Posted on 05/15/2009 9:28:06 AM PDT by victoryrepublicans
By Robert Romano
As ALG News recently warned, helicopter money is about to be dumped onto the global economy. In fact, and unless the American people can focus their efforts to opposing it, the U.S. will squander yet another hundred billion dollars in foreign aid to help an international institution create a worldwide reserve currency, burying the U.S. dollar once and for all.
Last month at the G-20 summit, Barack Obama pledged a $100 billion line of credit to the International Monetary Fund (IMF) as part of a $550 billion global effort to bolster the international bank. The summit was preceded by both Russia and China proposing replacing the dollar as the world’s reserve currency, as reported by Reuters. The G-20 then approved a new $250 billion general allocation of Special Drawing Rights (SDR’s)—the bank’s reserve asset.
Now, the IMF bank, which doles out money to developing countries, just needs the U.S. to come through on its pledge of monetary support. Barack Obama stated in his letter to Congress, “We committed to this expansion, and other countries are looking the United States to deliver on our commitment.”
The $100 billion line of credit itself would be “the SDR equivalent of $100 billion on the date of the agreement.” Currently the U.S. has a $10 billion line of credit to the IMF worth SDR 6.6 billion. If invoked, the $100 billion line of credit would be worth SDR 75.0 billion. Additionally, the provisions would authorize the sale of 13 million ounces gold from the IMF—worth about $11.9 billion.
The proposal would also increase the U.S. share in the IMF by SDR 4.97 billion at a cost of $8 billion “in order to maintain its current voting share and veto power within the organization… Because the Fund’s overall quota resources would be expanded to facilitate the realignment of country weights, an increase in the U.S. nominal quota is necessary to keep the U.S. voting share constant at 16.7 percent of total voting power in the Fund…” This comes as the other contributors to the fund—like Japan, Britain, France, and China, amongst others—are increasing their shares.
Unsurprisingly, Obama promised a global economic collapse should Congress not intervene. As he puts it in his letter, “Many of the developing countries that would benefit from the [$550 billion expansion of IMF lines of credit worldwide] are experiencing severe economic decline and a massive withdrawal of capital. Should the situation become worse, and should the IMF not be in a position to stem the crisis, currencies could collapse. The experience with the Asian financial crisis shows that such a massive failure would be a catalyst for steeper drops in U.S. growth, jobs, and exports.”
This amounts to giving the IMF hundreds of billions more dollars to dole out in international aid in a manner that may or may not be effective. It is obscene that in all that is pressing down on the American taxpayer that Barack Obama and Congress want this much money for foreign governments that cannot even manage their own finances. This, on top of the $12.8 trillion that the U.S. has already spent, lent, or committed through the Fed, AIG, Bear Stearns, TARP, “Stimulus,” the FDIC, etc., as reported by Bloomberg News.
The idea behind the IMF expansion is to increasingly anchor the currencies of developing economies with the SDR reserve currency. The head of China’s central bank, Zhou Xiaochuan, recently wrote that the “SDR has the features and potential to act as a super-sovereign reserve currency.”
However, since the SDR’s are in reality simply a fiat currency, they will only become valuable if value is assigned to it. And that is why the Chinese are buying bonds denominated in SDR’s. According to the vice governor of the People’s Bank of China, Hu Xiaolian, speaking on Sunday, “Our contributions to IMF's fund-raising will come in the form of an SDR bond… We are in discussions with the IMF.”
Through the increased purchase of SDR bonds, not only will the SDR’s take on the features of a super-sovereign currency, it will eventually become one. And China, with the largest cash reserves on hand, will be the chief beneficiary as it stocks up and countries around the world choose to back up their own monetary systems with the new SDR’s.
To make matters worse, the U.S. actually does not have $100 billion to invest in the IMF. More Treasury bonds will have to be sold overseas—to places like China—and to the Fed to create the cash necessary to invest in the international bank as the line of credit is used up through the IMF. So, the U.S. would be borrowing money from the Chinese to invest in the IMF, which as noted would enable China to purchase more SDR bonds and gold from the IMF.
Incrementally, the expansion of the SDR’s will eventually supplant the dollar as the world’s reserve currency.
And then, once China stops purchasing U.S. treasuries and other bonds all together, the scales will have been tipped. Once and for all. If not countered, this could ultimately spark a complete collapse of the dollar and cause unbridled inflation here at home.
In other words, to shore up the global monetary system, the G-20 in a desperate move has all but proposed shifting the economic epicenter of the world from the West to the East.
And now Congress is making good on Obama’s pledge to make it so. The Senate Appropriations Committee voted yesterday on the $100 billion line of credit to the IMF yesterday by attaching it to a $91.3 billion supplemental spending bill to fund the wars in Iraq and Afghanistan. It now proceeds to the Senate floor for a full vote.
