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Demeter

(85,373 posts)
96. So, Why Has the IMF Asked for $500 Billion That it Probably Won’t Get?
Thu Jan 19, 2012, 07:01 PM
Jan 2012
http://www.nakedcapitalism.com/2012/01/so-why-has-the-imf-asked-for-500-billion-that-it-probably-wont-get.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

An odd development today was that Christine Lagarde, the head of the IMF, put forward the idea of having members pony up $500 billion for rescue loans, since the agency said it foresees demand of $1 trillion over the next two years and it has only $387 billion uncommitted. It goes without saying that the most of the anticipated need is in Europe...There are two puzzling aspects of this story. One is that the IMF got a serious and predictable smackdown from the US, since any funding would be a fiscal outlay, which requires Congressional approval, which is just not happening with Washington embracing the new religion of deficit reduction. Even though Eurobanks are really big lenders in the US (they are the providers of cheap corporate loans) and they did get really sick from eating toxic US mortgage instruments, the message from the Administration was tart. Per the Financial Times:

“The IMF cannot substitute for a robust euro area firewall,” the US Treasury said in a statement. “We have told our international partners that we have no intention to seek additional resources for the IMF.”


The UK wasn’t too keen either.

Since the objective was presumably to get some funds into Europe, that means the logical suspects are emerging economies. India and Brazil made positive noises, but advanced economies are cool on getting funding from China and the feeling is likely mutual. While some observers have suggested that China could simply recycle the annual amount it uses to maintain its currency-weighted peg (last estimate I saw was 70 billion euros, but growth and exchange rates have changed since then), the big stumbling block is that China wants concessions in return for its largesse. In addition, the Chinese want politically desirable but unrealistic assurances that its foreign currency holdings won’t depreciate. Since China has said it plans to liberalize its peg, it is guaranteed losses on the currencies it is buying to manipulate its currency level...And that’s even assuming the Chinese would play ball. They turned down a direct appeal by Sarkozy to invest in the EFSF. Why would China go through an international organization where it is chafing at its level of votes it has when it has the option of dealing directly?

All of the elements of this equation were known in advance. None of these reactions is a surprise. So why did Lagarde announce a measure that was likely to land like a lead balloon?

