Been lots of talk around lately regarding the collapse of the US Dollar and what that would mean for the United States of America and the world. There has also been a lot of talk about the Federal Reserve Bank of the United States of America and how unhappy the people of the US are getting with this largely unknown organization.
These two forces are converging together in what could be a very serious and detrimental way as it relates to the average US citizen. This article will rely heavily on flawed analogies to help the lay person understand the inner workings of both the IMF and the Federal Reserve Bank. This is not to be taken as an academic piece and I would ask that it not be judged as such. This is meant to help those people that have recently woken up to the reality that their country has been hi-jacked and those that are desperate to get up to speed as quickly as possible. So let’s jump right into the thick of it shall we? First we need to start with what I hope are simple lessons so that you can take what I am about to teach you and apply it to the real world.
There is one thing that bankers and computer people love to do and that is to use big scary acronyms to scare off the simple folk. So here is your first lesson.
I.M.F. and the S.D.R.
So right off the bat we are using acronyms that mean absolutely NOTHING to the lay person and yet that is an actual sentence believe it or not… IMF stands for the International Monetary Fund. The SDR is short for Special Drawing Rights and is the currency of the IMF. The International Monetary Fund is a private bank that is used to help sovereign nations engage in international commerce. Just like if you owned a company and you used bank A, and your supplier used Bank B, the IMF would be the bank that both banks A and B used to transfer payments and credits back and forth to each other. To Company A and B (using Bank A and B) it would be seamless.
But the IMF does a whole lot more for the global economy. They are the creditor of last resort for a lot of countries. For if you want to engage in international commerce in the free world (meaning the world now) you must be a part of the IMF system. Should a country that is part of this system become over leveraged because of mismanagement and debt accumulation, the IMF stands ready to come to the rescue. To understand how this relationship has worked in the past (and the present); I MUST go into some history. I will keep it brief I promise.
To understand how the global monetary/commercial world works you have to go back to the end of World War II. Following the war the United States was alone as a major industrial power. The rest of the industrial countries were in shambles. The United States was also nearly alone as a producer of oil. It is this later point that needs to be highlighted.
The United States used its vast oil reserves and coupled it with a highly trained industrial labor force and put it to work in its vast expanse of industrial capacity to re-build the rest of the world. It is this fact that is at the very center of our current monetary system some 60 years later. So I will start with my first analogy…
The US Corp could be seen as a huge company like General Motors. Following WWII US Corp was the only company left with the capacity to make things and it had the working capital and energy to do what it wanted. US Corp went out into the world and started to acquire other businesses. First was Japan Corp which US Corp had beaten into a pulp during the war. US Corp decided that it was in its own best interest to build Japan Corp back up but it needed to make sure that it never again could threaten US Corp the way it did in WWII. Japan Corp used its own currency called the YEN and US Corp obviously used the Dollar. So to make this all work, US Corp had to make sure that the workers at Japan Corp didn’t feel like the last of their country was being taken from them. To keep them vested in the viability of their own country it was very important to let them keep their own currency and their own political structure, albeit greatly modified under the surface. We allowed Japan Corp to keep their figurehead CEO (the Emperor) and we installed a new board of directors (Democratic institutions). We linked the Bank of Japan to US Corp’s bank the Federal Reserve Bank through a new institution called the International Monetary Fund and the World Bank.
~Don’t let this deceive you, as the markets will be happy~jude
EUROPEAN leaders secured a deal to reduce Greece’s debt after labouring deep into today to find agreement on what they had billed as a blockbuster package aimed at stemming the continent’s debt crisis.
French President Nicolas Sarkozy said after the marathon negotiating session the leaders had reached agreement with private banks on a “voluntary” 50 per cent reduction of Greece’s debt in the hands of private investors.
He also said they had agreed to expand the firepower of the European Financial Stability Facility, the eurozone’s bailout vehicle, four-or-five-fold — suggesting it could provide guarantees for €800 billion to €1.3 trillion of bonds issued by countries like Spain and Italy.
The leaders agreed on a plan that would boost the capital buffers of the stragglers among the continent’s 70 biggest banks by €106bn — though they didn’t say where the money would come from.
As the leaders went into the meeting, deep divisions had remained between eurozone governments and private banks over how much to cut the government debt of Greece, the country at the heart of the crisis. Without a final deal on Greece — in particular on how deep the losses holders of Greek government bonds are expected to suffer — it would have been impossible to say how big the expanded firepower of the bailout fund could be.
The Vatican on Monday called for an overhaul of the world’s financial systems, calling for the establishment of an international political authority that would possess broad powers to regulate financial markets, saying it is necessary in order to create an economic system that promotes democratic and ethical principles in a globalized world.
In a report issued by the Pontifical Council for Justice and Peace titled ”Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority,” the Catholic Church states that existing institutions such as The International Monetary Fund has not effectively responded to global economic problems that has led to wide differences in economic equality between rich and poor nations. Moreover, the Vatican argues that, for Christians, “every individual and every community shares in and is responsible for promoting the common good,” and that politics, being “responsible for the common good,” will be necessary on a world-wide scale to achieve a global financial policy that works toward that purpose.
