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Posts Tagged ‘IMF’
May 30th, 2012 at 1:08 pm
Greek Liberals’ Economic Recovery Plan: Lie to the Rest of Europe
Posted by Troy Senik Print

It’s almost hackneyed at this point to evoke Greece as a warning sign to the rest of the Western World; as a promise of what’s in store should the artificial decadence of the welfare state completely strangle individual initiative in developed nations. Yet there’s a reason that California on the Aegean is always the cautionary tale of choice: when it comes to outright political absurdity, the birthplace of democracy is constantly outdoing itself. The most recent example — which has to be read to believed — comes courtesy of James Angelos reporting in the Wall Street Journal:

Greece’s radical left party has upended the country’s politics with an idea as simple as it is seductive: Athens can renege on the deals it made in exchange for a bailout, and still remain in the euro.

Greece’s future, and possibly that of Europe’s monetary union, may depend on how many Greeks buy into the idea.

The Coalition of the Radical Left, known as Syriza, is competing with Greece’s conservative New Democracy to become the biggest party in Parliament in June 17 elections that could send further shock waves through Europe …

Syriza leader Alexis Tsipras, a 37-year-old former Communist youth activist, promises that despite its dire financial straits, Greece can halt austerity programs, restore social spending and nevertheless continue to receive the payments from the euro zone and the International Monetary Fund that keep it from bankruptcy.

The repeated warnings to the contrary from Europe and the IMF are simply efforts to blackmail Greece into doing what they want it to do, Mr. Tsipras says.

A few facts about Greece to consider in light of Mr. Tsipras’s demagoguery. This is a nation where public employees have no compunction about taking monthly paychecks 14 times a year (yes, you read that right: 14) and where tax evasion is so widespread that it’s estimated that 30 percent of the national economy is in the black market. And now the proposed solution from one of the nation’s two major political parties is to welch on a deal with the rest of the continent?

Greece is experiencing an economic crisis, to be certain. But it looks increasingly like that is only a symptom of a deeper moral crisis.

April 3rd, 2012 at 12:53 pm
How to Avoid Bank Bailouts: Make the Bankers Liable
Posted by Troy Senik Print

Over at the Wall Street Journal, James Grant, editor of Grant’s Interest Rate Observer has a perceptive review of the new book, “White House Burning: The Founding Fathers, our National Debt, and Why it Matters to You,” by former IMF Chief Economist Simon Johnson and University of Connecticut law professor James Kwak. Two passages deserve special attention.

On the banking system, Grant writes:

Here’s an idea: Let’s try capitalism for a change.

Rather than the bureaucratic monstrosity called the Dodd-Frank Act, for instance, why not hold the bankers personally accountable for the solvency of the institutions that employ them? Until 1935, bank stockholders would get a capital call if the company in which they had invested became impaired or insolvent. It was their problem, not the government’s. In the same spirit, suggests the New York investor Paul J. Isaac, let the bankers forfeit a portion of their past compensation—say, that in excess of 10 times the average manufacturing wage—if they steer their employer on the rocks. And let them surrender not just one year’s worth but rather seven year’s worth—after all, big banks don’t go broke all at once. Proceeds would be distributed to the creditors, as in days of yore. Bankers should not only take risks. They should also bear them.

And on the endless invocation of the Great Depression as the sole object lesson in how to respond to a severe economic downturn:

Messrs. Johnson and Kwak, who draw the usual conclusions from 1929-33, fail to mention the depression of 1920-21. Yet this cyclical downturn was as instructively brief as it was ugly. Peak to trough, nominal GDP plunged by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was then inexactly measured, soared to 14% from a boomtime low of 2%. And how did the successive administrations of Woodrow Wilson and Warren G. Harding, along with the Federal Reserve, meet this national disaster? Why, they balanced the budget and raised interest rates. Yet for reasons never examined in the pages of this book, that depression promptly ended and the 1920s roared.

Grant’s theme? Responsibility, both personal and collective. That has the great virtue of being the right thing to do. It also has one even greater virtue: it works.

May 20th, 2011 at 1:12 pm
Why a European “Must” Run the IMF

In an email regarding yesterday’s post, reader Eric Coykendall sent this helpful article from Foreign Policy explaining why a European traditionally heads the International Monetary Fund (IMF): a so-called “gentlemen’s agreement” brokered by economist John Maynard Keynes.