Senator Jim DeMint (R-SC) will be offering an amendment to remove from the supplemental both the $100 billion line of credit to the IMF and the $8 billion increase the nation’s SDR holdings. But it is unclear where the rest of the body stands on the issue and if anyone else will come to the dollar’s defense.
The House voted on their $97 billion version of the supplemental yesterday, but conveniently did not vote on the $100 billion IMF credit line. They’re waiting until it arrives from conference committee. With any luck, the American people might even get a roll call of the traitors who put the first shovelfuls of dirt on the dollar’s coffin.
Back in March, Treasury Secretary Timothy Geithner supported “[increasing] the use of the IMF’s special drawing rights,” but backtracked after the dollar started tanking, saying that the U.S. dollar should keep its place as the world’s reserve currency.
It’s time to be blunt. He did not really mean it. But for everyone else who does support the dollar—and that includes U.S. allies around the world that currently use the dollar as their reserve currency—it’s time to wake up.
The money helicopters are being fueled. And Barack Obama is paying dollars on the SDR’s for the gas.
Robert Romano is the Senior Editor of ALG News Bureau.
http://blog.getliberty.org/default.asp?Display=1211
Time to get the hell out of the dollar.
The only thing we export to those countries is foreign food aid, and billions of dollars of added national debt. We import rice, Bananna's and worthless trickets. ( in fact we import 74% of our food requirements from turd world countries as a way of stimulating (holding up) their economies)
Defend it with a balanced budget amendment. Government has proved it cannot borrow responsibly regardless of which half of the demopublicrat monopoly is in charge. Time to cut them off.
You should have sent as much usd's to your Canadian bank account and converted it when the canuk buck sank back down to 76 cents. Now it's 85 cents and rising fast. As China and other commodity dependent countries recover, Canada's buck goes higher because it's tied heavily to commodity markets.
I have no doubt that this time the canuck buck is going to hit 1.25 or even higher depending on how severe the US dollar drops, and we all know its only a matter of time before it does.
Oh yeah, Obama and the rest of those greedy Rats will rally to pass that bill.... NOT!
I was thinking tax revolt, everyone should withhold their taxes. They can't spend what they don't have.
No, it really isn't, but crap like this article is.
The IMF is lending money to governments hard hit by the global economic smash, which would otherwise be driven to default on their external debts. If they are instead driven to default on their external debts, it does not give their creditors - us - anything. It wrecks their credit and it writes off our loans to them, but we get nothing out of it whatever. The IMF instead lends them enough to stay current on their external debts - to us - through the smash period. This allows them to repay later what they cannot possibly repay today. And it keeps international trade flowing, which is to everyone's benefit.
Zero sum thinking in a smash makes for bigger smashes than ever and it as dumb as a bag of rocks. We tried that in the 1930s and we got poverty and world war out of it. It is stupid, we aren't going to do it again. The IMF exists because after WW II we knew better, and we still know better.
The article also routinely confuses US borrowing rights from the IMF and US loans to the IMF. All countries that are members of the fund have the authority to borrow from it up to certain quota limits. We never use ours but we still have one, under IMF rules. When the fund increases limits for all countries, our own limit on borrowings *from* the IMF - which again we never use - is increased alongside everyone else's, because it is a share formula out of a total sum pledged to the IMF by all members.
Increasing that unused credit line has no economic meaning whatever. It is a mere fairness in accounting thing. We are never going to draw our IMF loan authority, we have been a creditor to the IMF not a debtor to it forever and that isn't going to change.
Our loans *to* the IMF, on the other hand, are one of the sources from which is makes its loans to distressed countries. Japan is another major lender to the IMF and recently agreed to loan it another quarter of a trillion dollars. Along with other contributions from other developed states, this is being lent out as described above to e.g. Eastern Europe and third world countries who are seeing their economies drop 10% or more in the crisis.
You can't reduce the impact of a general credit crisis by restricting credit. It is stupid, it doesn't work, it is self defeated. Lend freely, that is the prescription for getting through such a crisis. We are doing the right thing, the course recommended by all sound economists from Friedman to Keynesians, in these circumstances. That know-nothing populists continue to attack these sensible policies is what is obscene. This isn't a partisan issue. These policies were followed by Bush as well and are the technocratic, correct approach. Those railing against them are cranks and economic patent medicine salesmen.
Telling Obama and company they must balance the budget in the middle of the worst recession in our lifetimes is (1) economic illiteracy (2) a prescription for permanently higher taxes and permanently larger government when that recession predictably ends.
The right is bankrupt that it can't see this and just forgot all the economics it ever knew, and instead reaches for simplistic populist know-nothing patent medicine, just because it thinks the man in the street can understand that. A right that thinks about economics that way will not govern and does not deserve to.
