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Why Are The French So Determined To Run The Imf – And What Will It Cost You?

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Why are the french So Determined To Run The IMF – And What Will It Cost You?

http://economix.blog...-run-the-i-m-f/

Simon Johnson tells it like it is.

As the euro is a reserve currency — and a highly regarded one; for example, it remains strong relative to the dollar — the I.M.F. is now essentially lending euros to the euro zone through its various bailout programs.

Why does this make sense?

It doesn't – unless you understand that the goal of these various bailouts is to ensure that German and French taxpayers do not realize the full extent of their losses or the ways in which their banks have been completely mismanaged.

Take the most generous interpretation of IMF lending to Greece – it is like the U.S. Troubled Asset Relief Program, in the sense that there will be a great deal of outlay but all or most will be repaid in nominal terms.

Such lending could be made just as easily by other eurozone countries, either from current resources or by borrowing in the markets – for example, Germany has plenty of fiscal credibility and issues some of the lowest risk sovereign debt available. But even if the money lent to Greece in this fashion were all paid back, this would look bad – to German voters (and to French voters, as France would have to lend also).

Such loans are much more risky than commonly supposed. The IMF does eventually get its money back nominally, but not always in real terms (adjusted for inflation) and definitely not on a risk-adjusted basis (i.e., the interest rate charged does not include proper compensation for the risks being taken). There is a very real possibility that some or all of the monies lent will not be paid back in the foreseeable future.

The International Monetary Fund is, in this regard, essentially a credit union owned by 187 countries – with voting based on ownership shares that reflect relative economic size. The European Union "owns" about 30 percent of IMF, so 70 percent of any money at risk belongs to other countries: about 17 percent US, 7 percent Japan, 35 percent emerging markets, plus some more mixed sets of countries.

The managing director of the IMF is the impresario of any bailout. The big decisions must be negotiated with all significant stakeholders but this still leaves enormous scope for discretion.

If Ms. Lagarde becomes managing director she can directly influence the terms of IMF involvement – and based on her negotiating position to date within the eurozone, we can presume she will lean towards more money, easier terms, and above all no losses for the banks that made foolish loans.

Increasingly it looks like the eurozone leadership, under French guidance, will go for the Full Bailout option, in which all Greek debt is bought up by the IMF, by the European Central Bank, and by other eurozone entities. This debt will be held to maturity – and any creditor who did not yet sell will be made whole (those who already sold at a loss are out of luck).

This course of action will be expensive, in terms of nominal outlays and in real risk-adjusted terms, because whatever terms Greece gets must also be offered to Ireland and Portugal. The IMF may need to raise more capital or – more likely – tap its credit lines from member governments.

To be clear, the Full Bailout is still painful for the debtor countries – their fiscal adjustments will involve spending cuts, tax increases and asset sales. But the motivation is not generosity.

The Europeans greatly fear their own "Lehman moment" – in which any attempt to impose even moderate losses on creditors will cause chaos throughout the financial system. The French and Germans fought hard against increasing capital requirements under Basel III and the results of various European banking "stress tests" have been completely noncredible – particularly as they did not take into account serious sovereign debt default scenarios.

The French want to sway decision-making at the IMF in order to use US, Japanese, and poorer countries' money to conceal from their own electorate that the eurozone structure has led all its members into serious fiscal jeopardy – some borrowed heavily, while others let their banks lend irresponsibly and thus created a large contingent liability.

The best way to hide the true cost is to have other people's taxpayers foot the bill, preferably with the least possible transparency. There is a lot at stake for eurozone politicians. Ms. Lagarde will run the IMF.

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Interesting article.

So the WHOLE of the European Union control only 30% of the IMF while one single country (USA) has 17% control. So much for the IMF being a fair and balanced organization.

As a side note: I remember reading an article in a San Francisco paper back in 1999. It was about how Bill Clinton was key in ensuring the UK didn't join the euro. Apparently the "special relationship" with Tony Blair extended to many areas. I suppose the US realized (before the euro even came into existence) that if Britain joined it would be the death knell of the USD.

I have to say for all this yelling about the demise of the euro, one does wonder if the USD and/or the GBP may not implode first. Considering the German economy could eat the British economy for lunch, I wouldn't count against the euro.

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Interesting article.

So the WHOLE of the European Union control only 30% of the IMF while one single country (USA) has 17% control. So much for the IMF being a fair and balanced organization.

The whole EU is roughly equivalent to the US in economic size though, so given "with voting based on ownership shares that reflect relative economic size" it seems to me that the US is being screwed not the EU.

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Interesting article.

So the WHOLE of the European Union control only 30% of the IMF while one single country (USA) has 17% control. So much for the IMF being a fair and balanced organization.

As a side note: I remember reading an article in a San Francisco paper back in 1999. It was about how Bill Clinton was key in ensuring the UK didn't join the euro. Apparently the "special relationship" with Tony Blair extended to many areas. I suppose the US realized (before the euro even came into existence) that if Britain joined it would be the death knell of the USD.

I have to say for all this yelling about the demise of the euro, one does wonder if the USD and/or the GBP may not implode first. Considering the German economy could eat the British economy for lunch, I wouldn't count against the euro.

