies. It would also be helpful to 

prepare the administration’s budgets using 

conservative economic assumptions. 

52. Subdued inflation and significant 

resource underutilization suggest that the 

extraordinarily low level of short-term 

interest rates will likely remain appropriate 

for quite some time. The Fed should remain 

vigilant to the risk of an unmooring of longterm inflation expectations, and respond 

decisively should the risk materialize in either 

direction. More generally, the speed and 

timing of future actions should depend on 

incoming data on core inflation, longer-term 

inflation expectations, and growth, with scope 

for cushioning a larger fiscal consolidation 

through a more back-loaded withdrawal of 

monetary stimulus. 

53. When appropriate, a gradual 

unwinding of the Fed’s balance sheet seems 

to be a reasonable first step in normalizing 

monetary conditions. Against the backdrop 

of a passive unwinding of the Fed’s securities 

holdings through ceasing the reinvestment of 

the principal of maturing securities, short-term 

policy interest rates would serve as the main 

active tool to fine tune the adjustment of 

monetary conditions. Reducing excess reserves 

by ceasing reinvestments, as well as other 

reserve-draining operations including the use 

of repos and term deposits, would also help 

tighten the link between the federal funds 

target rate and the interest rate on reserves. A 

clearly communicated and gradual path of 

asset sales would be an additional step in the 

exit process. 

54. Staff sees merit in further policy 

efforts to ease the adjustment of housing 

and labor markets within the fiscal 

envelope.

 While policy design is complicated by 

operational capacity constraints and the 

risk of inducing moral hazard, housing 

difficulties are central to the slow recovery 
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 33

and pose a critical risk. Therefore, 

consideration should be given to allowing 

for the terms of residential mortgages to 

be changed in courts (“cramdowns”), 

strengthening federal mortgage 

modification programs, expanding state 

programs that assist unemployed 

homeowners, and encouraging the GSEs to 

participate in principal write-downs.

 Persistently high unemployment rates and 

the need for significant job reallocation 

across sectors warrant a re-examination of 

existing active labor market programs (e.g., 

job training and job-search assistance). The 

education system could also play a strong 

role in retraining the unemployed, 

including through community colleges. 

Further tax cuts attached to programs 

aimed at spurring hiring of long-term 

unemployed workers could be enacted. 

55. The U.S. financial system continues 

to heal, but remains vulnerable. Bank 

profitability has recovered and bank capital 

has increased, but underlying profits are weak, 

and the rise in capital ratios also reflects a shift 

towards less risky assets. Mortgage markets 

remain largely government dependent. 

Turmoil in European financial markets could 

impact both liquidity and credit provision. Even 

more significantly, the tail risk of a U.S. 

sovereign rating downgrade and sharply 

higher interest rates on federal debt more 

generally could trigger renewed turbulence in 

global financial markets, with adverse 

consequences for global growth. 

56. A sustainable rebound in private 

securitization, driven by reforms to avoid 

the past excesses, would help meet credit 

demand as the recovery takes hold. The 

reforms underway—in particular, steps to 

increase disclosure and risk retention—will 

strengthen incentives for sound underwriting, 

and should help revive investor demand. On 

the supply side, clarity on the final scope of the 

new rules would help the market recovery. 

Looking forward, reforms to streamline the 

role of GSEs (preferably, confining their 

activities to providing credit guarantees for 

high-quality mortgages under tail risks) would 

encourage a gradual shift in the mortgage 

market towards private institutions. 

57. Progress in implementing the DoddFrank Act is encouraging, with nearly all 

U.S. FSAP recommendations being 

addressed, but headwinds to 

implementation are of concern. Appropriate 

budgetary resources to fund improvements in 

supervision and regulation should be promptly 

allocated, and efforts to delay or water down 

the legislation should be resisted. Prolonged 

delays or outright failures in addressing the 

regulatory gaps revealed by the crisis, in an 

environment of plentiful liquidity and 

increased financial concentration, could feed 

another very dangerous buildup in systemic 

risks. 

58. Strengthening the domestic and 

international crisis-prevention architecture 

for financial institutions should be a 

priority. Key is promptly and comprehensively 

identifying systemic institutions to be subject 

to heightened supervisory scrutiny, regulatory 

standards, and capital surcharges. These 

should include investment banks and other 

nonbank financial institutions, which provide 

significant cross-border dollar funding. 

Authorities are also encouraged to continue 

their work on improving resolvability of 

systemically important institutions. Systemic 

issues and risks to financial stability are central 
2011 ARTICLE IV REPORT UNITED STATES 

34 INTERNATIONAL MONETARY FUND

to the FSOC mandate and staff looks forward 

to their discussion in the first FSOC annual 

report. The authorities also need to be alert to 

potential new risks arising from changes in the 

regulatory framework that could contribute to 

shifts in financial stability risks across borders 

or intermediaries. International collaboration 

will be critical for progress in this area, and the 

U.S. authorities should continue exercising 

leadership on these matters. 

59. A multilateral approach to economic 

policy management remains critical. This is 

particularly important in systemic countries like 

the United States, whose policy actions have 

significant cross-border effects, as discussed in 

the spillovers report. Staff welcomes the 

authorities’ leading role in multilateral fora and 

their efforts to promote international stability. 

For the medium term, the key contributions 

that the United States can make to global 

growth and stability, consistent with the G-20 

Mutual Assessment Process, are (i) raising 

domestic savings, particularly through fiscal 

consolidation, to ensure that the current 

account deficit declines further and to forestall 

potentially destabilizing increases in public 

indebtedness; and (ii) strengthening its 

financial sector through enhanced regulation 

and supervision. The United States can no 

longer play the role of global consumer of last 

resort, underscoring the importance of 

measures to boost demand in current account 

surplus countries to sustain world growth. The 

U.S. dollar depreciation over the past year 

would help increase demand for U.S. exports 

and contribute to global rebalancing. 

60. Staff welcomes the limited recourse 

to protectionist measures, and encourages 

the authorities, together with other countries, 

to redouble their efforts to secure the future of 

multilateral trade negotiations, especially if the 

Doha Round is not concluded by year-end. 

Increased and more secure market access 

would promote U.S. and global exports. 

61. Staff proposes to hold the next 

Article IV Consultation on a 12-month cycle.
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 35

Table 1. United States. Selected Economic Indicators 1/ 

2009 2010 2011 2012 2013 2014 2015 2016

National production and income

Real GDP -2.6 2.9 2.5 2.7 2.7 2.9 2.9 2.8

Net exports 2/ 1.3 -0.4 0.4 0.3 0.1 -0.2 -0.3 -0.3

Total domestic demand -3.6 3.2 2.0 2.2 2.4 2.9 3.1 3.0

Final domestic demand -3.1 1.9 2.0 2.1 2.4 3.0 3.1 3.1

Private final consumption -1.2 1.7 2.5 2.0 2.3 2.4 3.0 2.8

Public consumption expenditure 1.9 0.9 -1.7 -1.0 -1.8 0.7 1.1 1.9

Gross fixed domestic investment -14.8 3.3 4.0 6.0 7.2 7.5 5.6 4.9

Private fixed investment -18.3 3.9 5.3 7.5 9.7 9.4 7.0 6.1

Equipment and software -15.3 15.3 11.4 9.5 8.5 6.0 4.2 4.0

Nonresidential structures -20.4 -13.7 -3.0 2.6 4.9 5.2 6.2 7.1

Residential structures -22.9 -3.0 -3.4 6.4 19.0 23.4 14.2 9.9

Public fixed investment 0.2 1.3 -0.6 0.7 -2.4 -0.5 -0.6 -1.0

Change in private inventories 2/ -0.7 1.4 0.1 0.1 0.1 0.1 0.0 0.0

Nominal GDP -1.7 3.8 4.0 3.9 3.8 4.2 4.5 4.5

Personal saving rate (percent of disposable income) 5.9 5.8 4.7 4.7 4.6 4.7 4.8 4.9

Private investment rate (percent of GDP) 11.3 12.5 12.7 13.4 14.2 14.9 15.3 15.6

Employment and inflation

Unemployment rate 9.3 9.6 8.9 8.4 7.7 6.9 6.2 5.6

Output gap (percent of potential GDP) -6.0 -4.7 -3.9 -3.1 -2.5 -1.7 -1.0 -0.5

Potential GDP 1.7 1.5 1.6 1.8 2.0 2.1 2.2 2.2

CPI inflation -0.3 1.6 2.8 1.6 1.5 1.7 1.8 1.9

GDP deflator 0.9 1.0 1.4 1.2 1.1 1.3 1.5 1.7

Government finances

Federal government (budget, fiscal years)

Federal balance (percent of GDP) -11.4 -9.6 -9.3 -7.6 -5.6 -4.7 -4.8 -5.3

Debt held by the public (percent of GDP) 53.5 62.1 70.2 74.6 78.3 80.7 82.7 85.0

General government (GFSM 2001, calendar years)

Net lending (percent of GDP) -12.7 -10.3 -9.9 -7.8 -6.0 -5.3 -5.6 -6.0

Primary structural balance (percent of potential 

nominal GDP) -5.1 -5.5 -5.5 -4.0 -2.5 -1.8 -1.7 -1.6

Gross debt (percent of GDP) 84.2 93.5 99.0 103.0 106.2 108.2 110.2 112.7

Interest rates (percent)

Three-month Treasury bill rate 0.2 0.1 0.2 0.4 0.9 1.9 2.9 3.9

Ten-year government bond rate 3.3 3.2 3.5 4.4 5.4 5.8 6.0 6.2

Balance of payments

Current account balance (billions of dollars) -378 -470 -489 -410 -375 -409 -473 -553

Merchandise trade balance (billions of dollars) -507 -647 -703 -702 -723 -769 -839 -918

Balance on invisibles (billions of dollars) 129 177 214 293 348 360 366 365

Current account balance (percent of GDP) -2.7 -3.2 -3.2 -2.6 -2.3 -2.4 -2.6 -3.0

Merchandise trade balance (percent of GDP) -3.6 -4.4 -4.6 -4.4 -4.4 -4.5 -4.7 -4.9

Balance on invisibles (percent of GDP) 0.9 1.2 1.4 1.8 2.1 2.1 2.0 2.0

Export volume 3/ -12.0 14.7 9.5 6.5 5.5 5.5 5.4 5.3

Import volume 3/ -15.8 14.8 4.3 3.2 4.3 5.7 6.2 6.2

(percentage change from previous period, unless otherwise indicated)

Projections

Sources: Haver Analytics and Fund staff estimates.

1/ Components may not sum to totals due to rounding.

2/ Contribution to real GDP growth, percentage points.