Let’s consider the second puzzling part: Mr. Market is currently in a good mood because the ECB has been pretty aggressively lending to banks via its three year LTRO, and the banks can use the proceeds to buy government debt. So while the ECB can’t lend to eurozone states directly, it can launder the loans through banks. And at least some readers of this blog have taken to arguing (effectively) that the ECB will act just as the Fed did in the 2007-2008 crisis, it will do what it takes to save the system, in particular, monetize debt...But if this were true, the IMF would NOT need to fund bailouts in the eurozone. The ECB has the capacity on its own. So Lagarde’s move would seem to say that the IMF does not think the ECB will go the distance, and the IMF will need to step up in a meaningful way. This is consistent with the take of some of my German-press-reading correspondents. Their interpretation of various official remarks is that while the ECB is clearly willing to do more than in the past, it is not willing to balloon its balance sheet to the degree the Fed did....So Lagarde’s request may indeed be a tacit admission that the IMF knows that the ECB won’t go the distance, as well a precaution, not just on a practical level (to try to have as much firepower as possible) but on the political (to say she did what she could when the IMF is the target of blame-mongering, which is what will happen if/when a crisis breaks loose).
Hello? Hello? Tansy_Gold Jan 2012 #1
Heya TG! Ruby the Liberal Jan 2012 #2
Hey! Tansy_Gold Jan 2012 #3
Keep it down, willya?!? Fuddnik Jan 2012 #4
If you're trying to watch CSI Tansy_Gold Jan 2012 #5
Just got in 5 minutes ago Demeter Jan 2012 #6
Send some of that warmth this way. n/t Po_d Mainiac Jan 2012 #41
$10 TRILLION Liquidity Injection Coming? Credit Suisse Hunkers Down Ahead Of The European Endgame Demeter Jan 2012 #7
Can someone explain this so ordinary folks know what's coming? Tansy_Gold Jan 2012 #8
I don't think anyone really knows, Tansy Demeter Jan 2012 #12
It doesn't look good from where I sit. Fuddnik Jan 2012 #17
Speaking of the skunk, I just meandered over to Automatic Earth and found this. Fuddnik Jan 2012 #18
Yeah. What would be the corresponding statistics for the States? The Skunk, you see, Ghost Dog Jan 2012 #19
Our town has a nice local restaurant DemReadingDU Jan 2012 #33
I am glad you are doing better...... AnneD Jan 2012 #71
Well, ZH has a tendency to go way over the top, on occasion. The 'soundbite' is based on Ghost Dog Jan 2012 #20
I don't really "understand" any of it, Tansy - but I don't think it matters bread_and_roses Jan 2012 #62
Not as far back as our reptile brains. Just a hundred and fifty years of Western social progress, Ghost Dog Jan 2012 #65
Think March 1930 to March 1933 happyslug Jan 2012 #101
IMF seeks $600 billion more in funds; G20 to discuss Demeter Jan 2012 #10
WHERE IN THE HOLY FUCK Tansy_Gold Jan 2012 #11
Well, now, that's the 10 Trillion Euro question, isn't it? Demeter Jan 2012 #13
Then I'm going to bed. Tansy_Gold Jan 2012 #16
I think that 10T is digitally printed for the banksters DemReadingDU Jan 2012 #23
YESTERDAY'S MARKET MIRACLE: U.S. stocks rise on Goldman Sachs results Demeter Jan 2012 #9
Your Onion Horrorscope Demeter Jan 2012 #14
Federal Authorities Charge 7 In Insider Trading Case Demeter Jan 2012 #15
Billionaire donates for Washington Monument repairs Demeter Jan 2012 #21
A perfect phalllic symbol representing how Carlyle has screwed America... rfranklin Jan 2012 #55
WALLY JOINS THE 1% THROUGH "HARD(LY) WORK" Demeter Jan 2012 #22
Fears rise over Commerzbank and MPS Demeter Jan 2012 #24
Greek bond talks edge closer to deal Demeter Jan 2012 #25
IMF requests $500bn for bail-out loans Demeter Jan 2012 #26
Tax brouhaha may not be boon for Obama team Demeter Jan 2012 #27
Private equity feels heat in political cauldron Demeter Jan 2012 #28
Poll Shows Obama’s Vulnerability With Swing Voters Demeter Jan 2012 #45
These voters may very likely stay home Tansy_Gold Jan 2012 #69
EU to take legal action against Hungary Demeter Jan 2012 #29
