Tag Archives: IMF

Senator Richard Blumenthal- not so innocent subversion

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I spoke with Senator Blumenthal for several hours on MMT just over a year ago, before he was elected Senator.

He read my book and asked the right questions.

He knows imports are real benefits, exports real costs.

He knows the trade deficit is a good thing for America.

He knows that his proposals would reduce our real terms of trade and lower our standard of living.

And he knows taxes function to regulate aggregate demand,

and that we can readily sustain full employment by keeping taxes at the right level for a given size of government.

He remarked that it was how he had learned it at Harvard in the 1960’s.

And he called me several times to discuss specific issues in detail.

With this letter he has turned subversive for presumed political gain.

I see it as a clear case of politics over patriotism.

I likewise discussed this with Senator Carl Levin, but maybe 15 years ago, who also seems to have decided to place politics over patriotism.

If I had the authority, I would prosecute for treason.

April 14, 2011

The Honorable Timothy J. Geithner
Secretary of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220

Dear Mr. Secretary,

We write to urge you to make fundamental currency misalignment a central issue at the G-20 meeting in Washington, DC this week. For too long, this issue has festered, harming not only American companies and workers, but also the economy of every country that meets its International Monetary Fund (IMF) commitments to allow the level of its currency to be determined by markets.

The consistent interference of a few countries in currency markets creates an uneven global playing field, perversely encouraging other countries to intervene as well. The resulting currency misalignments distort global markets, creating instability at a time when the world can ill afford it.

While multiple countries are guilty of currency manipulation, China unfortunately stands out from the rest. Its mercantilist policies occur on a grand scale. In the fourth quarter of 2010, China intervened in currency markets by purchasing $2 billion worth of foreign currency a day, adding $199 billion to its foreign currency reserves. Not surprisingly, in its recent 2011 Global Economic Outlook, the IMF calls the RMB “substantially weaker than warranted” and finds a “key motivation for the acquisition of foreign exchange reserves seems to be to prevent nominal exchange rate appreciation and preserve competitiveness.”

China’s policies work as intended: The RMB has had almost no appreciation against the dollar since May 2008. China’s illegal practices make Chinese-produced goods cheaper than similar products made in America, driving up our trade deficit with China and putting Americans out of work. The United States’ trade deficit with China reached a staggering $273 billion last year, costing our country thousands of jobs.

The IMF cites the accumulation of official foreign exchange reserves as “an important obstacle to global demand rebalancing.” Removing this obstacle should be a key U.S. priority. Ironically, China’s refusal to allow the RMB to appreciate in a meaningful way is contrary to its own best interest. Economists agree that China needs to rebalance its economy to rely more on domestic consumption than on export-led growth. This necessary rebalancing would ultimately tame Chinese inflation, improve global economic growth, and remove a key barrier to a more fruitful U.S.-China relationship.

The United States does no one a favor by downplaying this crucial issue. We urge you to work together with all countries harmed by currency manipulation to press China to allow the level of the RMB to be determined by markets, not government interventions. When everyone plays by the same rules, our entrepreneurs and workers can compete and win in the global economy.

Sincerely,

Sen. Debbie Stabenow

Sen. Sherrod Brown

Sen. Olympia Snowe

Sen. Carl Levin

Sen. Sheldon Whitehouse

Sen. Bob Casey

Sen. Ben Cardin

Sen. Kirsten Gillibrand

Sen. Jack Reed

Sen. Richard Blumenthal

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IMF’s Lipsky Says Advanced-Nation Debt Risks Future Crisis as Yields Set to Rise

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If any of you can forward this to John please do, thanks.
We went through all this from way back in his Salomon Bros. days- he should know better.

Comments below.

Lipsky Says Advanced-Nation Debt Risks Future Crisis as Yields Set to Rise

By Kevin Hamlin

March 20 (Bloomberg) — The mounting debt burden of the world’s most developed nations, set for a post-World War II record this year, is unsustainable and risks a future fiscal crisis, the International Monetary Fund’s John Lipsky said.

The average public debt ratio of advanced countries will exceed 100 percent of their gross domestic product this year for the first time since the war, Lipsky, the IMF’s first deputy managing director, said in a speech at a forum in Beijing today.

