Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Silver Short-Term Trend Analysis - 26th June 19
Iran and the Dying Days Of the US Empire - 26th June 19
Why a Saturated Online Gaming Market Spells Good News for Gamblers - 26th June 19
Natural Gas Sets Up Bottom Pattern - 26th June 19
Has Gold Price Broken Out Or Not? Technicals And Fundamentals - 26th June 19
Stocks and XAU Gold Miners Next Bull and Bear Markets are Now Set Up - 26th June 19
Gold Price Trend Forcast to End September 2019 - Video - 25th June 19
Today’s Pets.com and NINJA Loan Economy - 25th June 19
Testing the Fed’s Narrative with the Fed’s Data: QT Edition - 25th June 19
What "Pro Traders" use to Find Profitable Trades - eBook - 25th June 19
GDX Gold Stocks ETF - 25th June 19
What Does Facebook’s LIBRA New Crytocurrency Really Offer? - 25th June 19
Why Bond Investors MUST Be Paying Attention to Puerto Rico - 25th June 19
The Next Great Depression in the Making - 25th June 19
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

The IMF’s Internal Audit Reveals Its Incompetence and Massive Rule Breaking

Politics / Global Financial System Aug 26, 2016 - 06:06 PM GMT

By: John_Mauldin

Politics

To understand the sordid tale of the IMF, we need to look back at Greece. We think of Greece as the epicenter of the eurozone debt crisis, but it had company.

As the Fed’s initial QE program pushed US stocks higher, Greece’s growing budget deficit led credit agencies to downgrade its sovereign debt rating in late 2009. So, the government cut spending… but not by enough.


Prime Minister George Papandreou formally asked for, and received, a bailout from a “Troika” consisting of the EU, ECB, and IMF.

It soon became clear that Greece's heavy debt load would require harsh measures. The question then became how to distribute the pain.

The IMF shouldn’t bail out Greece in the first place

A normal bankruptcy proceeding results in some kind of balanced plan. Creditors take a haircut while the debtor gives up assets and/or income.

In Greece’s case, the creditors were large European banks that were not predisposed to writing down their asset values. Through the EU and ECB, they pushed for Greece to cut spending and sell state-owned assets to raise cash.

The Greeks were not enthusiastic about austerity. The population wanted its benefits, and the oligarchs didn’t want to reform.

Europe didn’t want a banking crisis but also didn’t want to pony up enough money to really rescue Greece.

A long standoff ensued.

IMF rules say the organization is not supposed to make a loan unless the borrower has a reasonable prospect of repaying it. It has routinely demanded harsh conditions in exchange for aiding smaller African, Asian, and Latin American countries.

These conditions for getting the money all but guaranteed continued crisis in the countries that were subjected to them.

So why was the IMF reluctant to apply similar measures to Greece?

Fear of contagion led the IMF to break its own rules

Thanks to the IEO report (internal audit), we know that IMF officials sneaked a major rule change into the plan presented to the IMF board. It allowed an exemption from normal credit standards in cases where there was risk of systemic contagion.

I don’t doubt they were worried about contagion. Their action came on the heels of the Lehman Brothers bankruptcy and 2008–2009 financial crisis.

There was concern that anything done for Greece would set a precedent for far larger Spain and Italy. The markets knew that and were watching closely.

The fear that contagion would result if the IMF played by its usual rules was not irrational.

On the other hand, rules exist for a reason. Propping up banks that make bad loans is not part of the IMF’s remit. Nor is it the IMF’s mission to prop up governments that will not make reasonable economic reforms.

Arguably, the whole Greek affair was not the IMF’s business. Greece was a member of the European Union. The EU should have taken responsibility. The IMF should have offered nothing but advice and best wishes. But that’s not what happened.

More mistakes amid internal turmoil

Around this time, Christine Lagarde’s predecessor, Dominique Strauss-Kahn, was arrested in New York. He was charged with sexual assault of a hotel maid.

Whatever happened, it seems the IMF managing director had more than Greece on his mind. He stepped down in May 2011, and Lagarde took his place a few weeks later.

So in addition to being involved where it shouldn’t and breaking its own rules, the IMF was embroiled in internal turmoil while nations teetered on the edge.

The stress showed up in disastrously wrong growth forecasts used to justify the eurozone bailouts.

The thin black line that scrapes the bottom of the following chart is actual Greek GDP.

The other lines are forecasts the IMF made during periodic reviews. By the fifth review, they were closer to reality but were still tracking far above actual GDP.

The IMF wanted to set off a crisis to achieve its goals

It gets worse. It seems that as late as this year, IMF technocrats were actively plotting how to create another European crisis to further their goals.

In April, Wikileaks released the transcript of an IMF teleconference. The conversation occurred on March 19, 2016, and included the two IMF officials responsible for Greece, Paul Thomsen and Delia Velkouleskou.

Here’s the interesting part.

THOMSEN: What is going to bring it all to a decision point? In the past there has been only one time when the decision has been made and then that was when they were about to run out of money seriously and to default. Right?

VELCULESCU: Right!

THOMSEN: And possibly this is what is going to happen again. In that case, it drags on until July, and clearly the Europeans are not going to have any discussions for a month before the Brexit, and so, at some stage they will want to take a break and then they want to start again after the European referendum.

THOMSEN: But that is not an event. That is not going to cause them to… That discussion can go on for a long time. And they are just leading them down the road… why are they leading them down the road? Because they are not close to the event, whatever it is.

VELCULESCU: I agree that we need an event, but I don’t know what that will be.

The “event” they are wishing for is something that will put Greece in default and force Europe, particularly Germany, to agree to IMF demands.

They see the upcoming Brexit vote as an opportunity since Britain and others will be looking away from Greece. They also think the “event” will jar the Greek parliament into agreement.

We don’t know if the hoped-for event would have done the trick. The leak was just weeks before the Brexit vote.

At least, the IMF showed that it understood the situation. Their goal was to force Greek and EU negotiators into a compromise that had eluded everyone for years.

On the other hand, they were willing to set off a whole new crisis in order to accomplish this. In which case, they might have cured the disease but killed the patient. 

Join Hundreds of Thousands of Readers of John Mauldin’s Free Weekly Newsletter

Follow Mauldin as he uncovers the truth behind, and beyond, the financial headlines in his free publication, Thoughts from the Frontline. The publication explores developments overlooked by mainstream news and analyzes challenges and opportunities on the horizon.

John Mauldin Archive

© 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

6 Critical Money Making Rules