Warning on returns from MF Global UK Demeter Jan 2012 #30
Four banks set to bid for mortgage securities Demeter Jan 2012 #31
Obama turns down Keystone XL oil pipeline Demeter Jan 2012 #32
Oil demand falls for first time since 2009 Demeter Jan 2012 #34
Oil above $101 on hopes IMF to curb Europe crisis Demeter Jan 2012 #35
China’s new challenge is to be less frugal Demeter Jan 2012 #36
The A-List: Jeffrey Sachs - Self-interest, without morals, leads to capitalism’s self-destruction Demeter Jan 2012 #37
Self-interest - regulation = greed. Tansy_Gold Jan 2012 #38
Hedge Funds May Sue Greece if It Tries to Force Loss Demeter Jan 2012 #39
Greece’s game plan By Felix Salmon Demeter Jan 2012 #40
Eurocrisis is a Global Crisis Demeter Jan 2012 #46
Münchau: We are fighting the wrong crisis Demeter Jan 2012 #47
Riiight. Ghost Dog Jan 2012 #59
IngSoc Newspeak. For 'Hedge' read 'Vulture', Alice says. Ghost Dog Jan 2012 #53
good morning -- i hope every one is fine -- sorry to hear, demeter, that xchrom Jan 2012 #42
Thanks. It is tiring and a trial Demeter Jan 2012 #44
here's to feeling better and to hopefully slowing down if only just a little xchrom Jan 2012 #48
Money Can Buy Happiness SCIENTIFIC AMERICAN Demeter Jan 2012 #43
Today's Reports Roland99 Jan 2012 #49
Housing starts Roland99 Jan 2012 #50
Employment stats Roland99 Jan 2012 #51
CPI Roland99 Jan 2012 #52
THANK YOU!!! Tansy_Gold Jan 2012 #60
you're welcome! Roland99 Jan 2012 #72
Jan. Philly Fed rises to less-than-forecast 7.3 (9.3 was forecast) Roland99 Jan 2012 #73
Karl Denninger: Another Icon Files Bankruptcy - Kodak DemReadingDU Jan 2012 #54
PRECIOUS-Gold climbs as rising risk appetite lifts euro xchrom Jan 2012 #66
Spanish treasury celebrates successful long-term debt auctions xchrom Jan 2012 #56
Life expectancy falls in Spain xchrom Jan 2012 #57
One factor here will be the decrease in immigration. Ghost Dog Jan 2012 #63
It's going to be interesting to follow the effects xchrom Jan 2012 #64
Facing a dystopian future xchrom Jan 2012 #58
Commerzbank Shortfall 'Bigger Than First Thought' xchrom Jan 2012 #61
Commerzbank Halfway to Plugging Capital Hole, Won’t Need Aid; Stock Soars Ghost Dog Jan 2012 #67
i don't get it either. nt xchrom Jan 2012 #68
New job rant. Hotler Jan 2012 #70
It's been the rare IT job that I've been up and running in the 1st week Roland99 Jan 2012 #74
As long as... AnneD Jan 2012 #75
Anne your right. Hotler Jan 2012 #78
Ditto what AnneD says, and furthermore Tansy_Gold Jan 2012 #77
Thank you. SMW, There is no place like home. n/t Hotler Jan 2012 #79
Cyberfriends are good! DemReadingDU Jan 2012 #82
Some Days I Actually Prefer SMW to Home Demeter Jan 2012 #90
Rant to your hearts content....... AnneD Jan 2012 #80
"the check clears the bank". Hotler Jan 2012 #88
It is the little things.... AnneD Jan 2012 #95
Banking Holidays and Panics..... AnneD Jan 2012 #76
Leadership? Fuddnik Jan 2012 #81
I bring you ... AnneD Jan 2012 #85
The last paragraph DemReadingDU Jan 2012 #83
After they take their "fees" out first. Fuddnik Jan 2012 #84
"asymmetric information deficit", such an elegant way of saying Ghost Dog Jan 2012 #86
Heeeeee! n/t Hotler Jan 2012 #89
Obama's "tax-policy", the new puppet-in-waiting and the collapsed UBS business model. Ghost Dog Jan 2012 #87
NOthing ever stops a Reight-Wing, Bankster Juggernaut Demeter Jan 2012 #91
Zombie Europe Demeter Jan 2012 #92
Zombie Larry Summers Could Reappear as Head of the World Bank Demeter Jan 2012 #93
Class Action Lawsuit Alleges JP Morgan Engaged in Systematic Document Fabrication to Move Mortgage Demeter Jan 2012 #94
Fabricated documents DemReadingDU Jan 2012 #100
So, Why Has the IMF Asked for $500 Billion That it Probably Won’t Get? Demeter Jan 2012 #96
Paul Davidson: What Makes Economists So Sure of Themselves, Anyway? Demeter Jan 2012 #97
David Tuckett: How Stories about Economic Fundamentals Drive Financial Markets Demeter Jan 2012 #98
That's It, Tansy. I'm Too Pooped to Post Demeter Jan 2012 #99
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