“The fiscal fallout of the recent crisis must be addressed before it begins to impede the recovery and create new risks,” said Lipsky. “The central challenge is to avert a potential future fiscal crisis, while at the same time creating jobs and supporting social cohesion.”

John, there is no potential future fiscal crisis for nations that issue their own non convertible/floating fx currencies.

Lipsky’s view clashes with Nobel laureate Joseph Stiglitz, who told the same forum yesterday that further fiscal stimulus is needed to aid growth, and that European nations focused on austerity have a “fairly pessimistic” outlook. At stake is sustaining the developed world’s rebound without a deepening in the debt crisis that’s engulfed nations from Greece to Ireland.

Long-term bond yields could climb 100 to 150 basis points, driven by the 25 percentage point rise in sovereign debt ratios since the global financial crisis and projected increases in borrowing in coming years, according to Lipsky.

So? You know there is no solvency issue. So do you forecast increased aggregate demand, a too small output gap and too low unemployment because of that? What sense does that make???

A basis point is 0.01 percentage point. Yields on benchmark 10-year Treasury notes closed at 3.27 percent last week, with comparable-maturity German debt at 3.19 percent and Japanese bonds at 1.21 percent.

‘Unsustainably Low’

Bank of England Governor Mervyn King reiterated his view at a conference four days ago in Beijing that “long-term real interest rates are unsustainably low” in the aftermath of policy makers’ unprecedented monetary stimulus during the 2008 financial crisis.

And Professor Geoffrey Harcourt’s star pupil, of all people. Shame shame shame. What’s his problem- unemployment might get too low???

Total U.S. public debt was more than $14 trillion at the end of 2010, a 72 percent increase during five years, while Japan’s debt is about double the size of its $5 trillion economy. The European turmoil has forced policy makers to create rescue packages for Ireland and Greece.

This is slipped in now for the second time by Kevin Hamlin, the author of this article, in a way that suggests its associated with Lipsky, King, etc. though he obviously didn’t get any direct quotes from them, or he would have used them. In any case, its an inexcusable error to push the analogy that Ireland and Greece, users of the euro and not the issuer (the ECB is the issuer) are analogous to currency issuers like the US, Japan, and the UK.

While interest payments on debt have remained stable at about 2.75 percentage points of GDP over the last three years, “higher deficits and debts together with normalizing economic growth sooner or later will lead to higher interest rates,” Lipsky said. The IMF estimates fiscal deficits for developed nations will average about 7 percent of GDP this year.

The cost of repaying debt would increase by 1.5 percentage points of GDP by 2014 even if interest rates rise only about 100 basis points, Lipsky said.

And so what then? Create excess aggregate demand that would overly shrink the output gap? If so, I don’t see it in any IMF forecast?

IMF studies show that each 10-percentage-point increase in the debt ratio slows annual real economic growth by around 0.15 percentage point because of the adverse effect on investment and lower productivity growth, according to Lipsky, a former chief economist at JPMorgan Chase & Co.

He should know those studies are not applicable to what he’s talking about.

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looks like IMF will be using their Stand-By arrangement

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Looks like the plan is for a straight euro loan from the IMF to Greece:

“IMF support will be provided under a three-year €30 billion (about $40 billion)Stand-By Arrangement (SBA)—the IMF’s standard lending instrument. In addition, euro area members have pledged a total of €80 billion (about $105 billion) in bilateral loans to support Greece’s effort to get its economy back on track. Implementation of the program will be monitored by the IMF through quarterly reviews.”

FACTSHEET
IMF Stand-By Arrangement
November 23, 2009

In an economic crisis, countries often need financing to help them overcome their balance of payments problems. Since its creation in June 1952, the IMF’s Stand-By Arrangement (SBA) has been used time and again by member countries, it is the IMF’s workhorse lending instrument for emerging market countries. Rates are non-concessional, although they are almost always lower than what countries would pay to raise financing from private markets. The SBA was upgraded in 2009 to be more flexible and responsive to members countries’ needs. Borrowing limits were doubled with more funds available up front, and conditions were streamlined and simplified. The new framework also enables broader high-access borrowing on a precautionary basis.

