IMF Role in Global Financial Crisis 2

The IMF is notorious for being wrong and wasteful. Scroll back to a few years ago and the IMF said the Global Financial Crisis would cost under $20 billion. Here we are in 2011 and Italy and Spain look set to join Greece, Ireland and Portugal in economic collapse.

The IMF multilateral facility was to stabilize the financial environment. This quickly increased to $50 billion and within a year the IMF announced that they were increasing the multilateral facility from its existing by tenfold to a stunning $500 billion (with SDR of$333.5 billion the SDR basket is 17% USD) to $550 billion. In 2011 this amount is clearly inadequate as fiat currencies threaten stability.

This looks like it has just become a perverted game of monopoly money. This can’t be real money you may ask. Bernanke printing presses in QE1 and QE2 have added to the Ponzi. So how deep is the Global financial crisis? The IMF is certainly preparing for financial Armageddon with these kinds of numbers in short-term funding needed in quick time.

“The expansion of the NAB will make an important contribution to global financial stability, but it is not a substitute for a general increase in the Fund’s quota resources. The Fund is, and shall remain, a quota-based institution. It is important now that member countries rapidly take the necessary steps to make the increased resources available.” Former IMF Chief Mr. Strauss-Kahn sounding very needy.

The multilateral facility increased to 39 member nations with 13 new members. No surprise that the nation with the biggest liability to NAB is, the United States of America with 20% of the total facility that is over $105 billion in total commitments. How are the banks going to cover this? Print money of course. This will pressure the US dollar because $85 billion new printed dollars will hit the market in this stealth quantitative easing.

^”The NAB is a standing set of credit arrangements under which participants commit resources to IMF lending when these are needed to supplement quota resources. The expanded NAB will become operational when it receives formal acceptances from the required proportion of current and potential participants, which will require legislative backing in some cases. (From the IMF Release)

The great French socialist, and current IMF chief Dominique Strauss-Khan described the increase by; "The expansion and enlargement of the NAB borrowing arrangements provides a very strong multilateral foundation for the Fund’s efforts in crisis prevention and resolution, as an essential back-stop to the Fund’s quota resources. This will help ensure that the Fund has access to adequate resources to help members that are vulnerable to financial crises."

If you couple this with exciting IMF resources this put the IMF battle fund at around $800 billion that is nearly a trillion dollars. How deep is the financial crisis and what does the IMF expect?

Each country pays a quota subscription to the IMF when it joins the IMF Fund. This is calculated by their relationship to the world economy. At this point in time the IMF members’ quotas total SDR 217.4 billion (about US$330 billion).

However the global financial crisis deemed this as not enough by the IMF. Thus the IMF added supplementary drawing rights to quota resources which is the NAB. The NAB is a credit arrangement between the IMF and a group of members and institutions to provide supplementary resources to the IMF. Both the quota and the NAB are reviewed regularly. When these are needed to forestall or cope with an impairment of the international monetary system. This was agreed upon by G-20 nations in 2009.

If you look back at Europe has Greece, America has California (and now Europe) and the Greece Crisis Communication you should not be surprised to discover that America’s allocation increased 10.4 times while the Bundesbank only allocation increased by 7.2 times. As anticipated the US is getting Greece on the hook, despite the EU location. What US taxpayers don’t realize is they are disproportionately bailing out Greece. This is in line with what we expected given Goldman Sachs and buddies role in the Greece cover up. Interestingly Japan has been hit up for 18.7 times.

Timing is everything; tomorrow Greece is slated to auction short term notes. So here we are back on the 'don’t let anyone fail train', and screw the US they need to take responsibility for this attitude. Given the rapid descent in the abyss one has to wonder where the system will be in a few years after this dramatic size up of NAB obligations.

Euro zone bond spreads to the riskier Europe basket countries need to be monitored. First we have Greece, than Portugal and then Spain catapulting into crisis. Not to despair Italy and Ireland are hanging around for good measure. This has many market pundits looking for a global coordinated devaluation.

Here is the piece de resistance Greece is contributing to the NAB, yes that is right! So let’s get this right is Greece bailing themselves out? This just gets more ridiculous by the day.

Now here is another classic, direct from the IMF website.

“This modernization is to be achieved in two key ways. First the IMF will rely more on pre-set qualification criteria (ex-ante conditionality) where appropriate rather than on traditional (ex post) conditionality as the basis for providing countries access to Fund resources. This principle is embodied in a new Flexible Credit Line. Second, implementation of structural policies in IMF-supported programs will from now on be monitored in the context of program reviews, rather than through the use of structural performance criteria, which will be discontinued in all Fund arrangements, including those with low-income countries. While structural reforms will continue to be integral to Fund-supported programs where needed,their monitoring will be done in a way that reduces stigma, as countries will no longer need formal waivers if they fail to meet a structural reform by a particular date.”

In plain English, if doesn’t work out don’t worry we wouldn’t want to give you a stigma about it all now would we. Like there is no stigma as the global financial crisis deepens as IMF adds $500 billion to NAB.