The report, which is organized into four sections that expand on the Church’s objectives, comes at a time when people across the planet have taken to the streets to protest against corporate greed and financial policies that have resulted in growing income equality in many nations, particularly in the United States. Pope Benedict XVI, according to the Vatican’s pronouncement, hopes the reflection can be used as a resource for world leaders and Catholics across the world toward “reforming the international and monetary systems in the context of global public authority.”
We are grateful to the Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost 40 years. It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But the world is more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries.
In this expanded edition of Chossudovsky’s international best-seller, the author outlines the contours of a New World Order which feeds on human poverty and the destruction of the environment, generates social apartheid, encourages racism and ethnic strife and undermines the rights of women. The result as his detailed examples from all parts of the world show so convincingly, is a globalization of poverty.
This book is a skillful combination of lucid explanation and cogently argued critique of the fundamental directions in which our world is moving financially and economically.
In this new enlarged edition – which includes ten new chapters and a new introduction – the author reviews the causes and consequences of famine in Sub-Saharan Africa, the dramatic meltdown of financial markets, the demise of State social programs and the devastation resulting from corporate downsizing and trade liberalisation.
“This concise, provocative book reveals the negative effects of imposed economic structural reform, privatization, deregulation and competition. It deserves to be read carefully and widely.”
- Choice, American Library Association (ALA)
“The current system, Chossudovsky argues, is one of capital creation through destruction. The author confronts head on the links between civil violence, social and environmental stress, with the modalities of market expansion.”
Barely a few weeks after the military coup in Chile on September 11, 1973, overthrowing the elected government of President Salvador Allende, the military Junta headed by General Augusto Pinochet ordered a hike in the price of bread from 11 to 40 escudos, a hefty overnight increase of 264%. This economic shock treatment had been designed by a group of economists called the “Chicago Boys”.
At the time of the military coup, I was teaching at the Institute of Economics of the Catholic University of Chile, which was a nest of Chicago trained economists, disciples of Milton Friedman. On that September 11, in the hours following the bombing of the Presidential Palace of La Moneda, the new military rulers imposed a 72-hour curfew. When the university reopened several days later, the “Chicago Boys” were rejoicing. Barely a week later, several of my colleagues at the Institute of Economics were appointed to key positions in the military government.
While food prices had skyrocketed, wages had been frozen to ensure “economic stability and stave off inflationary pressures.” From one day to the next, an entire country was precipitated into abysmal poverty: in less than a year the price of bread in Chile increased thirty-six times and eighty-five percent of the Chilean population had been driven below the poverty line.
These events affected me profoundly in my work as an economist. Through the tampering of prices, wages and interest rates, people’s lives had been destroyed; an entire national economy had been destabilized. I started to understand that macro-economic reform was neither “neutral” – as claimed by the academic mainstream – nor separate from the broader process of social and political transformation. In my earlier writings on the Chilean military Junta, I looked upon the so-called “free market” as a well
Business Insider’s Courtney Comstock has a great summary of former IMF chief economist Simon Johnson’s evisceration of the giant banks’ arguments regarding capital requirements:
[Johnson's] argument in a nutshell: bankers from the big 6 are outright lying so that they can continue to take on risk and keep their profitable trading operations running.
The issue: BASEL III regulations (originated in Switzerland, written by all of the world’s Central Banks) require banks to have a capital requirement of 7% of equity, which is high enough as far as banks are concerned, but not high enough as far as U.S. regulators are concerned. U.S. regulators want to tack on an extra 3%. (Or maybe just 2% to 2.5%, according to a rumor on CNBC last week.)
Bankers do not want capital requirements to be too high for many reasons, a couple of which are laid out by a banker who emailed us here, and 4 others which Reuters detailed last week:
“Holding capital hostage” will hurt the struggling economy because it will mean fewer loans at a time when lending is already depressed.
Establishing huge capital buffers is an admission by regulators that last year’s Dodd-Frank financial overhaul does not accomplish its goal of reducing risk.
If banks hold onto more capital and make fewer loans, borrowers will turn to the “shadow banking sector” – hedge funds, for example — which has little or no oversight.
Tough standards in the United States would create a competitive disadvantage vis à vis other countries.
All of these are wrong, according to Simon Johnson, who blasted each of them using the following arguments:
Capital requirements are a restriction on the liability side of the balance sheet — they have nothing to do with the asset side (in what you invest or to whom you lend).
During the Dodd-Frank debates last year, [everyone] said it would be a bad idea for Congress to legislate capital requirements and should leave them to be set by regulators after Basel III… Now the banks want to say that this is not his job as authorized by Dodd-Frank. This argument will impress only lawmakers looking for any excuse to help the big banks.
