Tag Archives: International Monetary Fund

The IMF: The World’s Controversial Financial Firefighter

The International Monetary Fund, both criticized and lauded for its efforts to promote financial stability, continues to find itself at the forefront of global economic crisis management.
By Jonathan Masters and Andrew Chatzky – Since its inception in July 1944, the International Monetary Fund (IMF) has undergone considerable change as chief steward of the world’s monetary system. Officially charged with managing the global regime of exchange rates and international payments that allows nations to do business with one another, the fund recast itself in a broader, more active role following the 1973 collapse of fixed exchange rates, intervening in developing countries from Asia to Latin America. In 2010, it gained renewed relevance as the European sovereign debt crisis unfolded.

The fund has received both criticism and credit for its efforts to promote financial stability.

Forty-four allied nations convened at the Bretton Woods Conference in 1944 to establish a postwar financial order that would facilitate economic cooperation and prevent a rehash of the currency warfare that helped usher in the Great Depression. The new regime was intended to foster sustainable economic growth, promote higher standards of living, and reduce poverty. The historic accord founded the twin institutions of the World Bank and the IMF and required signatory countries to peg their currencies to the U.S. dollar. However, the system of fixed exchange rates broke down in the late 1960s and early 1970s due to an overvaluation of the U.S. dollar and President Richard Nixon’s decision to suspend the greenback’s convertibility into gold.

The IMF is akin to a credit union that permits its membership access to a common pool of resources—funds that represent the financial commitment or quota contributed by each nation, relative to its size. In theory, members with balance-of-payments trouble seek recourse with the IMF to buy time to rectify their economic policies and restore economic growth. The fund pursues its mission in three fundamental ways:

Surveillance. A formal system of review monitors the financial and economic policies of member countries and offers macroeconomic and financial policy advice.

Technical assistance. Practical support and training directed mainly at low- and middle-income countries help manage their economies.

Lending. The fund gives loans to member countries that are struggling to meet their international obligations. Loans, or bailouts, are provided in return for implementing specific IMF conditions designed to put government finances on a sustainable footing and restore growth. more>

An unstable global economic system that is being ignored


The Age of Oversupply: Overcoming the Greatest Challenge to the Global Economy, Author: Daniel Alpert.

By Daniel Alpert – Present-day economic imbalances €” particularly those stemming from the rapid emergence of the post-socialist nations over the past 15 years, with their associated supply of excess labor, productive capacity and global capital, relative to demand €” have hamstrung the economies of the advanced nations. Such economic dislocation can no longer be resolved by any one power, or even by two or three.

Indeed, there is enormous risk today of unilateral or bilateral actions being viewed by players left out of such actions as economically threatening or even hostile, leading to economic countermeasures. The issue is compounded by the complexity of the relationships among and between developed nations on the one hand and emerging ones on the other. more> http://tinyurl.com/p727l5l


India, the taper and capital controls

By James Saft – India has rolled out a series of capital controls to help support the partially convertible rupee, which has been hammered 13 percent lower so far this year and stands at an all-time low against the dollar.

While India’s problems may have been manufactured at home, the recognition of them was touched off by events abroad, namely the prospect of the U.S. Federal Reserve beginning to taper its purchases of bonds.

We have been here before. The Latin American debt crisis of the 1980s and the Asian crisis in the late 1990s both happened in the wake of U.S. credit tightening cycles kicking off, and both ended badly. more> http://tinyurl.com/loat3f2


The systemic nature of the Eurozone crisis

By Jorgo Chatzimarkakis Mark Esposito – The Eurozone has entered its fourth year of crisis. Member states have been falling into debt so severe, they have had to request bailouts tied to crippling austerity measures. Instead of providing some relief, these measures are only making matters worse. Like dominoes, successive member states find themselves on a negative economic watch. Living conditions have deteriorated and unemployment rates are skyrocketing.

