Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

IMF Make or Break Time

Politics / Global Financial System May 31, 2011 - 02:32 AM GMT

By: Andrew_McKillop

Politics

Best Financial Markets Analysis ArticleThe IMF's real goal, today, has mutated from supplying rapid aid to countries in balance of payments crisis (BOP crises) and more vague official goals for stabilizing exchange rates, aiding the growth of world trade, fighting poverty and newer elite fear themes, most recently global warming until its sudden fall from grace, after the disastrous and embarrassing Copenhagen "summit" of Dec 2009. Since the collapse of global warming as the underlying theme for generating new underlying financial assets, tied to emissions credits and carbon finance and thought able to generate at least one $ 100-billion-plus new funding vehicle for the IMF, it has shifted to its last and probably make or break role.


This is to initiate, organize and manage the end of the US dollar, euro and yen (and any other world moneys that could or might be included) in a world shift to a new single world reserve money.

To be sure this is a nice way to get rid of, or heavily dilute unpayable debt, but how can this be done without destroying the global economy through hyperinflation or deflation ?

More important is why this has to be done, and the two-word answer is sovereign debt. This especially concerns the OECD countries, from the G8 group including the US, trade surplus but national debt strangled Japan, ditto Germany, the UK, Italy and France, and almost any other OECD European country. Their debt has spiralled since end-2008, due mainly to national bailouts of their commercial or "high street" banks, major insurance and mortgage financing companies, even carmaking and airline companies at the supposed height of the crisis in 2008-09. In particular their private bank sector faces near-insolvency and the need for recurring or even "structural" cheap financing, loans, tax credits and other long-term government support. If not, their CEOs have many times warned, or threatened, they will roll down the shutters and place the key under the mat.

To be sure, simple and across-the-board nationalization of these failed private capitalist entities would be hailed as the North Korean solution, but a little closer to reality could be a Chinese communist solution, where the bank sector strictly does what it is told to. Critics of Chinese economics can compare China's foreign exchange reserves, with the debts and deficits of leading light late capitalist economies like the USA, European countries, or Japan.

BUY OR SELL GOLD ?

Central banker economics is a unique mutant hybrid version of Austrian and Keynesian one-liner slogans, kneejerk urges and wrong turns. Like any hybrid car, its gasoline-engine is complex and underpowered, and the electric-motor's fantastic priced battery will surely run dry at the wrong moment. Translated to central banking action on bullion markets the golden rule is simple: buy gold when the gold price is rising; sell gold when the gold price is falling. The sure loser non-candidate for IMF leadership following Strauss-Kahn's exciting and sudden disappearance, 'Goldfinger' Gordon Brown, is well known for unloading about a half of UK gold reserves at the absolute bottom of the gold market, in 1999-2000.

The economics can be put this way: Goldfinger Brown sold UK gold at a price around $ 250 per troy ounce; when rather than if the Bank of England buys gold at present prices, or is loaned gold at present prices, it will be at about $ 1550 per troy ounce.

The politics and policy of central bank gold buying and selling underlines a huge difference between the two parts of this hybrid doctrine. Under today's current circumstances any central bank that inevitably in secret sells, swaps, lends or leases its gold is not doing it because it likes the idea. Gold is the one asset that rises above the tangled web of counterparty and systemic risk. If a central bank is pawning its gold, it is because the pawner is running out of choices or even has been forced to put its gold on hock, by its political overlords and bond traders.

In theory, only in theory the IMF is the central bankers' gold pawnshop but the scale of the challenge is outsized. The intensity of the sovereign debt crisis and the strange inability of political deciders to solve the crisis, or their predictable ability to intensify this crisis, has resulted in the IMF needing more resources than ever remotely conceived of in its strange 67-year history. The IMF is totally under-sized producing more than about one-half of the one-year financial bail outs for countries the size of Ireland, Greece or Portugal, Latvia, Iceland or Hungary. How can it launch a new world reserve money ?

The answer is in fact gold, not because it is possible or even credible, but because neither Austrian, Keynesian or Reagan-omics has an answer. In Thatcher economics talk, there is no alternative.

This no alternative is a mortal challenge for the old-style IMF, which we can date at the period from its foundation and first gold endowment in 1944-48, to the start of the subprime and sovereign debt crisis in 2007-2008, mutating from 2009 into a permanent First World crisis. Since at latest 2008, the IMF has had no alternative, itself, to launch ever more risky, crisis-driven reactions and responses, wrongly called "initiatives".