3/ NIPA basis, goods.
2011 ARTICLE IV REPORT UNITED STATES

36 INTERNATIONAL MONETARY FUND

Table 1. United States: Selected Economic Indicators (Cont.'d) 1/ 

 

2009 2010 2011 2012 2013 2014 2015 2016

Saving and investment (percent of GDP)

Gross national saving 10.9 11.6 12.3 14.1 15.1 15.6 15.7 15.6

General government -6.7 -6.6 -6.3 -4.6 -2.9 -2.3 -2.5 -3.0

Private 17.6 18.2 18.7 18.7 18.0 17.9 18.2 18.6

Personal 4.6 4.5 3.6 3.6 3.5 3.6 3.6 3.8

Business 12.9 13.7 15.0 15.1 14.5 14.4 14.6 14.8

Gross domestic investment 14.8 15.9 16.1 16.7 17.4 18.0 18.3 18.6

Private 11.3 12.5 12.7 13.4 14.2 14.9 15.3 15.6

Fixed investment 12.2 12.0 12.2 12.7 13.5 14.2 14.7 15.0

Inventories -0.9 0.5 0.5 0.7 0.7 0.7 0.7 0.6

Public 3.6 3.5 3.4 3.3 3.2 3.1 3.0 2.9

(percentage change from previous period, unless otherwise indicated)

Projections

Sources: Haver Analytics and Fund staff estimates.

1/ Components may not sum to totals due to rounding.
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 37

Table 2. United States: Balance of Payments

 

2009 2010 2011 2012 2013 2014 2015 2016

Current account -378 -470 -489 -410 -375 -409 -473 -553

Percent of GDP -2.7 -3.2 -3.2 -2.6 -2.3 -2.4 -2.6 -3.0

Goods and services -375 -496 -528 -498 -491 -521 -571 -632

Merchandise trade -507 -647 -703 -702 -723 -769 -839 -918

Exports 1,068 1,289 1,490 1,577 1,669 1,784 1,909 2,044

Imports -1,575 -1,936 -2,194 -2,279 -2,393 -2,553 -2,748 -2,961

Services 132 151 175 204 232 249 268 286

Receipts 502 546 591 643 691 739 788 839

Payments -370 -394 -416 -438 -459 -491 -521 -553

Income 121 163 170 211 237 234 224 210

Receipts 588 662 558 501 584 793 1,081 1,432

Payments -467 -499 -388 -290 -346 -559 -857 -1,223

Unilateral transfers, net -125 -137 -131 -123 -121 -123 -126 -131

Capital account transactions, 

net 0 0 0 0 0 0 0 0

Financial account 216 35 489 410 375 409 474 553

Private capital -688 -72 260 172 128 151 204 272

Direct investment -134 -151 -126 -129 -132 -135 -140 -144

Outflows -269 -346 ... ... ... ... ... ...

Inflows 135 194 ... ... ... ... ... ...

Securities -70 360 312 307 323 336 349 364

Other investment -484 -280 75 -6 -63 -49 -5 53

U.S. official reserves -52 -2 0 0 0 0 0 0

Foreign official assets 450 298 229 238 247 258 269 281

Other items 1/ 609 28 0 0 0 0 0 0

Statistical discrepancy 163 235 0 0 0 0 0 0

Memo item: Current account 

excluding petroleum -160 -186 -128 -46 -9 -39 -94 -162

Sources: Haver Analytics; and Fund staff estimates.

1/ Includes net financial derivatives.

Projections

(billions of U.S. dollars, unless otherwise indicated)
38 INTERNATIONAL MONETARY FUND Table 3. United States: Federal and General Government Finances 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20

Federal Government Revenue 14.9 14.9 15.3 16.3 17.4 18.4 18.6 18.9 19.1 19.3 1

Expenditure 26.4 24.5 24.6 23.8 23.0 23.1 23.4 24.2 24.5 24.6 2

Noninterest 1/ 25.0 23.1 23.2 22.4 21.4 21.0 20.6 20.8 20.6 20.5 2Interest 1.3 1.4 1.4 1.4 1.6 2.2 2.8 3.4 3.8 4.1 4

Balance 1/ -11.4 -9.6 -9.3 -7.6 -5.6 -4.7 -4.8 -5.3 -5.3 -5.3 -

Primary balance 2/ -10.1 -8.2 -7.9 -6.2 -3.9 -2.5 -2.0 -1.9 -1.5 -1.2 -

Primary structural balance 3/ -5.5 -6.4 -6.5 -5.1 -3.1 -2.0 -1.6 -1.7 n.a. n.a. n

Debt held by the public 53.5 62.1 70.2 74.6 78.3 80.7 82.7 85.0 87.2 89.2 9Net debt held by the public 47.1 54.4 61.3 66.4 69.4 71.4 73.1 75.2 77.2 79.2 8

General Government

Revenue 30.8 30.8 31.1 32.2 33.6 34.6 35.0 35.3 ... ... Total expenditure 1/ 43.5 41.1 41.0 40.0 39.6 39.9 40.5 41.3 ... ... Net lending 1/ -12.7 -10.3 -9.9 -7.8 -6.0 -5.3 -5.6 -6.0 ... ... 

Primary balance 2/ -10.9 -8.5 -8.2 -6.0 -4.0 -2.8 -2.5 -2.3 ... ... 

Primary structural balance 3/ -5.1 -5.5 -5.5 -4.0 -2.5 -1.8 -1.7 -1.6 ... ... 

Gross debt 84.2 93.5 99.0 103.0 106.2 108.2 110.2 112.7 ... ... Net debt 59.9 67.7 71.9 76.7 79.8 82.0 84.1 86.5 ... ... 

2/ Excludes net interest.3/ Excludes net interest, effects of economic cycle, and costs of financial sector support. In percent of potential GDP.

Projections

(budget basis; fiscal years)

(percent of GDP)

(GFSM 2001 basis; calendar years)

Sources: Office of Management and Budget; Haver Analytics; and Fund staff estimates.1/ Includes staff's adjustments for one-off items, including the costs of financial sector support.
UNITED STATES 2011 ARTICLE IV REPORT

INTERNATIONAL MONETARY FUND 39

Table 4a. General Government Statement of Operations

Table 4b. General Government Financial Assets and Liabilities

2005 2006 2007 2008 2009

Revenue 32.9 33.8 33.8 32.6 30.8

Taxes 20.4 21.2 21.2 19.6 17.2

Social contributions 6.9 6.9 6.9 6.9 6.9

Grants 0.0 0.0 0.0 0.0 0.0

Other revenue 5.6 5.6 5.8 6.1 6.7

Expenditure 2/ 36.1 35.8 36.6 39.0 43.5

Expense 35.0 34.8 35.5 38.0 42.4

Compensation of employees 10.0 9.9 10.0 10.3 10.9

Use of goods and services 7.8 7.9 8.0 8.6 8.7

Consumption of fixed capital 1.3 1.3 1.4 1.5 1.6

Interest 2.7 2.8 3.0 2.8 2.6

Subsidies 0.5 0.4 0.4 0.4 0.4

Grants 0.3 0.3 0.3 0.3 0.4

Social benefits 11.8 11.9 12.1 12.9 15.0

Of which: social security benefits 7.4 7.8 7.9 8.3 9.7

Expense not elsewhere classified 2.6 2.3 2.5 3.4 5.2

Net acquisition of nonfinancial assets 1.1 1.0 1.1 1.0 1.1

Gross/net operating balance 1/ -2.1 -1.0 -1.6 -5.4 -11.6

Net lending/borrowing 2/ -3.2 -2.0 -2.7 -6.5 -12.7

1/ Revenue minus expense.

(GFSM 2001 basis, calendar years; in percent of GDP)

Source: Government Finance Statistics.

2/ Includes staff's adjustments for one-off items, including the costs of financial sector support.

2005 2006 2007 2008 2009 2010

Net financial worth -42.7 -41.9 -42.8 -48.4 -59.9 -67.7

Total financial assets 19.0 19.1 19.4 22.8 24.3 25.8

Currency and deposits 2.2 2.3 2.6 4.9 3.9 4.8

Debt securities 6.8 7.0 6.8 6.5 7.3 6.8

Loans 3.3 3.2 3.2 3.3 4.5 5.3

Equity and investment fund shares 1.6 1.6 1.6 2.7 2.2 1.9

U.S. official reserve assets 0.3 0.3 0.3 0.3 0.7 0.7

Other financial asssets 4.8 4.7 4.9 5.1 5.7 6.3

Total financial liabilities 61.7 61.0 62.2 71.2 84.2 93.5

Currency and deposits 0.2 0.2 0.2 0.2 0.2 0.2

Debt securities 48.0 47.4 48.2 56.5 68.3 77.2

Loans 0.0 0.0 0.0 0.0 0.0 0.0

Accounts payable 5.4 5.4 5.6 5.9 6.0 6.2

Insurance reserves 0.3 0.3 0.3 0.3 0.3 0.3

Other financial liabilities 7.6 7.6 7.8 8.2 8.9 9.2

SDR allocations and certificates 0.1 0.1 0.1 0.1 0.4 0.4

(in percent of GDP)

Sources: Board of Governors of the Federal Reserve System; Bureau of Economic Analysis; and Haver 

Analytics.
2011 ARTICLE IV REPORT UNITED STATES

40 INTERNATIONAL MONETARY FUND

2004 2005 2006 2007 2008 2009 2010

External indicators

Exports of goods and services 1/ 13.6 10.7 13.4 13.3 11.4 -14.5 16.7

Imports of goods and services 1/ 16.8 12.9 10.9 6.2 8.1 -23.0 19.5

Terms of trade 1/ -1.7 -4.0 -1.2 0.6 -4.9 7.8 -1.9

Current account balance -5.3 -5.9 -6.0 -5.1 -4.7 -2.7 -3.2

Capital and financial account balance 4.5 5.5 6.0 4.5 4.1 1.9 1.6

Of which:

Net portfolio investment 5.8 4.5 4.7 5.4 5.6 -0.2 4.2

Net foreign direct investment -1.4 0.6 0.0 -1.0 -0.2 -0.9 -1.0

Net other investment 4/ 0.1 0.3 1.1 0.1 -1.2 2.7 -1.6

Official reserves 2/ 86.8 65.1 65.9 70.6 77.6 130.8 132.4

in months of imports 0.6 0.4 0.4 0.4 0.4 0.8 0.7

Central bank foreign liabilities 2/ 0.1 0.1 0.1 0.1 1.4 2.4 3.4

Net international investment position 5/ -19.0 -15.3 -16.4 -12.8 -22.7 -17.0 -16.9

Of which: General government debt 6/ 17.5 18.7 20.4 22.6 28.6 31.0 34.3

External debt-to-exports ratio 1.9 1.5 1.5 1.1 1.8 1.5 1.3

External interest payments to imports 3/ 7/ 20.5 25.8 32.5 35.7 28.3 23.1 18.1

Nominal effective exchange rate 1/ -5.0 -2.5 -1.7 -4.9 -3.9 5.5 -3.3

Real effective exchange rate 1/ -4.7 -1.4 -0.6 -4.7 -3.9 4.5 -3.9

Financial market indicators

General government gross debt 61.4 61.7 61.1 62.2 71.2 84.6 91.6

Average maturity of privately-held federal debt (months) 58 57 58 57 46 52 57

Federal privately-held debt maturing within one year 9.7 9.3 8.5 9.2 16.7 17.1 17.4

Three-month treasury bill yield 3/ 1.4 3.2 4.8 4.5 1.4 0.2 0.1

Real three-month treasury bill yield 3/ -1.2 -1.2 -0.1 1.6 1.6 -2.3 0.5

Equity market index (S&P 500) 1/ 17.3 6.8 8.6 12.7 -17.3 -22.5 20.3

Banking risk indicators 8/

Total assets 2/ 10,107 10,879 11,862 13,034 13,841 13,087 13,321

Total loans and leases to assets 60.6 61.8 61.0 60.7 56.9 55.6 55.4

Total loans to deposits 93.0 94.1 92.4 94.0 87.1 78.9 78.3

Problem loans to total loans and leases 9/ 0.6 0.5 0.5 1.1 2.2 3.9 3.5

Nonperforming assets to assets 10/ 0.6 0.5 0.5 0.9 1.8 3.4 n.a.