The “shadow banking sector” — hedge funds, for example — grew rapidly in large part because it was a popular way for very big banks to evade existing capital requirements before 2008, even though those standards were very low… It would be a disaster if this were to happen again.
[Just because your friend says it's a good idea to jump off a bridge...] If China, India or any other country wants to produce electricity using a technology that severely damages local health, why would the United States want to do the same?
As I’ve repeatedly noted, the government’s policies discourage lending to Main Street and the little guy.
And Comstock goes on to note:
Making all of this more interesting is an op-ed written by a regional bank CEO a couple of days ago. Right now, regional banks are subject to the same regulations as the big 6, but they are totally different beasts.
Bob Wilmers, M&T Bank CEO, writes that the Big 6 should be subject to stricter regulations like higher capital requirements because they trade so much, and it’s risky, but smaller banks, like his, should not be subject to such high capital requirements because they actually use the free capital on their balance sheets to lend to entrepreneurs, etc.
*Hang in there! Avoid the IMF like the plague. Try anything that worked historically before the IMF was created. That is the key.*
*Good to see countries breaking away from the foolish ideology of the IMF. Now hopefully the people will have equal input into the development. This could be a model for the USA and UK to follow.The fact that the IMF inhibits growth can be seen in the success of China.*
The crisis has shaken the European Union to its very foundations. Public debt is suffocating several countries that have been badly hit by the financial markets. With the governments currently in office, and the European Commission (EC), European Central Bank (ECB), and IMF all aiding and abetting, the financial institutions responsible for the crisis are making lots of money while speculating on government debt. Meanwhile, business owners are taking advantage of the situation to launch an offensive against the social and economic rights of the majority.
The reduction of public deficits must be brought about not through cuts in spending for social programs, but through an increase in tax revenue as a result of efficient measures against tax evasion, more taxation on capital, financial transactions, personal wealth, and higher incomes. To reduce public deficits, cuts should be made in arms spending, as well as other expenditures that are socially obnoxious and detrimental to the environment. It is by contrast essential to increase spending on social programs, if only to compensate for the consequences of the economic depression. Beyond this protective position, the current crisis should be seen as an opportunity to break away from the capitalist mindset and achieve a radical change in society. The new logic to be developed must turn away from productivism, take the environment into account, remove all forms of oppression (based on race, gender or other arbitrary criteria), and support universal access to common goods.
To achieve this goal we must build an anti-crisis front both locally and at the European level so as to bring together enough energy to create a balance of power that is favorable to the implementation of radical solutions focusing on social justice and concern for the environment. As early as August 2010, the CADTM drafted eight alternative proposals to the crisis in Europe. |1| The main point is the need to cancel the illegitimate part of the public debt. To this end, the CADTM recommends setting up an audit under citizen control, which should be combined, in some cases, with a unilateral and sovereign suspension of repayment. The aim of the audit is to cancel the illegitimate part of the public debt and to strongly reduce the remainder.
BOSTON (MarketWatch) — The International Monetary Fund has just dropped a bombshell, and nobody noticed.
For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China.
Shockwave Flash
IMF sees China topping U.S. in 2016
According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now. Brett Arends looks at the implications for the U.S. dollar and the Treasury market.
And it’s a lot closer than you may think.
According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.
Put that in your calendar.
It provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.
According to the IMF forecast, whomever is elected U.S. president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.
Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s.
China’s economy will be the world’s largest within five years or so.
But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates.
That’s a largely meaningless comparison in real terms. Exchange rates change quickly. And China’s exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets.
The comparison that really matters
The IMF in its analysis looks beyond exchange rates to the true, real terms picture of the economies using “purchasing power parities.” That compares what people earn and spend in real terms in their domestic economies.
Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and rising.
(Reuters) – The United States will hit the legal limit on its ability to borrow no later than May 16, Treasury Secretary Timothy Geithner said on Monday, ramping up pressure on Congress to act to avoid a debt default.
“The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations,” Geithner said in a letter to congressional leaders.
“Default by the United States is unthinkable.”
Previously, the Treasury had forecast that the $14.3 trillion statutory debt limit would be reached between April 15 and May 31. As of Friday, Treasury borrowing stood just $95 billion from the ceiling.
Some Republican lawmakers have sought to use the need to raise the debt limit as a lever to pressure the Obama administration into agreeing on large-scale budget cuts.
The debt-limit showdown comes as Congress struggles to complete a spending package that would keep the government operating beyond Friday.
Republicans are seeking to use that bill to enact deep spending cuts and lawmakers are focusing on a proposal to trim this year’s budget by $33 billion, a relatively small amount compared with a projected $1.4 trillion deficit.
Geithner said a failure to raise the debt ceiling in a timely way would push interest rates higher and spark “a financial crisis potentially more severe than the crisis from which we are only starting to recover.”
Both Geithner and Federal Reserve Chairman Ben Bernanke have said a failure to raise the ceiling could have “catastrophic consequences.”
Submitted by Robert Denner of Daily Economic Update