Lending tailored to member countries’ needs

The SBA framework allows the Fund to respond quickly to countries’ external financing needs, and to support policies designed to help them emerge from crisis and restore sustainable growth.

Eligibility. All member countries facing external financing needs are eligible for SBAs subject to all relevant IMF policies. However, SBAs are generally used by middle income member countries more often, since low-income countries have a range of concessional instruments tailored to their needs.

Duration. The length of a SBA is flexible, and typically covers a period of 12–24 months, but no more than 36 months, consistent with addressing short-term balance of payments problems.

Borrowing terms. Access to IMF financial resources under SBAs are guided by a member country’s need for financing, capacity to repay, and track record with use of IMF resources. Within these guidelines, the SBA provides flexibility in terms of amount and timing of the loan to help meet the needs of borrowing countries. These include:

• Normal access. Borrowing limits were recently doubled to give countries access of up to 200 percent of quota for any 12 month period, and 600 percent of total credit outstanding (net of scheduled repurchases).

• Exceptional access. The IMF can lend amounts above normal limits on a case-by-case basis under its Exceptional Access policy, which entails enhanced scrutiny by the Fund’s Executive Board. During the current global economic crisis, countries facing acute financing needs have been able to tap exceptional access SBAs.

• Front-loaded access. The new SBA framework provides increased flexibility to front load funds where warranted by the strength of the country’s policies and the nature of its financing needs.

• Rapid access. Fund support under the SBA can be accelerated under the Fund’s Emergency Financing Mechanism, which enables rapid approval of IMF lending. This mechanism was utilized in several instances during the recent crisis.

Precautionary access. The new SBA framework has expanded the range of high access precautionary arrangements (HAPAs), a type of insurance facility against very large financing needs. Precautionary arrangements are used when countries do not intend to draw on approved amounts, but retain the option to do so should they need it. Three HAPAs, with Costa Rica, El Salvador, and Guatemala, were approved during the crisis.

Fewer conditions, focus on objectives

When a country borrows from the IMF, it agrees to adjust its economic policies to overcome the problems that led it to seek funding in the first place. These commitments, including specific conditionality, are described in the member country’s letter of intent (which often has a memorandum of economic and financial policies).

Building on earlier efforts, the IMF has further reformed the conditions of its lending to focus on criteria that are measurable and observable. These changes include:
Quantitative conditions. Member countries progress is monitored using quantitative program targets. Fund disbursements are tied to the observance of such targets. Examples include targets for international reserves and government deficits or borrowing, consistent with program goals.

Structural measures. The new SBA framework has eliminated structural performance criteria. Instead, progress in implementing structural measures that are critical to achieving the objectives of the program are assessed in a holistic way in the context of program reviews.

Frequency of reviews. Regular reviews by the IMF’s Executive Board play a critical role in assessing performance under the program and allowing the program to adapt to economic developments. The SBA framework allows flexibility in the frequency of reviews based on the strength of the country’s policies and the nature of its financing needs.

Lending terms

Repayment. Repayment of borrowed resources under the SBA are due within 3¼-5 years of disbursement, which means each disbursement is repaid in eight equal quarterly installments beginning 3¼ years after the date of each disbursement.

Lending rate. The lending rate is tied to the IMF’s market-related interest rate, known as the basic rate of charge, which is itself linked to the Special Drawing Rights (SDR) interest rate. Large loans carry a surcharge of 200 basis points, paid on the amount of credit outstanding above 300 percent of quota. If credit remains above 300 percent of quota after three years, this surcharge rises to 300 basis points, and is designed to discourage large and prolonged use of IMF resources.

Commitment fee. Resources committed under all SBAs are subject to a commitment fee levied at the beginning of each 12 month period on amounts that could be drawn in the period (15 basis points for committed amounts up to 200 percent of quota, 30 basis points on committed amounts above 200 percent and up to 1,000 percent of quota and 60 basis points on amounts exceeding 1,000 percent of quota). These fees are refunded if the amounts are borrowed during the course of the relevant period. As a result, if the country borrows the entire amount committed under an SBA, the commitment fee is fully refunded, while no refund is made under a precautionary SBA under which countries do not draw.

Service charge. A service charge of 50 basis points is applied on each amount drawn.