Loss allowance to:

Total loans and leases 1.3 1.2 1.1 1.3 2.2 3.1 3.1

Noncurrent loans and leases 232.3 239.4 204.7 117.4 102.4 79.4 88.6

Return on equity 11/ 18.0 17.8 17.2 11.2 -1.6 -0.6 8.2

Return on assets 11/ 1.9 1.8 1.8 1.2 -0.1 -0.1 0.9

Total capital to risk-weighted assets 13.2 12.9 13.0 12.8 12.8 14.3 15.3

Core capital ratio 8.1 8.2 8.2 8.0 7.5 8.6 8.9

1/ Percent change. 2/ Billions of U.S. dollars. 3/ Percent. 4/ Includes net financial derivatives. 5/ With FDI at 

market value. 6/ Excludes foreign private holdings of U.S. government securities other than treasuries. 7/ External 

interest payments: income payments on foreign-owned assets (other private assets plus U.S. government 

payments). 8/ All FDIC-insured institutions. 9/ Noncurrent loans and leases. 10/ FDIC-insured commercial banks 

only. 11/ Before extraordinary items and taxes.

Table 5. United States: Indicators of External and Financial Vulnerability

Sources: IMF, International Financial Statistics; Federal Deposit Insurance Corporation; and Haver Analytics.

(in percent of GDP, unless otherwise indicated)

(in percent of GDP, unless otherwise indicated)

(in percent, unless otherwise indicated)
2011 ARTICLE IV REPO

 INTERNATIONAL MONETARY FUND 41 

Table 6. United States: Status of Major Financial Stability and Fed Programs

Disbursed Outstanding Purpose

TARP programs 473 412 131

Housing programs 46 2 n.a. Direct payments to help homeowners refinance the

HAMP, 2nd Lien Modification Programs, Agency-InsShort Refinance Program, and Housing Finance Ag

Bank-related programs 250 245 23 Bank recapitalization and asset guarantees. No lonOther financial stability programs 95 85 69 Support for AIG, the auto sector, and other progra

Federal Reserve facilitiesAsset purchases 2350 2350 900

Treasury securities 900 900 900

Purchases in 2009-10 300 300 300Purchases in 2010-11 600 600 600

Government Agency and Mortgage-Backed Securities

1450 1450 1037

American International Group and Bear Stearns related programs

195 195 64 Non-recourse loan to JP Morgan against assets of 

of residential mortgage backed securities from AIGinsured by AIG, and loan to AIG.

Term Asset-Backed Securities Lending Facility 48 48 14 Lending (non-recourse) against newly issued ABS, 

legacy securities. Loans of up to 3 years, underlying longer maturity.

Support for Government-Sponsored Enterprises 1/

Total Senior Preferred Equity injections n.a. 2/ 156 156

Fannie Mae n.a. 2/ 91 91Freddie Mac n.a. 2/ 65 65

(billions of dollars)

Proposed or 

peak use

As of May 31, 2011

Sources: Quarterly Report to Congress by the Office of the Special Inspector General for the Troubled Asset Relief Program; U.S. Department of thGovernors of the Federal Reserve System; and Federal Housing Finance Agency.1/ Data available through 2011Q1. 2/ Commitments are unlimited.

Fed announced plans to buy $500 billion in MBS aAgency securities in November 2008. Purchases wer2009 to include another $750 billion in MBS, up to Agencies, and $300 billion in Treasuries; additionalin November 2010 purchases of $600 billion in TreaEquity injections for each GSE to operate at a minimunder FHFA conservatorship.
2011 ARTICLE IV REPORT UNITED STATES 

42 INTERNATIONAL MONETARY FUND

 

Timing, 

Priority

Institutionalize and strengthen systemic risk oversight

• Establish a council of the regulatory agencies, the Fed, and the Treasury, with a mandate for financial 

stability and powers inter alia to designate potentially systemic financial firms for enhanced regulation 

and supervision focused on systemic risk

ST, HP

• Define the Fed as the lead executor of this council and the consolidated supervisor of designated 

potentially systemic financial firms, to work with other regulators

ST, HP

• Provide the Fed oversight authority over systemically important payment, clearing, and settlement 

infrastructure

ST, HP

• Strengthen the Fed’s role in consolidated regulation and supervision, including by enhancing 

coordination with bank and functional regulators and restricting deference requirements

ST, HP

• Unify safety-and-soundness regulation and supervision of commercial banks and thrifts in a single 

federal agency and eliminate the federal thrift charter

ST, HP

• Unify federal securities and derivative market regulation into one federal agency ST, MP

• Establish an independent and accountable federal consumer protection agency, removing this 

responsibility from the other agencies to enhance their focus and effectiveness in their primary roles

ST, MP

• Establish a federal office tasked with promoting greater regulatory uniformity in the insurance sector MT, MP

• Enhance the capacity for group-wide oversight of banking groups and conduct regular inter-agency 

horizontal assessments of complex groups (possibly by establishing domestic supervisory “colleges”)

MT, HP

• Boost timeliness and forcefulness of supervisory and regulatory interventions to address weaknesses in 

enterprise-wide risk management practices

MT, HP

• Strengthen channels for cooperation, coordination, and learning from best practices—within and 

among the federal banking agencies (FBAs), market regulators, and the states—to close regulatory gaps 

and prevent regulatory arbitrage, including with regard to charter conversions

MT, HP

• Enhance enforcement and oversight capacities and re-examine capital rules and other prudential 

requirements, such as risk management standards, to ensure that risks are fully addressed

ST, HP

• Implement the recommendations of the Joint Report to enhance investor protection and improve 

cooperation between the Commodity Futures Trading Commission (CFTC) and Securities and Exchange 

Commission (SEC); close legislative and regulatory gaps identified in the Joint Report

MT, HP

• Complete the consolidation of equity and equity option market surveillance into a single entity taking 

into account issues of dark pools, high-frequency trading, predatory algorithms, and other technologybased practices

ST, MP

• Promote standardization of OTC derivatives in order to increase market reliance on exchange trading and 

multilateral clearing and require proper collateralization of all derivative transactions, whether held at a 

clearinghouse or bilaterally

MT, MP

• Improve transparency of OTC derivative and securities markets by requiring timely reporting of

transactions and providing better information to investors

MT, MP

Securities and derivative markets 

Recommendation

Table 7. U.S. FSAP Key Recommendations

(ST: short-term, implementation within 12 months; MT: medium-term, 1–3 years; HP: high priority; MP: medium priority.)

Redesign the regulatory architecture 

Strengthen micro-prudential regulation and supervision

Banking
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 43

 

Timing, 

Priority

• Discourage the use of deposit-like instruments outside the formal banking sector and ensure 

appropriate liquidity management by sectors potentially falling within the systemic liquidity safety net

ST, HP

• Set minimum haircuts for repo transactions and address incentives for the repo clearing banks to extend 

intraday credit in the clearing and settlement cycle

ST, HP

• Require money market funds to make real-time disclosures of their actual (as opposed to “stabilized”) net 

asset values

MT, MP

• Develop the supervision of insurance groups through consolidated financial reporting and establish 

policies and procedures for the regulation of systemically important institutions, markets, and 

instruments in the insurance sector

MT, HP

• Increase information sharing and coordination between state regulators and federal authorities, 

including through representation of state regulators in national bodies with responsibilities for systemwide oversight

MT, MP

• Strengthen regulation of bond insurance and securities lending and modernize solvency requirements MT, MP

• The National Association of Insurance Commissioners (NAIC) and state legislatures should undertake 

reforms covering the terms of Commissioners’ appointments, the rulemaking powers of state insurance 

departments, and their funding and staffing to bolster specialist skills

MT, MP

• Allow systemic payment, clearing, and settlement infrastructures to have accounts at the Fed in order to 

settle in central bank money and to have emergency access to Fed liquidity under terms and conditions 

established by the Fed’s Board of Governors as an additional buffer against systemic risk

ST, HP

• The Fed should continue to assess payment, clearing, and settlement infrastructures for their ability to 

cope with extreme liquidity stress and explore the introduction of a queuing and offsetting mechanism 

in the Fedwire Funds Service similar to those in other G10 countries’ large value payment systems

ST, MP

• Clearing and settlement infrastructures should enhance their risk management procedures by increasing 

the frequency of stress testing from monthly to weekly and strengthening liquidity back-up facilities

ST, MP

• Extend the special powers of the Federal Deposit Insurance Corporation (FDIC) to enable receivership or 

conservatorship of BHCs and systemically important financial firms 

ST, HP

• Review the funding arrangements for the Deposit Insurance Fund by removing the ceiling on the size of 

the fund and increasing its size

MT, MP

• Implement “living will” requirements for large and complex financial groups, and address group 

structures that appear likely to severely impede effective resolution

MT, HP

• Consider widening the range of counterparties and collateral used for open market operations (OMO) 

and articulating policies for future Fed lending to nonbank financial firms to enhance the scope and 

predictability of systemic liquidity provision

MT, HP

• Discourage size and complexity by subjecting systemic financial institutions to more stringent prudential 

requirements

ST, HP

• Provide regulators the authority to take pre-emptive actions when vulnerabilities build at potentially 

systemic financial firms

ST, HP

• Reform the housing GSEs, possibly by privatizing their retained asset portfolios and re-assigning 

responsibilities for social objectives/system support to an explicitly guaranteed public utility

MT, HP

Address too-big-to-fail issues and the future of the GSEs 

Recommendation

Insurance

Shadow banking and other short-term funding markets 

Strengthen oversight of market infrastructure 

Enhance crisis management, resolution, and systemic liquidity arrangements 
2011 ARTICLE IV REPORT UNITED STATES

44 INTERNATIONAL MONETARY FUND

Figure 1. The Recovery in Perspective

Sources: IMF, World Economic OutlookApril 2009 and June 2011; Bureau of Economic Analysis; Bureau of Labor 

Statistics; Haver Analytics; and Fund staff estimates.

* The dates of the peaks are 2007Q3 for Italy, 2007Q4 for the Canada and United States and 2008Q1 for France, 

Germany, Japan, and United Kingdom.

90

95

100

105

110

90

95

100

105

110

0 1 2 3 4 5 6 7 8 9 10 11 12

United States

2007Q4-

Advanced 

economies'

recessions

Advanced economies' 

recessions and recoveries

associated with financial crises

Output Paths

(indexes; business cycle peak = 100)

Average U.S. post-war cycles

-40

-30

-20

-10

0

10

20

-40

-30

-20

-10

0

10

20

-1 0 1 2 3 4 5 6 7

Years

Output Evolution after Banking Crises

(Percent of pre-crisis trend)90 pct conf. int.

