Global credit squeeze costs could reach $1 trillion

The International Monetary Fund (IMF) has warned that losses from the worldwide credit crunch could reach $1 trillion (£503 billion).

The IMF, which oversees the global economy, said the impact of the credit squeeze will be ‘broader, deeper and more protracted’ than previous downturns, due to the degree of securitisation and leverage in the financial system.

Experts have tried to estimate the cost of one of the worst financial disasters in history but have not exceeded $600 billion. The trillion figure (a million billion) will result in requests for further state intervention to balance credit markets.

The warning comes as the IMF announced it may sell 403.3 tonnes of gold for approximately $11 billion as part of a wide-ranging financial overhaul.

The IMF said monies from the sale would partly fund a planned expansion of its investment strategy, requiring a charter amendment that would need laws passed in most of the 185 member countries.

Under the IMF proposal, an endowment would be created with the sale of the gold. The IMF holds 3217 tonnes of the metal.

Later today, it is expected that the IMF will downgrade its forecast for the world economy and accept that a sharp slowdown is likely in the US.

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