Tough talking from former IMF chief on Credit Crunch, Fed

Just in case anyone thinks the Credit Crunch is over or that the US Federal Reserve's low interest rates policy is good for the global economy, it's worth having a look at some comments from the former IMF Chief Economist Kenneth Rogoff. "The US is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," Rogoff told a financial conference in Singapore today, according to a Reuters report. "We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004. "We have to see more consolidation in the financial sector before this is over," he said. "Probably Fannie Mae and Freddie Mac -- despite what US Treasury Secretary Hank Paulson said -- these giant mortgage guarantee agencies are not going to exist in their present form in a few years." "There was this view early on in the crisis that sovereign wealth funds could save everybody. Investment banks did something stupid, they lost money in the sub-prime, they're great buys, sovereign wealth funds come in and make a lot of money by buying them," Rogoff said. "That view neglects the point that the financial system has become very bloated in size and needed to shrink," he said. Rogoff said the U.S. Federal Reserve had been wrong to cut interest rates to 2% in response to the crisis. "Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States."