Inter-quartile range

for entire distribution

United States

Estimated mean path 

for entire distribution

0

4

8

12

16

20

0

4

8

12

16

20

-6 -4 -2 0 2

Real GDP growth from trough to 7-

quarters later (percent)

Peak-trough decline in real GDP (percent)

Previous 

Current recessions

episode

Recession 

Comparisons

90

95

100

105

110

115

120

90

95

100

105

110

115

120

Peak +3 +6 +9 +12

U.S. Recessions and Recoveries

(real GDP indexes, business cycle 

peak = 100)

Range of 

previous

recessions

Current

Episode

88

92

96

100

104

88

92

96

100

104

Peak +3 +6 +9 +12 +15 +18 +21 +24

U.S. Real Output Per Capita Versus G-7

(indexes, peak* = 100; dashed lines 

denote projections)

Italy

United Kingdom

Japan

Germany

France

Canada

United States

-3

0

3

6

9

-3

0

3

6

9

Peak +3 +6 +9 +12 +15 +18 +21 +24

U.S. Unemployment Rate Versus G-7

(percentage point difference from peak*

dashed lines denote projections)

United States

United 

Kingdom

Italy

Canada

Germany

Japan France

The recovery has been slow, given the size

of the contraction...

... with activity below the pre-crisis trend, as in other

economies emerging from banking crises.

Growth has been atypical for a 

U.S. recovery...

... with output only back to the pre-recession level.

When compared to the other G-7 

economies, the U.S. recovery is not slow ...

... but unemployment is much higher 

in the United States than in its peers.
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 45

Figure 2. The Economy Hit Another Soft Patch in the First Half of 2011

-14

-7

0

7

14

-14

-7

0

7

14

2007 2008 2009 2010 2011

Government

Net exports

Chg private inventories

Private fixed investment

Personal consumption exp.

Contributions to Real GDP Growth

(percentage points, s.a.a.r.)

Real GDP growth

-2

-1

0

1

2

-2

-1

0

1

2

2010 2011

Motor vehicles and parts

Manufacturing production 

excluding autos

Contributions to Manufacturing Production 

Growth (percentage points)

0

40

80

120

160

0

40

80

120

160

2007 2009 2011 2007 2009 2011

Motor vehicles*

Auto-related 

parts and 

accessories*

Japan

Other

countries

Other

countries

Japan

Auto-Related U.S. Imports

(indexes, January 2007 = 100)

88

94

100

106

112

88

94

100

106

112

2007 2008 2009 2010 2011

Nominal

Real

Nominal and Real Retail Sales

(indexes, January 2011 = 100)

20

50

80

110

140

40

80

120

160

200

2007 2008 2009 2010 2011

Gasoline Prices and Consumer Confidence

(indexes; January 2007 = 100)

Gasoline prices

(left)

Consumer confidence

(right)

Economic growth slowed this year... ... and the balance of economic data have come

in significantly worse than expected.

Manufacturing industrial production appears to be 

held back by auto production ...

... in part reflecting major disruptions related to 

the Japan earthquake.

Sources: Bureau of Economic Analysis; Bloomberg, LP; Barclays Capital; Citigroup, Inc; Goldman Sachs; Board of 

Governors of the Federal Reserve System; United States International Trade Commission; Bureau of Labor 

Statistics; the Conference Board; Haver Analytics; and Fund staff estimates.

* Motor vehicles includesimports with Harmonized Trade System (HTS) classifications 8701-05 and 8709-11. 

Auto-related parts and accessories includes imports with HTS classifications 8706-09. These series are seasonally 

adjusted by Fund staff.

Real consumer spending has lost momentum ... ... as higher fuel prices ate into households' 

budgets and weighed on consumer confidence.

-4

-2

0

2

4

-4

-2

0

2

4

Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11

Average of Economic Surprise Indices

(z-score)

2010 Soft Patch

2011 Soft Patch
2011 ARTICLE IV REPORT UNITED STATES 

46 INTERNATIONAL MONETARY FUND

Figure 3. Macro Policy Levers are Strained

Sources: IMF, World Economic Outlook and Fiscal Monitor; Congressional Budget Office; Bloomberg, LP; Markit; 

Board of Governors of the Federal Reserve System; Haver Analytics; and Fund staff estimates.

-12

-10

-8

-6

-4

-2

0

-12

-10

-8

-6

-4

-2

0

April 

2007

April 

2008

April 

2009

April 

2010

April 

2011

Current

Evolution of Staff's Fiscal Projections 

for 2011

General government balance

(pct of GDP) General gov't

structural balance

(pct of potential

nominal GDP) Canada

France

Germany

Italy

Japan

United 

Kingdom

United 

States

0

2

4

6

8

10

12

-10 0 10 20 30 40 50

Increase in deficit 2007-2011

Expected increase in debt 2007-2011

Change in General Gov't Debt and Deficit

(percentage points of GDP; bubble size

is PPP-weighted GDP)

0

4

8

12

16

20

0

4

8

12

16

20

1970 1985 2000 2015 2030 2045 2060 2075

Long-term Entitlement Spending

(percent of GDP, baseline scenario)

Medicare, Medicaid,

exchange subsidies, 

and CHIP outlays

Other

noninterest

outlays

Social

Security

outlays

0

4

8

12

16

20

25 125 625

Chg. in 10-yr gov't bond rate

Change in 5-year CDS Spreads, log scale

United States

United Kingdom

Spain

Portugal

Ireland

Greece

May 2011

January 2010

Change in Risk and Yields, 

Jan 2010-May 2011

0

1

2

3

4

0

1

2

3

4

| | | |

Factors supplying reserve funds

(trillions of dollars)

MBS and agencies

Treasury securities

Credit facilities

and AIG loans

FX swaps

Discount

window

and Repos

Other

2008 2009 2010 2011

-5

0

5

10

15

-5

0

5

10

15

1978 1982 1986 1990 1995 1999 2003 2007

Real Interest Rates

(percent, using TIPS)

Oneyear

Fiveyear

The United States public sector budget deficits

ballooned with the Great Recession ...

... fueling a large increase in 

government debt...

... emphasizing the need to rein in long-term spending

pressures.

Market perceptions of U.S. sovereign risk have not

changed, but these perceptions can change quickly.

A second round of asset purchases has swelled

the Fed's balance sheet further...

.. helping to push down real interest rates into negative

territory.
UNITED STATES 2011 ARTICLE IV REPORT 

47 INTERNATIONAL MONETARY FUND

40

70

100

130

160

40

70

100

130

160

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Quarters from peak

Real Residential Investment

(indexes, peaks = 100)

Interquartile range

of previous recessions

Current

episode

Median, previous

recessions

-4

-2

0

2

4

-4

-2

0

2

4

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Quarters from peak

Interquartile range

of previous recessions

Current

episode

Median, previous

recessions

Residential Investment Contribution to Real 

GDP growth (percentage points)

Figure 4. Real Estate Still Under Stress

Sources: MacroMarkets, LLC; CoreLogic; RealtyTrac; U.S. Census Bureau; National Association of Realtors; Bureau of 

Economic Analysis; Haver Analytics and Fund staff estimates.

* REOs stands for real estate owned by banks.

0.0

0.5

1.0

1.5

2.0

2.5

3.5

4.5

5.5

6.5

7.5

8.5

2000 2002 2004 2006 2008 2010

Existing home 

sales (left)

New home sales

(right)

Period when homebuyers’ 

tax incentives were provided.

Housing Sales

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2000 2002 2004 2006 2008 2010

Housing starts

Housing permits

Construction Indicators

(millions)

0

2

4

6

0

2

4

6

0 to +5 

pct

0 to -5 

pct

-5 to -

10 pct

-10 to 

-15 pct

-15 to 

-20 pct

-20 to 

-25 pct

-25+ 

pct

Distribution of Home Equity in 2011Q1

(millions of mortgages)

0

1

2

3

4

0

1

2

3

4

2006 2007 2008 2009 2010 May 

2011 

(a.r.)

Foreclosures

(millions)

Consensus expectations of house prices have

been revised down over time...

...that together with record foreclosure levels...

.. given the large amount of severely 

underwater mortgages ...

...that would eventually compete for an 

anemic level of home sales...

...adding to the downward pressure

on construction activity...

20

35

50

65

80

0

2

4

6

8

2000 2003 2006 2009

Negative equity expected to default

Re-default of HAMP mods.

Re-default of private mods.

60+ days delinquent loans

Foreclosure inventory (ex. REOs*)

Shadow Inventory

(millions)

Total outstanding real estate

loans (mil.; right)

... led to a large shadow inventory...

... and restraining economic growth ... ... with residential investment very depressed.

120

150

180

210

120

150

180

210

2005 2007 2009 2011 2013 2015

June 2010

September 2010

December 2010

March 2011

June 2011

Case-Shiller National House Prices

(2000Q1 = 100)

Survey date:
2011 ARTICLE IV REPORT UNITED STATES

48 INTERNATIONAL MONETARY FUND

0

3

6

9

12

15

0

3

6

9

12

15

1990 1995 2000 2005 2010

Residential real 

estate loans

Consumer loans

Delinquent Loans at Commercial Banks

(percent)

Figure 5. Households Shedding Debt Burdens

Source: Board of Governors of the Federal Reserve System; OECD; Norges Bank; Statistics Finland; Riksbank; 

IMF, World Economic Outlook; Bureau of Economic Analysis; Haver Analytics; and Fund staff estimates.

0

40

80

120

160

0

40

80

120

160

1970 1980 1990 2000 2010

Home mortgages

Consumer credit

Other liabilities

Total liabilities

Household Liabilities

(percent of disposable personal income)

25

75

125

175

225

25

75

125

175

225

-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8

United States

Norway

Sweden

Finland

Household Liabilities after Financial Crises

(percent of disposable personal income)

Pre-crisis peak

0

20

40

60

80

10

15

20

25

30

1980 1990 2000 2010

Household

debt as percent of 

household assets (left axis)

Home mortgage debt

percent of household 

real estate assets 

(right axis)

Measures of Household Leverage

0

250

500

750

1000

0

250

500

750

1,000

Home mortgages Consumer loans

Decline in debt

Charge-offs

Change in Debt Outstanding and 

Cumulative Charge-offs, 

2008Q2 to 2010Q3

(billions of dollars)

-25

0

25

50

75

100

-25

0

25

50

75

100

1990 1995 2000 2005 2010

Consumer 

loans

Residential

mortgages

Lending Standards on Consumer Loans

(net percentage of domestic respondents 

indicating tightening standards)

Since the onset of the crisis, households have 

been reducing their liabilities ...

... and international experience suggests debt

could continue to fall for some time ...

... especially since measures of household leverage 

remain elevated ...

... and default has been an important means 

for debt reduction, which ...

... has left banks reluctant to relax their lending 

standards by much, if at all.

Delinquencies have come off their peaks, but

remain at elevated levels.
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 49

CORRECTED: 7/18/11

80

100

120

140

160

80

100

120

140

160

1995 1999 2003 2007 2011

Household Net Worth as Percent 

of Disposable Personal Income

(indexes, 2009Q1 = 100)

Household net worth

Household net worth,

components weighted 

by consumption effects*

Figure 6. Loss of Household Wealth Weighing on Consumption

Source: Robert Shiller; Freddie Mac; MacroMarkets, LLC; Bloomberg, LP; Board of Governors of the Federal Reserve 

System; Bureau of Economic Analysis; Haver Analytics; and Fund staff estimates.