This clearly shows that the steps taken by European leaders to address the euro crisis have not worked; instead, they are putting the European Union itself in danger. Instead of addressing core systemic problems, the EU has been defending its policies both within and outside of its borders. more> http://tinyurl.com/kqc7olq


Leave “fairy world” behind, Draghi tells euro zone

By Daniel Flynn and Leigh Thomas – The euro zone‘s crisis is far from over and its members must tighten budgets and forge a banking union to leave behind the “fairy world” that allowed problems to grow, European Central Bank President Mario Draghi said on Friday (Nov 30).

Draghi’s call for reform was echoed by International Monetary Fund chief Christine Lagarde, who said implementing a banking union with powers to supervise all banks in the euro zone should be the currency bloc’s top priority. more> http://tinyurl.com/czsvphq

Let It Be Known That No Financial Crisis Was Ever Caused by Stable Money

By Nathan Lewis – No economic crisis was ever caused by stable money.

The purpose of funny money is to solve some kind of problem whose fundamental cause is typically not monetary at all. For example, we are now in a process of trying to solve a bank insolvency crisis, an unemployment problem, and a fiscal deficit problem, with a monetary solution. more> http://tinyurl.com/dy69798


CONGRESS WATCH Coping with High Debt and Sluggish Growth (pdf), International Monetary Fund U.S. Fiscal Cliff Threatens Growth, IMF’s Cottarelli Says, Scott Hamilton and Sara Eisen, Bloomberg An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022 … Continue reading

British Conservatives: Not Very Conservative By U.S. Standards

By Catherine Mayer – German bombs are not once more falling on Birmingham, the U.K.’s second city, violently reconfigured by the Luftwaffe during World War II, but Europe‘s turbulence is waging a Blitzkrieg on Britain‘s economy.

Prime Minister David Cameron channeled his country’s wartime premier Winston Churchillas he took to the stage to give the leader’s speech. He was somber. He wore a funereal black suit and purple tie and stood stock still at the lectern, eschewing the shirt-sleeved, note-free, podium-pacing informality that had won him plaudits at earlier party conferences. Despite the IMF‘s warning that pressing on with planned budget cuts might further stifle growth, Cameron signaled his determination to continue with deficit reduction policies he believes essential to restore British competitiveness.

“The truth is this,” he intoned. “We are in a global race today and that means an hour of reckoning for countries like us.” more> http://tinyurl.com/9vkzdxq

Euro crisis: the twilight zone

English: Various Euro bills.

English: Various Euro bills. (Photo credit: Wikipedia)

Editorial – So now we know what €100bn buys you: five days. It’s taken less than a week for financial markets to pass judgment on Spain‘s bumper rescue package – and they’ve pronounced it a failure.

Euroland has finally entered the twilight zone: an extraordinary, frightening situation has been visited upon ordinary folk in 17 countries, who now await a dreadfully macabre twist. This judgment can be defended in two ways. First, Spain is now paying over 7% for a 10-year loan – the interest-rate level reached by Greece, Ireland and Portugal at which they were each forced to seek a lifeline from the IMF and Europe.

The next big turn in the eurozone saga is not far away. Greece holds another general election this weekend, and whichever party or coalition emerges from it will be forced to demand a relaxation of its austerity program. more> http://tinyurl.com/7jedpwx

Why the Euro Zone Could Unravel Shockingly Fast

By Michael Sivy – Political and financial leaders acknowledge the challenges facing the euro zone. But they continue to insist that solutions will be found to keep the system working.

The trouble is that such schemes to muddle through are no longer adequate. Debt continues to compound for the financially weakest European countries, and sooner or later it will become unsupportable.

An alternative explanation for the E.U. is that powerful elites created the drive for unification to further their own interests, irrespective of the consequences for the citizens of the individual European states. These elites include not just the overpaid bureaucrats and functionaries swanning around Brussels and Strasbourg but also multinational corporations and international bankers who profit from increased trade. Like the U.S. lending money to third-world countries to buy American fighter aircraft, the Germans were basically lending money to Southern Europeans to buy very fine washing machines and coffeemakers. more> http://tinyurl.com/cs72rjf