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IMF fact sheet on SDRs

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FACTSHEET

Special Drawing Rights (SDRs)

January 31, 2010

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (equivalent to about $ 321 billion).

The role of the SDR

The SDR was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets—gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.

However, only a few years later, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime. In addition, the growth in international capital markets facilitated borrowing by creditworthy governments. Both of these developments lessened the need for SDRs.

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR, serves as the unit of account of the IMF and some other international organizations.

Basket of currencies determines the value of the SDR

The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, however, the SDR was redefined as a basket of currencies, today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar. The U.S. dollar-value of the SDR is posted daily on the IMF’s website. It is calculated as the sum of specific amounts of the four currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day in the London market.
The basket composition is reviewed every five years by the Executive Board to ensure that it reflects the relative importance of currencies in the world’s trading and financial systems. In the most recent review (in November 2005), the weights of the currencies in the SDR basket were revised based on the value of the exports of goods and services and the amount of reserves denominated in the respective currencies which were held by other members of the IMF. These changes became effective on January 1, 2006. The next review will take place in late 2010.

The SDR interest rate

The SDR interest rate provides the basis for calculating the interest charged to members on regular (non-concessional) IMF loans, the interest paid and charged to members on their SDR holdings and charged on their SDR allocations, and the interest paid to members on a portion of their quota subscriptions. The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies.

SDR allocations to IMF members

Under its Articles of Agreement, the IMF may allocate SDRs to members in proportion to their IMF quotas. Such an allocation provides each member with a costless asset. However, if a member’s SDR holdings rise above its allocation, it earns interest on the excess; conversely, if it holds fewer SDRs than allocated, it pays interest on the shortfall.
There are two kinds of allocations:

General allocations of SDRs. General allocations have to be based on a long-term global need to supplement existing reserve assets. Decisions to allocate SDRs have been made three times. The first allocation was for a total amount of SDR 9.3 billion, distributed in 1970-72 in yearly installments. The second allocation, for SDR 12.1 billion, was distributed in 1979–81 in yearly installments.

The third general allocation was approved on August 7, 2009 for an amount of SDR 161.2 billion and took place on August 28, 2009. The allocation increased simultaneously members’ SDR holdings and their cumulative SDR allocations by about 74.13 percent of their quota.

Special allocations of SDRs. A proposal for a special one-time allocation of SDRs was approved by the IMF’s Board of Governors in September 1997 through the proposed Fourth Amendment of the Articles of Agreement. Its intent is to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the Fund after 1981—more than one-fifth of the current IMF membership—had never received an SDR allocation.

The Fourth Amendment became effective for all members on August 10, 2009 when the Fund certified that at least three-fifths of the IMF membership (112 members) with 85 percent of the total voting power accepted it. On August 5, 2009, the United States joined 133 other members in supporting the Amendment. The special allocation was implemented on September 9, 2009. It increased members’ cumulative SDR allocations by SDR 21.5 billion using a common benchmark ratio as described in the amendment.

Buying and selling SDRs

IMF members often need to buy SDRs to discharge obligations to the IMF, or they may wish to sell SDRs in order to adjust the composition of their reserves. The IMF acts as an intermediary between members and prescribed holders to ensure that SDRs can be exchanged for freely usable currencies. For more than two decades, the SDR market has functioned through voluntary trading arrangements. Under these arrangements a number of members and one prescribed holder have volunteered to buy or sell SDRs within limits defined by their respective arrangements. Following the 2009 SDR allocations, the number and size of the voluntary arrangements has been expanded to ensure continued liquidity of the voluntary SDR market.

In the event that there is insufficient capacity under the voluntary trading arrangements, the Fund can activate the designation mechanism. Under this mechanism, members with sufficiently strong external positions are designated by the Fund to buy SDRs with freely usable currencies up to certain amounts from members with weak external positions. This arrangement serves as a backstop to guarantee the liquidity and the reserve asset character of the SDR.

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corrected post on IMF operations

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I now understand it this way:

The IMF creates and allocates new SDR’s to its members.

There is no other source of SDR’s.

SDR’s exist only in accounts on the IMF’s books.