* Household real estate wealth is weighted by 9/13 and financial wealth net of liabilities is weighted by 4/13 percent as in 

Chris Carroll, Misuzu Otsuka, and Jirka Slacalek (“How Large Are Housing and Financial Wealth Effects? A New Approach,” 

Journal of Money, Credit and Banking, 43(1), 2011) who find a cumulative effect on consumption of about 9 cents per dollar 

for changes in real estate wealth, and about 4 cents per dollar for changes in financial wealth net of liabilities.

-40

-30

-20

-10

0

-40

-30

-20

-10

0

Great 

Depression

Texas &

Oklahoma

(1983-88)

New

England

(1990-95)

California

(1991-95)

Current

episode

(2006-10)

House Price Declines in Major 

U.S. Real Estate Busts (percent) -0.7

0.0

0.7

1.4

2.1

-25

0

25

50

75

Growth in the S&P 500

(percent; left scale)

Standard deviation of 

daily S&P 500 returns

(right scale)

1949

-50

1954

-55

1958

-59

1961

-62

1970

-72

1975

-76

1982

-84

1991

-92

2001

-03

2009

-11

Stock Prices and Volatility

70

82

94

106

118

70

82

94

106

118

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Current episode

Range of previous 

recessions, 

1953-2001

Household Net Worth as Percent of 

Disposable Personal Income

(indexes, business cycle peak = 100)

94

100

106

112

118

94

100

106

112

118

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Personal Consumption Expenditures

(indexes, business cycle peak = 100)

Current episode

Range of 

previous

recessions,

1948-2001

y = -0.25x + 0.22

R2 = 0.13

-6

-3

0

3

6

-6

-3

0

3

6

-6 -3 0 3 6

Change in personal saving rate six 

qtrs from trough (percentage points)

Peak-trough change in personal saving rate 

(percentage points)

Previous recessions

Current Episode

Savings Rate Changes in Recessions and

Recoveries

The drop in house prices has been severe, exceeding

those of other major U.S. real estate busts ...

...but equity prices have gained.

Developments in these key assets caused a

bumpy and sub-par recovery in household wealth, ...

Hence, the recovery in personal consumption 

has been well below previous episodes ...

... as households save more to buttress their 

finances, as expected. 

... with components of wealth that have a greater

effect on consumption not recovering at all.
2011 ARTICLE IV REPORT UNITED STATES 

50 INTERNATIONAL MONETARY FUND

50

55

60

65

70

50

55

60

65

70

1948 1958 1968 1978 1988 1998 2008

Employment/

population

Labor force 

participation rate

Employment and Labor Force Participation 

(percent)

Figure 7. Lack of Dynamism in Labor Markets

Source: Bureau of Labor Statistics; U.S. Department of Labor;; Haver Analytics; and Fund staff estimates.

200

350

500

650

800

3.00

3.75

4.50

5.25

6.00

2005 2007 2009

Hires (millions, 3-month movingavg; left)

Separations

(millions, 3-month 

moving avg; left)

Initial claims

(thous.; right)

Job Creation and Destruction

4

6

8

10

12

-1000

-500

0

500

1000

2005 2007 2009 2011

Government

Private

Unemployment rate

(percent; right)

Change in nonfarm 

payrolls (thousands; left):

Major Labor Indicators

y = -1.56x - 0.07

R2 = 0.93

0

4

8

12

16

0

4

8

12

16

-9 -6 -3 0

Payroll gains one year after 

employment trough (percent)

Payroll losses from employment peak to 

trough (percent)

Predicted

Previous 

cycles

Actual

Employment Changes During Recessions 

and Recoveries

Layoffs have come down, but job creation 

remains low ...

... resulting in small net employment gains, which have

not brought down the unemployment rate much...

... and have been quite low both in absolute terms

and by the experience of previous U.S. cycles.

0

5

10

15

20

0

5

10

15

20

2005 2007 2009 2011

Unemployed

Working part 

time for 

econ. reasons Marginally attached

to the labor force

Total

Broad Labor Underutilization

(percent of labor force plus 

marginally attached workers)

0

25

50

75

100

125

0

25

50

75

100

125

1948 1958 1968 1978 1988 1998 2008

Less than 

5 weeks

5-14 

weeks

15-26 weeks

Duration of Unemployment

(percent of unemployed persons)

27+

weeks

Nearly half of those unemployed have been 

out of work for six months or more, ...

... broader measures of labor 

underutilization remain near their peaks, ...

... and participation and employment rates remain

very depressed.
 UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 51

88

92

96

100

104

108

88

92

96

100

104

108

2008200920102011200820092010201120082009201020112008200920102011

Germany (total economy) Canada (total economy) Canada (business sector) United States (business 

sector)

Hours

Employment

Hours per employee

Comparison of Labor Input Cutbacks in the United States, Canada, and Germany

(indexes, 2007:Q4=100)

Figure 7. Lack of Dynamism in Labor Markets (continued)

Sources: Statistiches Bundesamt; Statistics Canada; Bureau of Labor Statistics; the Conference Board; Bloomberg, LP; Haver 

Analytics; and Fund staff estimates. 

0

15

30

45

60

0

15

30

45

60

2005 2007 2009 2011

Respondents 

reporting "jobs 

are hard to get" 

Respondents expecting 

more employment in six months

Views of Labor Market Conditions

(percent)

Households view labor market conditions 

as tough, ... 

In contrast to other advanced economies, employers in the United States achieved labor cutbacks through layoffs,

as opposed to reducing their employees' hours ...

... allowing them to rely heavily on higher productivity and 

boosting weekly hours to fuel output gains.

... and potentially contributing to an apparent shift in the 

usual relationship between vacancies and unemployment.

1

2

3

4

1

2

3

4

3 5 7 9 11

Job vacancy rate (openings/labor 

force; percent)

Unemployment rate (percent)

2000-07

2008-10

2011

Predicted

The Beveridge Curve

88

94

100

106

112

88

94

100

106

112

2005 2007 2009 2011

Labor Input and Productivity

Labor productivity

(output per hour)

Average weekly hours

Employment

Level at

business

cycle peak

-20

0

20

40

-20

0

20

40

-40 -30 -20 -10 0 10

June 2009 to May 2011 change in 

employment (percent)

December 2007 to June 2009 change 

in employment (percent)

Procyclical flows

Countercyclical flows

Structural losses

Structural gains

Employment Flows by Industry

... possibly reflecting continued job losses in several 

industries, even as output grows, suggesting structural 
2011 ARTICLE IV REPORT UNITED STATES 

52 INTERNATIONAL MONETARY FUND

0

2

4

6

8

0

50

100

150

200

2006 2007 2008 2009 2010 2011

Other

Comm. & industrial

Comm. real estate

Consumer

Residential Coverage ratio

(reserves, pct 

of noncurrent 

Charge-offs (percent, a.r.; left):

Credit Quality Indicators

Figure 8. Slow Financial Sector Healing

Sources: Federal Deposit Insurance Corporation; Board of Governors of the Federal Reserve System; SNL Financial; Bloomberg, 

LP; Haver Analytics; and Fund staff estimates. * The TED spread is three-month LIBOR less the three-month treasury bill yield.

** Counterparty risk is measured as the LIBOR-OIS spread. *** Liquidity risk is the OIS-treasury bill spread.

0

40

80

120

160

0

40

80

120

160

2006 2007 2008 2009 2010 2011

S&P 500

S&P Financials

Equity Prices

(indexes, January 3, 2006 = 100)

0

30

60

90

120

0

200

400

600

800

2006 2007 2008 2009 2010 2011

VIX

(implied 

volatility 

index; right)

TED 

spread*

Liquidity 

risk***

Counterparty

risk**

Measures of Financial Stress

(basis points)

-40

0

40

80

120

-40

0

40

80

120

2000 2003 2006 2009

Large & medium firms

Small firms

Senior Loan Officer Survey Lending Standards

(net percentage reporting tightening standards

for C&I loans)

-4

-2

0

2

4

6

-4

-2

0

2

4

6

2006 2007 2008 2009 2010 2011

Return on Assets at SCAP Institutions

(percent of assets, annual rate)

Provisioning

expense

Pre-tax, pre-provision

net revenue

Taxes

Return on assets

0

4

8

12

16

20

0

4

8

12

16

20

2006 2007 2008 2009 2010 2011

Tier 1 Capital Ratios at SCAP Institutions

(percent of risk-weighted assets)

Tier 1 

common 

capital

Non-common 

tier 1 capital

ex. TARP

TARP

0

10

20

30

40

0

10

20

30

40

2000 2003 2006 2009

Commercial banks,

savings institutions,

and credit unions

Shadow

banks

Securities brokers

and dealers

Total Financial Assets of Financial Institutions

(trillions of dollars)

0

40

80

120

160

0

40

80

120

160

2007 2008 2009 2010 2011

Other types of collateral

Auto loans

ABS Issuance

(billions of dollars)

Equities are up relative to last fall... ... but some measures of financial 

stress are still somewhat elevated...

... credit quality at commercial banks has been 

improving slowly...

... and banks appear to be increasing their willingness to lend by starting to loosen standards ...

... and the major banks are highly capitalized. Still, challenges remain. Major bank earnings

continue to be sub-par ...

... and financial institutions continue to shed their assets... ... as securitization activity remains very depressed.
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 53

Figure 9. Corporate Sector Gaining Strength

Sources: Board of Governors of the Federal Reserve System; Bureau of Economic Analysis; U.S. Census Bureau; Standard & 

Poor's; Bank of America/Merrill Lynch; Bloomberg, LP; Haver Analytics; and Fund staff estimates.

*Cycles from 1969 to 2001, excluding 1980. ** Cycles from 1948 to 2001, excluding 1980. *** Net gain in other liabilities, net 

decrease in assets, and discrepancy. ^ Net gain in other assetsand net decrease in other liabilities.

-15

-10

-5

0

5

-15

-10

-5

0

5

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Cumulative Change in Capacity Utilization

From Peak (percentage points)

Current episode

Previous 

cycles*

60

80

100

120

140

0 2 4 6 8 10 12

Private Equipment &

Software Investment

(cycle peak = 100)

Current 

episode

Previous

cycles**

30

35

40

45

50

30

35

40

45

50

2005 2006 2007 2008 2009 2010 2011

New orders

Shipments

Net change

in unfilled

orders (+/-)

Orders and Shipments of Core Capital Goods

(billions of 1982 dollars)

-40

-20

0

20

40

-2.0

-1.0

0.0

1.0

2.0

2005 2006 2007 2008 2009 2010 2011

S&P 500 earnings per share 

(dollars/share; right)

Change in nonfarm 

nonfinancial corporate 

sector net worth 

(trillions of dollars; left)

Corporate Earnings and Net Worth

0

25

50

75

100

125

150

0

25

50

75

100

125

150

1980 1985 1990 1995 2000 2005 2010

Internal funds and 

inventory valuation adjustment

Credit mkt.

debt

Net share issues Other sources

of funds***

Sources of Funds

(percent)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2006 2007 2008 2009 2010 2011

Corporate Spreads

(spread to 10-year treasury; percentage points)

High-yield

Investment

Grade

0

25

50

75

100

125

150

0

25

50

75

100

125

150

1980 1985 1990 1995 2000 2005 2010

Uses of Funds

(percent)

Capital

expenditures

Net acquisition

of liquid assets

Net share 

buybacks

Other uses

of funds^

60

80

100

120

140

0 2 4 6 8 10 12

Private Nonresidential

Structures Investment;

(cycle peak = 100) 

Current 

episode

Previous

cycles**

Capacity utilization has increased, but has some

way to go before reaching its pre-recession level...