The right could be making the distinction between capital sums and current consumption; favoring support for the financial system as the former, with full repayment to the US treasury, while opposing increased domestic consumption spending. It could make the distinction between the necessary public good financial sector and discipline of returns on investment in industry - instead it attacks the banks in the name of a "little guy" (who is in fact the deadbeat who started the mess) then defends GM bondholders against auto workers.
You couldn't invent a more hamfisted and stupid position than the populist-mad right is presently taking. OK, yes you could, you could be a communist like the Dems. Why can't anyone here just understand economics as an intellectual discipline and actually follow its public-good oriented prescriptions and recommendations?
“You can’t reduce the impact of a general credit crisis by restricting credit. It is stupid, it doesn’t work, it is self defeated. Lend freely, that is the prescription for getting through such a crisis.”
If that is the correct approach, then Chrysler and GM would have been saved by government loans, instead of simply turned into de facto agencies. AIG would have been saved, instead of turned into a government insurance program. Fannie and Freddie would be companies, instead of nationalized. The banks would be allowed to pay back the TARP.
What makes anybody believe that a company, or a foreign government as in the above examples, once bankrupt and unable to make good on its loans will benefit from going deeper into debt.
The whole purpose of bankruptcy is primary restructuring. The U.S. is well in the red, too. Do we restructure and scale back? No. Do we trim back on extravagant government? No. Because that would mean wading through a politically unviable recession without handouts, kickbacks, and favors.
But not because to do so would cause an economic collapse. The collapse is already well under way. We could try to get out of the red for the first time in 50 years, and pay down the extraordinary debt, and strengthen our position. Or we can become a satellite debtor.
Debt is not stimulus. Using a credit card does with an unlimited balance does not enhance wealth. It enslaves.
The national debt has grown every single year since 1957. Soon we will get to the point that we cannot possibly pay the $11 trillion owed. We already know we can’t pay for $50+ trillion in unfunded liabilities for Social Security and Medicare and other entitlements.
If the crisis is caused by too much credit—that cannot be paid back—how is the solution yet more credit? At what point is there more debt than the capability to pay back?
Unless it’s all just pretend money. In which case perhaps we should try telling that to our creditors.
We don’t even have $100 billion to “lend” to the IMF.
“Why can’t anyone here just understand economics as an intellectual discipline and actually follow its public-good oriented prescriptions and recommendations?”
I think you mean central planning.
Permanently higher tax rates do far more damage than merely borrowing capital at treasury rates to lend it to banks at 5% on preferred stock at the bottom of a recession. The right pretending *that* is what is wrong with Obama or the left is world-historically stupid (again...) and gives them political cover for everything they want to spend, or cut (F-22 anyone), or every tax they want to increase. Obama raises the dividend and cap gains rates to 20 from 15 and the right is screaming that the budget must be balanced the same day.
No one here can play this game...
It is normal for the government to run deficits countercyclically and it is beneficial to all concerned. The government has better credit than corporations or households at the bottom of the cycle and it is therefore economically efficient for the borrowing that takes place to occur on its sheet instead of private sheets.
Lending countercyclically has worked every time it has been done back to the origins of capitalism, we have literally 300 years of experience of it working just fine, and there is nothing uncapitalist about a scrap of it. You can't make the government rich by impoverishing trading partners, companies, or the people. All it owns or ever will own is a share in their prosperity.
Supply side economics understood this, and understood that therefore the only important question about a policy is whether it furthers economic growth. If it does, it is a matter of supreme indifference whose sheet goes up or down at which time in the course of implementing it. The real wealth of the treasury is 20% of the future stream of income of the whole country, and raising that stream 1%, even, is worth hundreds of billions of dollars.
Meanwhile, do you know what actually happens to countries that just default instead and leave their creditors nothing? They don't rationalize and embrace free market everything. Oh and who do you think the creditors who gets screwed are, anyway? If you don't bail out eastern Europe you bail out of the banks. If you don't bail out the banks you bail out the depositors. If you don't bail out the depositors you get to pay welfare in the soup lines. It is all idiocy, you can't save money by wrecking things. Give up the idea, it is a simple fallacy, capital is not a zero sum game.
Your problem is you attack every sound position from Friedman, left, including Bush, Bernanke, Greespan, the Chamber of Commerce, the National Association of Manufacturers, all of them, as though they are all equal to communism. And why? Because free markets have their spasm of contraction and your ideology doesn't have room to acknowledge that patent historical reality, so ever time one hits you are left screaming that it must be communism.
This leaves you with nothing whatever to say, about the real differences between a Bernanke or Gingrich or Reagan policy-set, and Obama's, or Castro's. To you all of them aren't the Cato institute's so they might as well be Castro's. Which is just raving nonsense.
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