The UK did not join the Euro because of the political/personal warfare between Brown and Blair. Blair wanted to join as he saw it as a stepping stone to becoming President of Europe and Brown disliked him so much he just blocked anything that Blair wanted.

When you look at the Eurozone you need to look at it as a whole and not individual countries. So yes Germany is doing well but this is like saying the south east and London are doing well and forgetting all the other parts of the UK that are struggling.

The question is can the successful German economy support all of the south med failed states, then there is the fact that all of the East European countries want lots of EU money and Romania and Bulgaria and Hungary are not going to be successful economies for a very long time. Govt debt in the EU as a whole is already in excess of 80% of Eurozone GDP, Germany can not fund that level of debt and that debt is still growing at 8% of Eurozone GDP even today. Despite Germany's success the Eurozone as a whole is in as much trouble as the UK and the US. The only benefit that successful individual countries have is that they can leave whereas the US and the UK can not just disown our own unproductive regions.

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The UK did not join the Euro because of the political/personal warfare between Brown and Blair. Blair wanted to join as he saw it as a stepping stone to becoming President of Europe and Brown disliked him so much he just blocked anything that Blair wanted.

When you look at the Eurozone you need to look at it as a whole and not individual countries. So yes Germany is doing well but this is like saying the south east and London are doing well and forgetting all the other parts of the UK that are struggling.

The question is can the successful German economy support all of the south med failed states, then there is the fact that all of the East European countries want lots of EU money and Romania and Bulgaria and Hungary are not going to be successful economies for a very long time. Govt debt in the EU as a whole is already in excess of 80% of Eurozone GDP, Germany can not fund that level of debt and that debt is still growing at 8% of Eurozone GDP even today. Despite Germany's success the Eurozone as a whole is in as much trouble as the UK and the US. The only benefit that successful individual countries have is that they can leave whereas the US and the UK can not just disown our own unproductive regions.

Thanks for the intelligent response ralphmalph (a Happy Days fan, by any chance?).

I still think with all its problems, the EU is in a better state than the USA. Like I have written elsewhere, the USA has FAR more debt than the whole of the EU combined. Yet they still manage to keep their AAA rating- odd?

I think the US is just months away from total collapse. I know the ripple effect for the rest of the world may be large, or will it?

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Thanks for the intelligent response ralphmalph (a Happy Days fan, by any chance?).

I still think with all its problems, the EU is in a better state than the USA. Like I have written elsewhere, the USA has FAR more debt than the whole of the EU combined. Yet they still manage to keep their AAA rating- odd?

I think the US is just months away from total collapse. I know the ripple effect for the rest of the world may be large, or will it?

Not really today the US has 14.3 trillion USD debt and Eurozone has 13trillion USD. US debt to GDP is 75% and Eurozone is 80%. The US debt is growing faster though.

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The whole EU is roughly equivalent to the US in economic size though, so given "with voting based on ownership shares that reflect relative economic size" it seems to me that the US is being screwed not the EU.

Would agree with this. Alternatively, US population is 315 million or so, EU is approx 500 miilion, so US with 17% of vote and EU with 30% seems unfair. Factor in rest of world of course and it becomes completely warped.

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Not really today the US has 14.3 trillion USD debt and Eurozone has 13trillion USD. US debt to GDP is 75% and Eurozone is 80%. The US debt is growing faster though.

So no major safe port in the world of fiat then, oh dear.

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Thanks for the intelligent response ralphmalph (a Happy Days fan, by any chance?).

I still think with all its problems, the EU is in a better state than the USA. Like I have written elsewhere, the USA has FAR more debt than the whole of the EU combined. Yet they still manage to keep their AAA rating- odd?

I think the US is just months away from total collapse. I know the ripple effect for the rest of the world may be large, or will it?

:lol:

I see you have followed the Guardians lead and are now using satire to make your point.

Classic.

:)

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Comparisons between the US and the EU are meaningless

As are comparisons between the US and India and China.

The EU, China and India are the brink of decades of political and social turmoil which will cause massive disruption to economic development.

The US on the other hand is on the verge of realising that the 'European model' is bankrupt

and when it returns to its roots of freedom and free enterprise it will emerge from this depression stronger than ever

:blink:

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Comparisons between the US and the EU are meaningless

As are comparisons between the US and India and China.

The EU, China and India are the brink of decades of political and social turmoil which will cause massive disruption to economic development.

The US on the other hand is on the verge of realising that the 'European model' is bankrupt

and when it returns to its roots of freedom and free enterprise it will emerge from this depression stronger than ever

:blink:

That's what I'm hoping for, but it ain't happening until they prosecute the bankers.

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Comparisons between the US and the EU are meaningless

As are comparisons between the US and India and China.

The EU, China and India are the brink of decades of political and social turmoil which will cause massive disruption to economic development.

The US on the other hand is on the verge of realising that the 'European model' is bankrupt

and when it returns to its roots of freedom and free enterprise it will emerge from this depression stronger than ever

LOL @ "returns to its roots of freedom and free enterprise"

More likely to have suspension of civil rights.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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