... which may have held back equipment spending, while 

commercial real estate remains poor ...

... midway through 2010, a marked improvement in

bookings for new capital equipment took hold ...

... as corporate balance sheets became stronger, 

profitability remained at a high level, ...

... and improved financial stability allowed firms to 

increase their borrowings from the market ...

... and on attractive terms.

Still, companies appear to favor share buybacks and 

financial assets over capital investment ...

... although strong liquid assets growth is a harbinger of 

healthy future investment.

-30

-15

0

15

30

45

60

-30

-15

0

15

30

45

60

1980 1990 2000 2010

Investment in equipment & software

Liquid assets

Growth of Business Fixed Investment and 

Liquid Assets (percent change, yr/yr)
2011 ARTICLE IV REPORT UNITED STATES

54 INTERNATIONAL MONETARY FUND

 

2005 2006 2007 2008 2009 2010 2011

0.00

0.25

0.50

0.75

1.00

1.25

100

102

104

106

108

110

Compensationand Unit 

Labor Costs

Employment Cost Index

(percent change over

three months; left)

Unit Labor Costs

(index, 

2005:Q1=100,

right)

-4

-2

0

2

4

-4

-2

0

2

4

2007 2008 2009 2010 2011

5-yr inflation expectation implied by TIPS

5-10 year forward inflation rate implied by 

TIPS

Inflation Expectations Implied by Inflation-Indexed

Treasury Securities

(percent)

1

2

3

4

5

1

2

3

4

5

2005 2006 2007 2008 2009 2010 2011

Survey of Professional 

Forecasters annual 

average CPI inflation

rate over next 10-years

University of Michigan

Survey, 5-year ahead

inflation expectations

Survey-based inflation expectations

(percent)

Figure 10. Core Inflation Remains Subdued

Sources: Board of Governors of the Federal Reserve System; Bureau of Labor Statistics; Bureau of Economic Analysis; University of 

Michigan; Federal Reserve Bank of Philadelphia; Haver Analytics; and Fund staff estimates.

-12

-8

-4

0

4

8

60

70

80

90

100

110

2005 2006 2007 2008 2009 2010 2011

Core PCE inflation

(yr/yr pct; right)

Total CPI

inflation

(yr/yr pct; right)

Capacity utilization

(percent; left)

Inflation and Capacity

Headline inflation has picked up as commodity prices

increased, although core inflation remains low, partly 

reflecting persistent economic slack.

Although employee compensation has been growing

at a slow rate, gains have been offset by labor productivity 

growth, and unit labor costs remain low.

Higher commodity prices appear not to have passed

through to investors' longer-term expectations ...

... nor do they appear to have affected consumers' and 

forecasters' longer-term inflation expectations.
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 55

 

60

80

100

120

140

60

80

100

120

140

1973 1980 1987 1994 2001 2008

Broad real dollar index

International relative prices

Real Effective Exchange Rates

(indexes, 1973Q1 = 100)

Figure 11. The Dollar, Financial Flows, and Trade

Sources: Board of Governors of the Federal Reserve System; United States Department of the Treasury; Bureau of Economic 

Analysis; and Fund staff estimates.

-200

-100

0

100

200

-200

-100

0

100

200

2007 2008 2009 2010 2011

Agencies and GSEs

Treasuries

Equities

Corporate bonds

TIC Flows

(billions of dollars)

-500

-250

0

250

500

-500

-250

0

250

500

2005 2006 2007 2008 2009 2010

Private non-bank flows

U.S. official flows

Foreign official flows

Private banking flows

Net Financial Flows 

(billions of dollars)

-9

-6

-3

0

3

-9

-6

-3

0

3

2007 2008 2009 2010

Net current transfers

Income balance

Trade balance

Current acct. balance

U.S. Current Account Balance

(percent of GDP)

-6

-3

0

3

6

9

-6

-3

0

3

6

9

2007 2008 2009 2010

Imports

Exports

Net Exports

Imports' and Exports' Contributions to Real GDP 

Growth (percentage points, s.a.a.r.)

The dollar has been depreciating in real effective terms... ...while private foreign portfolio investment remains 

concentrated in government securities

The U.S. current account deficit has widened 

slightly from its crisis lows...

... attributable in part to a rebound in import volumes...

-60

-45

-30

-15

0

15

-60

-45

-30

-15

0

15

1990 1995 2000 2005 2010

U.S. International Investment Position and 

Cumulative Current Account Balances (pct of GDP)

Cumulative current 

account balances,

2000-2010

International

investment 

position, 

1990-2010

... but the U.S. IIP has remained much stronger than 

suggested by cumulative current account deficits.

... flows are still influenced by foreign government FX 

intervention.
2011 ARTICLE IV REPORT UNITED STATES

56 INTERNATIONAL MONETARY FUND

0

3

6

9

12

15

0

3

6

9

12

15

2010 2012 2014 2016 2018 2020

FY2012 Budget Proposal (Feb 2011)

CBO (President's budget, Apr 2011)

Staff projections*

Federal Government Deficits; 

percent of GDP, fiscal years)

60

70

80

90

100

60

70

80

90

100

2010 2012 2014 2016 2018 2020

Federal Debt Held by the Public

(percent of GDP, fiscal years)

FY2012 

Budget Proposal

(Feb 2011)

Staff 

baseline* CBO 

(President's 

budget,

Apr 2011)

The authorities plan to embark on fiscal consolidation...

0

5

10

15

20

0

5

10

15

20

2010 2015 2020 2025 2030 2035

CBO's Estimate of Federal Spending on Major 

Mandatory Health Care Programs and social 

security, 2010 –35 (percent of GDP)

In the absence 

of aging and 

excess health 

cost growth

Effect of 

aging

Effect of excess health care 

cost growth

...any chosen strategy will need to bring in new revenue

and address entitlement spending pressures given 

population aging and rising health care costs.

-300

-150

0

150

300

-20

-10

0

10

20

2010 2015 2020 2025 2030 2035 2040

Deficit under 

Commission's

proposal 

(left axis)

Commission's

baseline deficit (left axis)

Commission's 

proposal

CBO alternative 

scenario 

Federal Debt and Deficit under the Fiscal

Commission's Proposal (percent of GDP)

Debt held by the public (right)

The President's Fiscal Commission and other analysts 

have provided ambitious blueprints...

Long-term CDS spreads do not point to any solvency concerns,

but the front-end has responded to the debt ceiling debate.

Figure 12. U.S. Federal Government Plans to Embark on a Fiscal Consolidation

...but in staff's view, the administration's strategy will 

not stabilize debt.

Sources: Congressional Budget Office; Bloomberg, LP; National Commission on Fiscal Responsibility and Reform; Office of 

Management and Budget; Haver Analytics; and Fund staff estimates.

* Projections are prepared under staff's macroeconomic and policy assumptions.

20

35

50

65

80

20

35

50

65

80

1Y 2Y 3Y 4Y 5Y 7Y 10Y

6/21/2011

5/21/2011

3/21/2011

12/21/2010

U.S. Sovereign CDS Curves

(basis points)

-20

-15

-10

-5

0

5

-20

-15

-10

-5

0

5

2000 2020 2040 2060 2080

2007

2010

2012

Projection from:

Forecast 

change after 

healthcare reform

Forecast change 

during crisis period 

Authorities' Long-Term Deficit Projections

(percent of GDP; fiscal years)

For now, the federal public finances remain on an

unsustainable trajectory.
UNITED STATES 2011 ARTICLE IV REPORT 

INTERNATIONAL MONETARY FUND 57

Figure 13. State and Local Government Finances Are Under Pressure

Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Office of Management and Budget; Markit; Pew 

Center for the States; Bank of America/Merrill Lynch; Board of Governors of the Federal Reserve System; Haver 

Analytics; and Fund staff calculations.

-150

-100

-50

0

50

100

-12

-8

-4

0

4

8

20012003200520072009200020022004200620082010

Federal Government State & Local Gov'ts

Net investment (left)

Operating balance (left)

Net lending (left)

Public Sector Finances

(percent of GDP)

Federal Debt

Held by Public

(right)

Gross Debt 

(right)

Net Debt (right)

7.8

8.1

8.4

8.7

9.0

9.3

0

6

12

18

24

30

1990 1993 1996 1999 2002 2005 2008 2011

Other (left)

Transport (left)

Utilities (left)

Hospitals (left)

State and Local Government Employment

(millions, unless noted otherwise)

Education

(left)

General Admin.

(left)

State and local 

gov't employment

(pct of population; right)

-15

-10

-5

0

5

10

15

20

-15

-10

-5

0

5

10

15

20

1998 2003 2008

Current tax receipts

Total receipts

Total expenditures

State and Local Government 

Revenues and Expenditures

(percent change, yr/yr)

0

125

250

375

500

0

125

250

375

500

Sep-09 Feb-10 Jul-10 Dec-10 May-11

Virginia

California

United States

Illinois

CDS Spreads

(basis points)

2

4

6

8

10

2

4

6

8

10

2007 2008 2009 2010 2011

AAA-rated municipal bonds

BBB-rated 

municipal bonds AA-rated 

municipal 

bonds

20-year

Treasury 

note (taxable)

Government Bond Yields

(yield to maturity; percent)

In contrast to the federal government, state and 

local governments must maintain balanced 

operational budgets...

... which put them under stress during the Great 

Recession as their revenues plunged. Tax 

receipts are now recovering...

... however, the state and local governments will 

need to continue downsizing as the emergency 

federal aid phases out.

A number of state and local governments face 

medium-term challenges from large unfunded 

pension and healthcare liabilities.

88 to 100 percent

79 to 87 percent

73 to 78 percent

65 to 72 percent

51 to 64 percent

State Pension Funding Levels

(Pew Center Estimates; percent)

Funding costs have fluctuated with Treasury 

yields, general risk aversion, and concerns 

about medium-term budgetary challenges.