SDR’s have value only because there is an informal agreement between members that they will use their own currency to lend against or buy SDR’s from members the IMF deems in need of funding who also accept IMF terms and conditions.

Originally, in the fixed exchange rate system of that time, this was to help members with balance of payments deficits obtain foreign exchange to buy their own currencies to keep them from devaluation.

The system failed and now the exchange rates are floating.

Currently SDR’s and the IMF are used by members needing help with foreign currency funding needs.

Looks to me like Greece will be borrowing euro from other euro nations using its SDR’s as collateral or selling them to other euro nations.

Either way it’s functionally getting funding from the other euro members.

Greece is also accepting IMF terms and conditions.

The only way the US is involved is if a member attempts to use its SDR’s to obtain $US.

The US is bound only by this informal agreement to accept SDR’s as collateral for $US loans, or to buy SDR for $US.

SDR’s have no intrinsic value and are not accepted for tax payments.

It’s a lot like the regional ‘currencies’ like ‘lets’ and ‘Ithaca dollars’ that are also purely voluntary and facilitate unsecured lending of goods and services with no enforcement in the case of default.

It’s a purely voluntary arrangement which renders all funding as functionally unsecured.

There is no IMF balance sheet involved.

While conceptually/descriptively different than what I erroneously described in my previous post, it is all functionally the same- unsecured lending to Greece by the other euro nations with IMF terms and conditions.

The actual flow of funds and inherent risk is as I previously described.

No dollars leave the Fed, euro are transferred from euro members to Greece.

I apologize for the prior incorrect descriptive information and appreciate any further information anyone might have regarding the actual current arrangements.

Prior post:

I understand it this way:

The US buys SDR’s in dollars.
those dollars exist as deposits in the IMF’s account at the Fed.

The euro members buy SDR’s in euro.
Those euro sit in the IMF’s account at the ECB

The IMF then lends those euro to Greece
They get transferred by the ECB to the Bank of Greece’s account at the ECB.

The IMF’s dollars stay in the IMF’s account at the Fed.

They can only be transferred to another account at the Fed by the Fed.

U.S. taxpayers are helping finance Greek bailout

By Senator Jim DeMint

May 6 — The International Monetary Fund board has approved a $40 billion bailout for Greece, almost one year after the Senate rejected my amendment to prohibit the IMF from using U.S. taxpayer money to bailout foreign countries.

Congress didn‚t learn their lesson after the $700 billion failed bank bailout and let world leaders shake down U.S taxpayers for international bailout money at the G-20 conference in April 2009. G-20 Finance Ministers and Central Bank Governors asked the United States, the IMF‚s largest contributor, for a whopping $108 billion to rescue bankers around the world and the Obama Administration quickly obliged.
Rather than pass it as stand-alone legislation, President Obama asked Congress to fold the $108 billion into a war-spending bill to send money to our troops.

It was clear such an approach would simply repeat the expensive mistake of the failed Wall Street bailouts with banks in other nations. Think of it as an international TARP plan, another massive rescue package rushed through with little planning or debate. That‚s why I objected and offered an amendment to take it out of the war bill. But the Democrat Senate voted to keep the IMF bailout in the war spending bill. 64 senators voted for the bailout, 30 senators voted against it.

Only one year later, the IMF is sending nearly $40 billion to bailout Greece, the biggest bailout the IMF has ever enacted.

Right now, 17 percent of the IMF funding pool that the $40 billion bailout is being drawn from comes from U.S. taxpayers. If that ratio holds true, that means American taxpayers are paying for $6.8 billion of the Greek bailout. Although the $108 billion extra that Congress approved for the IMF in 2009 hasn‚t yet gone into effect, you can bet that once it does Greek bankers will come to the IMF again with their hat in hand. And, if other European Union countries see free money up for grabs they could ask the IMF for bailouts when they get into trouble, too. If we‚ve learned anything from the Wall Street bailouts it‚s that just one bailout is never enough.
To hide the bailout from Americans already angry with the $700 billion bank bailout, Congress classified it as an „expanded credit line.‰ The Congressional Budget Office only scored it as $5 billion because IMF agreed to give the United States a promissory note for the rest of the bill.
As the Wall Street Journal wrote at the time, „If it costs so little, why not make it $200 billion. Or a trillion? It‚s free!‰

Of course, money isn‚t free and there are member nations of the IMF that won‚t be in a hurry to pay it back. Three state sponsors of terrorism, Iran, Syria and Sudan, are a part of the IMF. Iran participates in the IMF‚s day-to-day activities as a member of its executive board.