At the base, the problem is the size and credibility of IMF resources. Its published current gold reserves of all types (involved in swap or other operations, or freely disposable) are around 2800 tons ranking it third after the US and German in official reserves - but this has a market value in May 2011 of no more than about $ 145 billion. Present and near-term future SDR creation and allocation are to be sure subject to rapid increase and change, and almost any figure from around the equivalent of $300 bn to the region of $ 500 bn - $ 1 trillion can be used by the IMF and its supporters for fantasy scenario building. Whatever the big number however, it pales into insignificance relative to the stunning size and growth of national debts and government spending deficits in almost any OECD country.

SDRs are only useful, behind closed doors inside the IMF, for bartering against gold which after being mobilized by this horse-trade can then be sold, and the proceeds used to bail out debt-strapped borrowing countries, inevitably also imposing austerity and adjustment programs to increase social misery, privatize state assets, and make them available to predatory corporations at firesale prices. Economic stagnation and decline is the natural result, reducing tax revenues to the borrowing government, and creating an outlook no different at all from the Third World debt crisis of the 1980s and 1990s - transferred north with its political spinoff of the Flash Mob revolt, Arab spring-style.

REAL RESOURCES: WHO PAYS ?

The IMF's ability to print and allocate more Special Drawing Rights was a near-constant theme of Strauss-Kahn's "socialist flavored" leadership, but on the ground in debt-strangled countries it is real resources that are badly needed. Generating, or in IMF-talk mobilizing these resources always has a gold handle, usually well hidden in the paperwork footnotes details, far from prying eyes.

The IMF, most recently under Strauss-Kahn urged that willing governments utilize a modest portion of their existing SDR allocations inside the IMF to capitalize so-called third-party financing entities. Where or when the SDRs are not available, gold can fill its place. Strauss-Kahn the economics teacher turned politician argued for selling gold. The long-term implication of that strategy is very simple and almost described outright in footnotes to IMF publications in the public domain. A general wind-down of world central bank gold reserves - supposedly resulting in and being signalled by ever falling gold prices - would create a no alternative situation in which the forced introduction of a new single world reserve currency became inevitable.

Without real resources of any credible kind, except gold and not enough of it, the forced new money would be much worse than a farce: it would be a disaster.

This mega project needs to create some highly-credible monetary unit able to replace current world M1 money in circulation, equivalent to at least $ 50 000 billion. The alternative is compress the new M1 to fit the gold available for backing it. The no pain new money issued with the same abundance as current M1 would need relatively calculable, but totally impossible amounts of gold sales, if a gold-backed new reserve currency was seriously wanted. The conclusion is simple: this is a smokescreen and a threat to the world's few creditor countries.

This is the Catch-22 of the IMF. The strategy planning rooms of the IMF and World Bank, the US Treasury, the Fed, the ECB, Bank of Japan and other large players must have other plans, even more secret, but they will always hit the rock of securing the money.   At present and more likely, the IMF most likely has much more real and modest goals. Debts in fragile moneys like the US dollar, European euro and Japanese yen need to be heavily diluted. The world's small number of creditor and trade surplus countries have to foot the bill. The conflict lines are market in solid steel.

When this real world, real economy conflict exits from the ultra-discreet talkfests in the corridors of G8 and G20 conferences, the results could be dramatic. To be sure and in the short-term, the results will be directly measurable by gold prices and cross-currency rates. Quite soon after, if this 2011-version of the Crash of 79 continues with no agreed solution between the hyper debt axis of the US, Europe and Japan, and the creditor countries (China, other BRICs, Gulf petro-states), global trade disputes can only rekindle, as global mercantilism becomes a headline theme in a sharpened global balance of payments crisis, bringing us back to the founding rationale of the IMF: solve BOP crises. The problem is these were thought of as transient, small and manageable, none of which apply to a future and global BOP crisis which could result from the IMF continuing to play the Strauss-Kahn game.

Real resources are needed, and as Keynes did not say, you can't eat gold. His Bancor "real money" unit could resurface, in a food-energy-minerals real resource unit, managed by serious and credible central bankers - obviously not European, American or Japanese.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2011 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in