The CDS spreads for lower-quality issuers 

remain elevated, but are below their 2010 peaks.
 2011 ARTICLE IV REPORT UNITED STATES 

58 INTERNATIONAL MONETARY FUND 

 

i

For instance, Chris Carroll, Misuzu Otsuka, and Jirka Slacalek (“How Large Are Housing and 

Financial Wealth Effects? A New Approach,” Journal of Money, Credit and Banking, 43(1), 2011) 

find a cumulative effect of about 9 cents on the dollar for changes in housing wealth, and a 

about 4 cents on the dollar for changes in financial wealth (net of liabilities). 

ii Marcello Estevão and Evridiki Tsounta, “Has the Great Recession Raised U.S Structural 

Unemployment?” IMF Working Paper, 11/105, 2011. 

iii On the latter subject, see for instance, Rob Valletta and Katherine Kuang, “Is Structural 

Unemployment on the Rise?”, FRBSF Economic Letter, 2010-34, Federal Reserve Bank of San 

Francisco, November, 2010. 

iv See Curcuru, Thomas, and Warnock, “Current Account Sustainability and Relative Reliability”. in 

J. Frankel and C. Pissarides (eds.) NBER International Seminar on Macroeconomics 2008, 

University of Chicago Press, and Lane and Milesi-Ferretti, “Where Did All The Borrowing Go? A 

Forensic Analysis of the U.S. External Position”, Journal of the Japanese and International 

Economies vol. 23 no. 2, 2009, for a discussion of these issues. 

v

 The “shadow inventory” is the set of properties that could enter the resale market, such as those 

that are in foreclosure, 90+ days delinquent, or with a high probability of default given negative 

equity or a prior modification. 

vi Congress sets a binding ceiling on the total amount of gross Treasury debt which can be 

issued. 

vii Unless otherwise noted, all figures in this section refer to the federal government budget data 

on a fiscal year basis (the fiscal year ends September). 

viii Government agencies responded to uncertainties created by the delayed FY2011 

appropriations by postponing spending, and it remained unclear how quickly the outlays could 

rebound. There is also uncertainty about durability of the recent revenue overperformance. 

ix A number of other policymakers and analysts have outlined their consolidation plans—see a 

website by the Committee for a Responsible Federal Budget for a detailed summary: 

http://crfb.org/compare/index.php?id=01 . 

x

 According to FHFA, a 25 percent drop in house prices would lead to about $110 billion in net 

additional GSE injections by end-2013 (the gross injection would be about twice as large, 

including the injections that would be paid back to the Treasury in the form of dividends). 

xi U.S. Government Accountability Office, “Employment and Training Programs: Opportunities 

Exist for Improving Efficiency,” Testimony to Congress, April 7, 2011. 

xii Under the first round of unconventional easing, the Federal Reserve purchased $1.25 trillion of 

agency MBS, about $175 billion of agency debt, and $300 billion of longer-term Treasury 

securities, with purchases completed in March, 2010. The Fed launched a second round of large 

asset purchases in November, 2010, with $600 billion in purchases to be completed by the end of 

June, 2011. 

xiii Research by Federal Reserve economists (e.g., by Gagnon, Maskin, Remache, and Sack, “LargeScale Asset Purchases by the Federal Reserve: Did They Work?”, Federal Reserve Bank of New 

York Staff Reports, No. 144) finds that the first round of unconventional easing lowered the tenyear Treasury yield by 50–75 basis points (3–4 basis points for each $100 billion in purchases). A 

similar elasticity would suggest an effect of around 20 basis points for the second round of 

unconventional easing. The cumulative effects would correspond to a federal funds target rate 

cut of roughly 300 basis points (see Rudebusch, “The Fed's Exit Strategy for Monetary Policy” San 

Francisco Fed Economic Letter No. 2010–18). 
 UNITED STATES 2011 ARTICLE IV REPORT

INTERNATIONAL MONETARY FUND 59

 xiv The SCAP institutions are the 19 large bank holding companies that took part in the 

authorities’ Supervisory Capital Assessment Program stress testing exercise in early-2009. These 

financial institutions include all domestic bank holding companies with assets exceeding $100 

billion at the end of 2008. 

xv The potential effects of possible turmoil in the Euro area on the rest of the world are discussed 

in the Euro area Spillover Report. 

xvi The dollar has depreciated some 21⁄2 percent in real effective terms since the reference period 

for those calculations, suggesting some reduction in the overvaluation. 

xvii The TPP is a high-level agreement that currently comprises nine countries, including the 

United States, Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and 

Vietnam. 
 

UNITED STATES 

STAFF REPORT FOR THE 2011 ARTICLE IV 

CONSULTATION—INFORMATIONAL ANNEX

Prepared By The Western Hemisphere Department 

I. Fund Relations ..............................................................................................................................................2 

II. Statistical Issues ............................................................................................................................................4 

CONTENTS 

July 7, 2011 
2011 ARTICLE IV REPORT—INFORMATIONAL ANNEX UNITED STATES

2 INTERNATIONAL MONETARY FUND

Annex I. United States: Fund Relations 

(As of May 31, 2011) 

I. Membership Status: Joined 12/27/45; Article VIII 

 Percent

II. General Resources Account: SDR Million Quota

 Quota 42,122.40 100.00 

 Fund holdings of currency 28,600.24 67.90 

 Reserve position in Fund 13,520.00 32.10 

 Lending to the Fund 

 New Arrangements to Borrow 2,384.80 

 Percent

III. SDR Department: SDR Million Allocation

 Net cumulative allocation 35,315.68 100.00 

 Holdings 35,697.88 101.08 

IV. Outstanding Purchases and Loans: None 

V. Financial Arrangements: None 

VI. Projected Obligations to Fund: None 

VII. Exchange Rate Arrangements: The exchange rate of the U.S. dollar floats independently 

and is determined freely in the foreign exchange market. 

VIII. Payments Restrictions. The United States accepted Article VIII of the IMF's Articles of 

Agreement and maintains an exchange system free of restrictions and multiple currency practices 

with the exception of limited restrictions on certain payments and transfers imposed for security 

reasons. The United States currently administers approximately 30 economic sanctions programs, 

which restrict certain payments and transfers for transactions against particular foreign 

governments, entities, and individuals. The United States administers, inter alia, sanctions programs 

relating to Burma, Cuba, Iran, North Korea, and Sudan, and continues to block certain previously 

frozen assets of the former Yugoslavia. Several other sanctions programs, including those relating to 

Côte d’Ivoire, Liberia, Somalia, Syria, Western Balkans, and Zimbabwe are “list-based” programs, 

affecting only members of certain government regimes and other individuals and groups whose 
UNITED STATES 2011 ARTICLE IV REPORT—INFORMATIONAL ANNEX 

INTERNATIONAL MONETARY FUND 3

activities have been determined to threaten the foreign policy or economy of the United States. The 

United States also implements similar list-based sanctions programs against: narcotics traffickers; 

terrorism-related governments, entities, and individuals; and proliferators of weapons of mass 

destruction. 

IX. Article IV Consultation. The 2010 Article IV consultation was concluded in July 2010 and 

the Staff Report was published as IMF Country Report No. 10/249. A fiscal ROSC was completed in 

the context of the 2003 consultation. An FSAP involved two missions, during October 14–November 

3, 2009 and February 17–March 12, 2010. The FSSA was discussed at the board, together with the 

2010 Article IV Consultation, on July 26, 2010. 

The 2011 Article IV discussions were conducted from May 27–June 27, 2011. Concluding meetings 

with Chairman Bernanke of the Board of Governors of the Federal Reserve System and Treasury 

Secretary Geithner occurred on June 23 and 27. The Acting Managing Director, Mr. Lipsky, and WHD 

Director, Mr. Eyzaguirre, participated in the concluding meetings. A press conference on the 

consultation was held on June 29, 2011. The team comprised (at different times) Rodrigo Valdés 

(head), Gian Maria Milesi-Ferretti, Charles Kramer, Marcello Estevao, Oya Celasun, Nicoletta Batini, 

Martin Sommer, Evridiki Tsounta, Grace Bin Li, and Geoffrey Keim (all WHD); Sally Chen (SPR); 

Francesco Columba and John Kiff (MCM). Ranil Salgado, Nagwa Riad, and Mika Saito (SPR) 

contributed with advice on trade policy and Steve Dawe (LEG) with analysis on AML/CFT issues. 

Some meetings were also attended by members of the USA Spillovers team. Ms. Lundsager 

(Executive Director) and Mr. Lindquist (Advisor) attended some of the meetings. Outreach included 

discussions with the private sector and think tanks. Unless an objection from the authorities of the 

United States is received prior to the conclusion of the Board’s consideration, the document will be 

published. 
2011 ARTICLE IV REPORT—INFORMATIONAL ANNEX UNITED STATES

4 INTERNATIONAL MONETARY FUND

Annex II. Statistical Issues 

Statistical Issues: Comprehensive economic data are available for the United States on a timely 

basis. The quality, coverage, periodicity, and timeliness of U.S. economic data are adequate for 

surveillance. Coverage of international capital flows in external sector statistics has been improved, 

with the June 2007 releases of BOP and IIP data on financial derivatives. The United States has 

subscribed to the Special Data Dissemination Standard (SDDS) and its metadata are posted on the 

Dissemination Standard Bulletin Board (DSBB). 

United States: Table of Common Indicators Required for Surveillance 

(As of June 28, 2011) 

 Date of 

latest 

observation 

Date 

received 

Frequency 

of data1

Frequency of 

reporting1

Frequency of 

publication1

Exchange rates June 24 June 27 D W W

International reserve assets and reserve 

liabilities of the monetary authorities2

June 17 June 27 W W W

Reserve/base money June 15 June 23 B W W

Broad money June 13 June 23 W W W

Central bank balance sheet June 22 June 23 W W W

Interest rates3 same day same day D D D

Consumer price index May 2011 June 15 M M M

Revenue, expenditure, balance and 

composition of financing4

—general 

government5

2011 Q1 June 24 Q Q Q

Revenue, expenditure, balance and 

composition of financing4—central 

government 

May 2011 June 10 M M M

Stocks of central government and central 

government-guaranteed debt 

May 2011 June 6 M M M

External current account balance 2011 Q1 June 16 Q Q Q

Exports and imports of goods and 

services 

Apr. 2011 June 9 M M M

GDP/GNP (3rd release) 2011 Q1 June 24 Q M M

Gross External Debt 2011 Q1 June 9 Q Q Q

International Investment Position6 2010 June 28 A A A

 

1

 Daily (D), Weekly (W), Biweekly (B), Monthly (M), Quarterly (Q), Annually (A); NA: Not Available. 

2

 Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. 

3

 Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, 

notes and bonds. 

4

 Foreign, domestic bank, and domestic nonbank financing. 

5

 The general government consists of the central government (budgetary funds, extra budgetary funds, and social 

security funds) and state and local governments. 

6

 Includes external gross financial asset and liability positions vis-à-vis nonresidents. 
Statement by the IMF Staff Representative on the United States 

July 21, 2011 

1. This note reports on information that has become available since the staff report 

(SM/11/167) was issued and does not alter the thrust of the staff appraisal. 

2. Incoming data since the completion of the Article IV consultation in mid-June 

point to downside risks to the staff’s near term forecast. Recent data indicate a marked 

slowdown in the growth of employment, aggregate labor income, and consumption, and 

weaker consumer confidence. All told, activity has been weaker than expected, with GDP 

growth in the second quarter of 2011 tracking between 1.5 and 2 percent at an annualized 

rate, below the staff’s WEO projection of 2.6 percent. Twelve month core consumer price 

inflation increased to 1.6 percent in June, slightly above expected, while headline consumer 

price inflation was around 3.5 percent. 

3. Negotiations over the federal debt ceiling are ongoing. Both the Democratic and 

Republican leaders have committed to lifting the ceiling before the August 2 deadline, but a 

basic political agreement on the underlying fiscal consolidation framework is still lacking. 