If the failed bank bailout and stimulus bill wasn‚t enough to prove to Americans the kind of misguided, destructive spending that goes on in Washington this will: The Democrat Congress, aided by a few Republicans, used a war spending bill to send bailout money to an international fund that‚s partially-controlled by our enemies.

America can‚t afford to bail out foreign countries with borrowed dollars from China and certainly shouldn‚t allow state sponsors of terror a hand in that process.

This has to stop if we are going to survive as a nation. Congress won‚t act stop such foolishness on its own. The only way Americans can stop this is by sending new people to Washington in November who will.

Sen. Jim DeMint is a Republican U.S. Senator from South Carolina.

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Email exchange with Dan

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On Thu, Apr 15, 2010 at 12:08 PM, wrote:
Hi Warren,

I must admit that your writing and thoughts have had a significant impact upon me. Interestingly—at least from where I sit—your Soft Currency Economics paper, which I have now read 5 or 6 times, has provided me with an odd peace of mind…not sure if that is a GOOD thing or not. :)

thanks!

KNOWING that—so long as trust and confidence in our fiat system remains—we are always able to mitigate, at least in some manner, the impact of global financial crises through the changing of numbers ‘upward’ in the accounts of men and of institutions, is somewhat akin, I’d imagine, to an alcoholic knowing that, no matter what, an endless supply of Johnny Walker Black always exists in his basement stash.

Actually, as long as we can enforce tax collections the currency will have value.

Problem is the currency can’t be eaten or drunk, so if the crops fail it won’t help much.
All we can insure is enough currency to pay people to work, not enough things to buy

OK, so maybe the analogy is a tad morose…but hence my funny feeling about my peace of mind.

So, my question of the week revolves around the U.S.’s apparent choice to monetize (again, if you will) the IMF coffers. I point to the following from Zerohedge:

“…As we reported a few days ago, the IMF massively expanded its last resort bailout facility (NAB) by half a trillion dollars, in which the US was given the lead role in bailing out every country that has recourse to IMF funding.

We buy SDR’s with dollars which the IMF then loans, so yes.

Yesterday, Ron Paul grilled Bernanke precisely on the nature of the expansion of the US role to the NAB: “The IMF has announced that they are going to open up the NAB which coincides with the crisis in Greece and Europe and how they are going to bailed out. The irony of this promise is that in the new arrangement Greece is going to put in $2.5 billion in. I think only a fiat monetary system worldwide can come up and have Greece help bail out Greece and be prepared to bail out even other countries.

Greece needs euros, so the IMF will sell SDR’s to the euro nations to fund Greece, not the US.

SDR’s are only bought with local currency.

But we are going from $10 to $105 billion… We are committing $105 billion to bailing out the various countries of the world, this does two thing I want to get your comments on one why does it coincide with Greece,

Coincidental.

what are they anticipating, why do they need $560 billion, do we have a lot more trouble, and when it comes to that time when we have to make this commitment, who pays for this, where does it come from?

Seems they anticipate more nations will be borrowing dollars from the IMF?

We buy them by crediting the IMF’s account at the Fed. If and when the IMF lends dollars we move those dollars from the IMF’s account to the account at the Fed for the borrowing nation.

Will this all come out of the printing press once again, as we are expected to bail out the world?

Short answer, yes. long answer above.

Are you in favor of this increase in the IMF funding and our additional commitment to $105 billion?”

No.

Bernanke, of course, washes his hands of any imminent dollar devaluation – it is all someone else’s responsibility to bail out life, the universe and everything else. Bernanke pushes on “I think in general having the IMF available to try to avoid crises is a good idea.”

2 problems. First the borrowers would probably be better off using local currency solutions rather than dollars, and second the IMF terms and conditions can and often do make things worse for the borrower.