The origins of the gentlemen’s agreement date back to shortly after the Bretton Woods conference in 1944, which established both the IMF and World Bank. According to Miles Kahler’s history, Leadership Selection in the Major Multilaterals, Bretton Woods architect John Maynard Keynes had assumed that his main collaborator at the conference, Treasury Department official Harry Dexter White, would run the IMF. U.S. President Harry Truman also supported White’s choice. However, Treasury Secretary Frederick Vinson, with strong backing from Wall Street, argued that an American should run the World Bank – Washington Post publisher Eugene Meyer got that job in 1946 — and that it wouldn’t be proper for the United States to run both of the world’s major financial institutions. White’s possible communist sympathies — he’s widely suspected today of having been a Soviet agent — may also have played a role in the decision. In the end, Belgium’s Camille Gutt was eventually appointed to run the IMF.

In the wake of scandal engulfing the recently resigned Dominique Strauss-Kahn from France, developing nations like Brazil and South Africa are pushing for a non-European to manage the world’s leading investment/bailout bank.  In the article sent by Coykendall,  FP makes this keen observation about the European double-standard likely to decide the outcome.

The question of nationality is sure to come up again if Strauss-Kahn steps down, but Europeans will not be eager to part with the position. Some, such as German government spokesman Christoph Steegmans, argue that owing to the IMF’s critical role in stemming Europe’s current financial crisis, the managing director should be someone who is familiar with “Europe’s particularities, the currency questions and also the political circumstances here.” Strangely, when the IMF was primarily giving loans to countries in Africa and Latin America, local knowledge didn’t seem to be quite as much of a factor.

May 19th, 2011 at 2:53 pm
Maybe an American Should Run the IMF

For some reason, the French are trying to maintain a death grip on leading the International Monetary Fund, newly headless after Director Dominique Strauss-Kahn resigned over an alleged sexual assault scandal.  Though Deputy Director John Lipsky, an American, is now serving as the interim head of the IMF, a move is already underway to install France’s Finance Minister Christine Lagarde as quickly as possible.

But not so fast, say a panel of French judges.  They are weighing whether to investigate Lagarde for allegedly intervening in a lawsuit against the government on behalf of a political donor to her party.  The announcement is clouding her candidacy.

First, the French had to endure the hypocrisy of the Socialist Strauss-Kahn staying in a $3,000 a night hotel suite.  (So far, the alleged attack is a lesser blemish in French circles with a majority believing Strauss-Kahn was set up.)  Now, his potential replacement is under fire for crony capitalism.

Is French disdain for America so great that the most obvious replacement is deemed unacceptable for the long-term because he happens to be from the United States?

July 9th, 2010 at 9:51 am
IMF To America: Raise Your Taxes!
Posted by Timothy Lee Print

There is a strange element of humor when an international bureaucracy attempts to instruct the most prosperous and powerful nation in human history how to boost its economy.  The United States, after all, reached its status by maximizing economic freedom, not by following dynamism-sapping international norms.

Ignoring this reality, the International Monetary Fund (IMF) issued a statement yesterday instructing the U.S. to – you guessed it – raise taxes.  The IMF statement rightfully expressed concern over the nation’s debt that Obama is growing like a gigantic Chia Pet.  Unsurprisingly, however, the IMF failed to recognize this as an overspending problem, not an undertaxation problem.  More specifically, the IMF suggested “cuts in deductions, particularly for mortgage interest; higher taxes on energy; a national consumption tax; or a financial activities tax.”

Note how closely the IMF’s growth-killing prescription matches the Obama-Pelosi-Reid agenda, although at least the IMF didn’t take their “all of the above” position.  Regardless, the IMF (just like liberals in this country) apparently remains oblivious to the fact that incoming federal revenues actually reached their all-time high following the 2003 tax cuts, since lower taxes trigger economic growth, which in turn paradoxically increases revenues.  This is obviously a lesson that the “international community” still needs to learn along with Obama, Reid and Pelosi, but this episode provides yet another illustration why America is better off when it decides to be less like, rather than more like, the rest of the world.