Moody’s placed the U.S. sovereign credit rating on a review for downgrade last week, citing 

concerns about possible technical default. Standard and Poor’s has indicated a more than 

50 percent likelihood of downgrade over the next three months given the lack of consensus 

on the medium-term fiscal consolidation framework. The market reaction has been muted so 

far, with the 10-year Treasury yield trading below 3 percent and the CDS spreads remaining 

broadly stable. Adverse market dynamics cannot be ruled out, however, as policymakers 

approach the debt ceiling deadline without basic contours of an agreement. Failing to raise 

the debt ceiling on time would have disastrous consequences for the U.S. and global 

economy. 
Public Information Notice (PIN) No. 11/97 

FOR IMMEDIATE RELEASE 

July 25, 2011 

IMF Executive Board Concludes 2011 Article IV Consultation with the 

United States

On July 21, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the 

Article IV consultation with the United States.1

 The consultation documents are accompanied by a 

report analyzing the spillovers from U.S. policies to the rest of the world. 

Background 

The U.S. economy continues to recover from its worst financial crisis since the Great Depression, 

aided by supportive macroeconomic policies. Monetary policy remains highly accommodative, 

with policy rates near zero and a significantly expanded Federal Reserve balance sheet. Fiscal 

policy provided a sizable stimulus to demand over 2009–2010, but the fiscal impulse for the 

current fiscal year is likely to be about zero. The financial system continues to strengthen, 

although lending conditions remain tight for some segments. Household balance-sheet repair has 

continued amidst still declining house prices and high unemployment rates, weighing on 

consumption, while construction activity remains depressed. Corporate spending and hiring 

remain relatively weak, despite record-high profit growth and easy financing conditions for large 

firms. GDP growth slowed from 23⁄4 percent (saar) in the second half of 2010 to just under 

 

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with 

members, usually every year. A staff team visits the country, collects economic and financial 

information, and discusses with officials the country's economic developments and policies. On return 

to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive 

Board. At the conclusion of the discussion, the First Deputy Managing Director, as Chairman of the 

Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's 

authorities. An explanation of any qualifiers used in summings up can be found here: 

http://www.imf.org/external/np/sec/misc/qualifiers.htm

International Monetary Fund 

700 19th Street, NW 

Washington, D. C. 20431 USA 
2

2 percent (saar) in the first half of 2011, reflecting inter alia the impact of higher oil prices and 

several transient factors. The U.S. current account deficit has moved broadly sideways as higher 

oil prices have offset the effects of strong external demand and the dollar’s depreciation. Overall, 

the slow pace of the recovery is consistent with past international experience in the aftermath of 

housing and financial crises. 

The outlook is for continued albeit modest growth. With sluggish private domestic demand 

economic slack remains large: in particular, the unemployment rate has declined only modestly 

from its recent peak. As a result, inflation pressures will likely remain contained, despite the 

recent firming in core inflation. Risks are elevated and tilted to the downside, especially from the 

housing market and possible global financial market disruptions from the sovereign crisis in 

Europe. 

On the policy front, the administration and Congressional policymakers have presented mediumterm fiscal adjustment proposals, and current negotiations suggest that fiscal policy is set to enter 

a consolidation phase to address its unsustainable trajectory. The Federal Reserve has indicated 

that economic conditions are likely to warrant an accommodative monetary policy stance for an 

extended period and any future policy moves would depend on incoming data, including on 

inflation expectations. 

On the financial sector front, the official financial support deployed during the crisis is being 

wound down and the legislated reform of financial supervision and regulation is being 

implemented. In particular, the Financial Stability Oversight Committee (FSOC) has ramped up 

operations and numerous rules are being promulgated. However, many issues remain to be 

worked out, notably in areas involving systemically important financial institutions and 

international coordination. 

Executive Board Assessment 

Executive Directors observed that the economic recovery continues at a modest pace, though 

slowing down recently due partly to some transient factors. Directors noted that depressed real 

estate markets, persistent high unemployment, and weak consumer confidence have held back 

growth prospects. While macroeconomic policies have remained supportive thus far, fiscal policy 

faces tighter constraints going forward, given unsustainable public debt dynamics. With a stillwide output gap and downside risks to the outlook, especially potential spillovers from European 

financial markets, Directors called for a cautious approach to unwinding macroeconomic support. 

Directors agreed that placing public debt on a sustainable path is critical to the stability of the U.S. 

economy, with positive spillovers to other countries. They welcomed the administration’s objective 

to stabilize the debt ratio by mid-decade and gradually reduce it afterward. Directors highlighted 

the urgency of raising the federal debt ceiling and agreeing on the specifics of a comprehensive 

medium-term consolidation plan. With a well-defined, credible multi-year framework in place, the 
3

pace of deficit reduction in the short run could be more attuned to cyclical conditions. 

Directors generally concurred that fiscal adjustment should start in FY2012 to guard against the 

risk of a disruptive loss in fiscal credibility. The strategy should include entitlement reforms, 

including additional savings in health care, as well as revenue increases, including by reducing 

tax expenditures. Directors welcomed the administration’s proposals for multi-year expenditure 

caps on non-security discretionary spending and a “failsafe” mechanism that would trigger 

automatic actions against deficit overruns. 

Directors broadly agreed that, given prospects for subdued inflation and significant resource 

underutilization, an accommodative monetary policy will likely remain appropriate for quite some 

time. They called for continued vigilance to inflation developments and a decisive policy response 

as appropriate. When conditions warrant a monetary exit, a gradual reduction of asset holdings, 

accompanied by clear communication, was viewed as an essential first step. 

Directors noted that further efforts are needed to address problems in the housing and labor 

markets. Measures to mitigate distressed sales and facilitate loan modifications would help 

stabilize house prices, while the reform of the government-sponsored enterprises should be 

accelerated. Directors encouraged a re-examination of existing active labor market programs, 

including job training and education programs. 

Directors commended the authorities for the significant progress in repairing and reforming the 

financial sector, notably the implementation of the FSAP recommendations and the establishment 

of the Financial Stability Oversight Council. They encouraged the authorities to promptly allocate 

appropriate resources to fund the improvements in regulation and supervision, and to resist 

pressures to water down the legislation. Strengthening the crisis prevention framework for 

financial institutions is a priority, particularly in light of the global role played by the U.S. financial 

system. Directors emphasized in particular the importance of subjecting systemically important 

financial institutions to heightened scrutiny and prudential standards, and looked forward to 

further progress in this area. They commended the United States for its active engagement in 

fostering international coordination on financial regulatory reforms. 

Directors welcomed a multilateral approach to economic policy management in the context of the 

spillover exercise. They noted that U.S. performance and policies have uniquely large spillovers 

to the rest of the world mainly through financial linkages, although some Directors noted that 

spillovers through the trade channel should not be underestimated. Important contributions that 

the United States can make to global growth and stability include (i) raising domestic savings, 

particularly through fiscal consolidation, and (ii) strengthening financial sector regulation and 

supervision. A number of Directors cautioned that the extraordinarily low level of interest rates in 

the United States may have encouraged excessive risk-taking, affected cross-border capital 

flows, and added to global inflationary pressures. Some also saw the potential risk of capital flow 

reversals that could arise from the eventual monetary exit by the United States, underlining the 

importance of policy communication, although some others were of the view that capital flows are 
4

driven increasingly by structural factors. Directors welcomed the authorities’ continued 

commitment to secure the success of multilateral trade negotiations. 

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's 

views and analysis of economic developments and policies. With the consent of the country 

(or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations 

with member countries, of its surveillance of developments at the regional level, of post-program 

monitoring, and of ex post assessments of member countries with longer-term program engagements. 

PINs are also issued after Executive Board discussions of general policy matters, unless otherwise 

decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat 

Reader to view this pdf file) for the 2011 Article IV Consultation with the United States is also available. 
5

United States: Selected Economic Indicators 

(annual change in percent, unless otherwise indicated) 

Projections 

2006 2007 2008 2009 2010 2011 2012 

National production and income 

Real GDP 2.7 1.9 0.0 -2.6 2.9 2.5 2.7 

Net exports 1/ -0.1 0.6 1.2 1.3 -0.4 0.4 0.3 

Total domestic demand 2.6 1.3 -1.1 -3.6 3.2 2.0 2.2 

Final domestic demand 2.5 1.5 -0.6 -3.1 1.9 2.0 2.1 

Private final consumption 2.9 2.4 -0.3 -1.2 1.7 2.5 2.0 

Public consumption expenditure 1.0 1.3 2.5 1.9 0.9 -1.7 -1.0 

Gross fixed domestic investment 2.5 -1.2 -4.5 -14.8 3.3 4.0 6.0 

Private fixed investment 2.3 -1.8 -6.4 -18.3 3.9 5.3 7.5 

Residential structures -7.3 -18.7 -24.0 -22.9 -3.0 -3.4 6.4 

Public fixed investment 3.3 1.7 4.3 0.2 1.3 -0.6 0.7 

Change in private inventories 1/ 0.1 -0.2 -0.5 -0.7 1.4 0.1 0.1 

GDP in current prices 6.0 4.9 2.2 -1.7 3.8 4.0 3.9 

Employment and inflation 

Unemployment rate 4.6 4.6 5.8 9.3 9.6 8.9 8.4 

CPI inflation 3.2 2.9 3.8 -0.3 1.6 2.8 1.6 

GDP deflator 3.3 2.9 2.2 0.9 1.0 1.4 1.2 

Government finances 

Federal government (budget, fiscal years) 

Federal balance (percent of GDP) -1.9 -1.2 -3.2 -11.4 -9.6 -9.3 -7.6 

Debt held by the public (percent of GDP) 36.5 36.2 40.3 53.5 62.1 70.2 74.6 

General government (GFSM 2001, calendar years) 

Net lending (percent of GDP) -2.0 -2.7 -6.5 -12.7 -10.3 -9.9 -7.8 

Structural balance (percent of potential nominal 

GDP) -2.0 -2.2 -4.6 -6.8 -7.2 -7.2 -5.8 

Gross debt (percent of GDP) 61.0 62.2 71.2 84.2 93.5 99.0 103.0 

Interest rates (percent) 

Three-month Treasury bill rate 4.8 4.5 1.4 0.2 0.1 0.2 0.4 

Ten-year government bond rate 4.8 4.6 3.7 3.3 3.2 3.5 4.4 

Balance of payments 

Current account balance (billions of dollars) -803 -718 -669 -378 -470 -489 -410 

Percent of GDP -6.0 -5.1 -4.7 -2.7 -3.2 -3.2 -2.6 

Merchandise trade balance (billions of dollars) -839 -823 -835 -507 -647 -703 -702 

Percent of GDP -6.3 -5.9 -5.8 -3.6 -4.4 -4.6 -4.4 

Balance on invisibles (billions of dollars) 37 105 166 129 177 214 293 

Percent of GDP 0.3 0.7 1.2 0.9 1.2 1.4 1.8 

Saving and investment (percent of GDP) 

Gross national saving 16.2 14.3 12.4 10.9 11.6 12.3 14.1 

Gross domestic investment 20.5 19.6 18.0 14.8 15.9 16.1 16.7 

Sources: Haver Analytics and IMF staff estimates. 

1/ Contribution to real GDP growth, percentage points.