Yet Paul pushes on “Where will this money come from? We are bankrupt too.” Indeed we are, but nobody cares – that is simply some other poor shumck’s problem…”

He’s flat out wrong about the US being bankrupt but that’s another story.

best,
warren

Warren, this strikes me as problematic. YES, we can add zeros to the end of accounts and thus ‘create’ more liquidity in the global economy. HOWEVER, at what point does the world choose not to believe that those numbers in those accounts have true value?

As long as we enforce dollar taxes the dollar will have value.

warren

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Greece is offered 30bn euros loan

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Yes, this is the first ‘real’ offer, with a rate and a quantity.
I heard it requires approval of all 16 member nations.

This could initially stabilize the bond markets if/when approval is discounted, with short covering in the euro as well.

The terms and conditions include IMF ‘austerity’ measures which will act to slow the economy of Greece and the entire EU, which is already dangerously weak to the point of promoting higher budget deficits through low tax revenues and high transfer payments, all of which serves to further weaken the credit worthiness of all the member nations. It also increases the euro debts of the other contributing nations. While this is a very modest amount, the implication of the same type of ‘rescue’ for the larger euro nations that might go the way of Greece is for much higher levels of stress for the remaining euro member nations presumed to be ‘strong.’

The euro should therefore fundamentally remain on the weak side as the high levels of euro national govt deficits are adding the non govt sectors holding of euro denominated financial assets, with the austerity measures likely to add to euro govt deficits and euro weakness.

Greece is offered 30bn euros loan

April 11 (BBC) — Leaders of the 16 eurozone nations have agreed to fund up to 30bn euros in emergency loans for debt-hit Greece, if the country wants the cash.

The price of the loans will be fixed using IMF formulas, and be about 5%.

Luxembourg Prime Minister Jean-Claude Juncker, speaking for eurozone finance ministers, said there were no elements of subsidy in the loan proposal.

“The total amount put up by the eurozone member states for the first year will reach 30bn euros,” he said.

Mr Juncker added that the financing would be “completed and co-financed” by the International Monetary Fund.

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to say Rogoff is weak on monetary operations is a gross understatement

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He clearly doesn’t distinguish the difference between Germany and the US with regards to interest rate determination and solvency risk:

Harvard’s Rogoff Sees ‘Bunch’ of Sovereign Defaults

“It’s very, very hard to call the timing, but it will happen,” Rogoff, co-author of a history on financial calamities, said in the speech. “In rich countries — Germany, the United States and maybe Japan — we are going to see slow growth. They will tighten their belts when the problem hits with interest rates. They will deal with it.”

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Issing Says IMF Better Suited Than EU to Greek Rescue

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[Skip to the end]

Except Greece probably doesn’t qualify under normal IMF standards, and the IMF would have to get short euro to make the payment.

And ideologically it means ceding control of EU macro policy to an external international institution with strong US influence.

Nor does the macro work, as the ‘strict enough conditions’ imposed will further weaken demand in Greece and the rest of the EU.

Also, the rapidly expanding deficit of Greece has benefited the entire EU and a sudden reversal will reverse those forces.

Likewise, leaving the EU would be contractionary/deflationary for the EU.

But if they all believe the IMF is the way to go there’s a good chance it happens.

Meanwhile, Greece and the rest of the eurozone is being revealed as necessarily being in a continual state of ponzi that demands institutional resolution
of some sort to be sustainable.

Issing Says IMF Better Suited Than EU to Greek Rescue, NYT Says

By John Fraher

Feb. 8 (Bloomberg) — Former European Central Bank Chief Economist Otmar Issing said the International Monetary Fund may be better suited to rescuing Greece than the European Union, the New York Times said, citing an interview.

“I don’t think that the EU can impose the kind of sanctions that would be needed, and it would make Brussels too unpopular,” the newspaper cited Issing as saying in an article published Feb. 6. “A better way is for Greece to approach the IMF. It is the only institution that can impose strict enough conditions.”

Issing said he doesn’t see support “in Germany or elsewhere” for a bailout that would involve “a more or less disguised transfer of taxpayer money,” the paper said.

Issing said leaving the euro region would be “economic suicide” for Greece, though he dismissed the idea that it would hurt the euro region as “misguided,” the paper said.


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