A NEW DAWN FOR THE IMF: SWITCHING DEBTS TO ASSETS

By Andrew McKillop
21st Century Wire
June 30, 2011

In the gallic joy and media hoopla of yet another French elite politician with almost no knowledge of economics getting the IMF top job, confirming the real role and mission of this fragile institution, its bizarre mutation to financial and economic charlatanism- goes almost unnoticed. The Greek debt crisis however shows this stark and clear.

The IMF and the European Central Bank, with an outgoing French director and an incoming Italian chief, are basically struggling for survival – due to the debt crisis of a country with 11 million inhabitants whose GDP comes in at about 5 percent of EU-27 GDP.

Whoever says IMF and ECB also says ‘US Federal Reserve’, although Ben Bernanke would likely nuance that and distance himself from failed “quantitative tightening” in south-east Europe, to concentrate on failed QE at home.

What the IMF and ECB have cooked up in Europe’s PIIGS, with the second I-for-Italy moving upstage in a dangerous way as the Berlusconi empire and media circus crumbles, is nothing short of ultra Keynesian deficit medicine mixed with ultra Neoliberal austerity cures of the IMF 1980s Third World type. The net result is simple: debt has to become assets. Never mind the ideology because if this gambit fails, the euro will fall and a string of European, US, Japanese and other banking houses will shudder and tremble, 2008-style.

OLD AND NEW

The doctrinal mix-and-mingle running through the veins of global central bankers and their bridges to the political deciding elite – the IMF playing master of ceremonies – has become so confused, so bizarre we could call it an ice cream cocktail with chopped gherkins put through a mixmaster. It was not even born to fail – it was simply not biologically possible, but like dinosaurs… it happened. Using Greece as an online, real time exhibit of leading edge financial engineering, the IMF and ECB, along with the European Union and a few Greek politicians, watched by the US Fed and some very engaged private bankers and finance sector players, are creating one of the most massive debt explosions the world has ever seen. All this with the small assets, and big debts of a small country edging along the Balkans.

But the Greek Ponzi-style debt pyramid grows every day; most media reporting gives rather fakely, exact numbers of the type: “As of 9am Wednesday morning, Greek sovereign debt is 365.2 billion euros”, and a slightly less fantasist number for how much Greece has to receive to cover the 31 days of July: 12 billion euro, roughly $ 1500 for every man, woman and child in the country. With borrowing like that, why work ? The second income has arrived, but of course with strings attached.

All eyes are turning towards French Finance Minister Christine Lagarde, the first woman to run the IMF or any large financial institution.

The latest 12-billion dollop is the last part of the first debt package masterminded by the IMF and the Europeans, with the ECB in the lead but also including the European Commission and major government players, led by Germany’s Angela Merkel who has publicly said she got on fine with Dominique Strauss-Kahn, and will get on fine with Christine Lagarde: it is official.

GREEK FINANCE: WITH STRINGS ATTACHED

The strings attached include the Dr Jekyll part of the two-headed IMF monster: Greece has to perform. It has to achieve 50 billion euro of asset sales, not so easy in a country of 11 million inhabitants operating in the oversupplied Mediterranean package tour business against bankrupt Tunisia and bankrupt Egypt, now selling 8-day holidays at modern hotels, with food and air flights, at around $ 400 per person. With the July monthly instalment from the IMF and the Europeans, the entire Greek nation could ship itself out to Egypt for the month and find something creative to do with the unused assets, back home.

Greece of course also has other assets, like lignite fuelled power plants, toll highways, ports, tanker shipping lines and even a few semi-bankrupt airlines.

The real potential of achieving 50-billion-euro of asset sales in Greece, anytime at all, let alone soon is however rather low – but that doesn’t matter. What is needed is a public attempt at doing it, and here the IMF and its European friends, with their uncertain and perhaps wavering US allies, have stepped back in time to the 1980s Third World debt pantomine, complete with funny noses: all that is needed is a remake of the Club of Paris, bringing worried banks and reassuring IMF officials together, for a debt and asset slaughter, where assets were turned into debts rather fast.

OLD ASSETS, NEW DEBTS

A country like Greece today, or 1980s-style debt strangled Third World countries, or Russia, Argentina and others in the 1990s has so much short-term debt and ever rising interest rates on that growing part of its debt balloon – a lead balloon – that any asset it puts on the block will be depreciated, quick time. The depreciation is rigorously ferocious, something like an aside in a Thorsten Veblen book on cigar puffing, cognac swilling Victorian capitalists. What you thought might bring in 5 billion euros will in fact return 50 million, penny-on-the-dollar style. Under that type of New Reality, austerity has to be Victorian-style, witness a hike in value added tax on Greek restaurant meals from 10 percent to 23 percent: if you have enough cash to eat out, you have enough to pay the IMF and ECB.

Asset sales and state revenue hikes in Greece will therefore, and can only disappoint.

Meanwhile, the debt clock ticks on and up, another bailout will be needed, so more assets have to be sold (even if they dont exist) and the austerity program has to be tightened, again. In the Russian case in the 1990s, national pride took a strange New Capitalist turn: roughly 40 percent of the entire population were de-monetized or moved out of the cash economy for several years. To be sure, this had a rather draconian impact on imports, let alone mortality rates, but even if oil was worth nothing in the 1990s, Russia kept on exporting it along with other Sunset Commodity resources – exactly like Argentina. So Russia pulled through, to a certain extent, leaving Putin with a permanent chip on his shoulder regarding Western capitalist partners and iron will to stay a creditor nation.

Greece isn’t likely to have a resource-led export revenue boom, like Russia, Argentina and almost all the Jekyll-finance 1980s victims of the IMF in low income Africa and other Third World countries. This is Europe, meaning new-style rigour in a new-style post-liberal economy – which as we already said is the most bizarre cocktail crock of loony economic tunes a Martian could imagine. Failure is certain.

Courage has no place at all in that me-too circus, but it could work in the Greek case:  a sudden and dramatic abandonment of the euro with no prior warning would almost certainly succeed, aided by its shock and horror. The reintroduced drachma would spiral to nothing – but then banks, including the global central bank-surrogate, the IMF, and the would-be federal European ECB would understand they had gone too far with their Veblen medicine and themselves were set to lose everything, too. This brings us straight to a fundamental notion embodied in Keynesianism: if you have a big debt and can’t pay, bankers will stay interested in you. If you have a small debt and can’t pay – go away and die or take a stay in prison.

Greece could shift to a street-friendly military regime of the type which (legend says) saved vodka swilling Boris Yeltsin, install a land army agriculture corps and national sea fisheries corps, develop close and friendly relations with other ruined new democracies of the Mediterranean region, and basically refuse to pay its debt.

Playing for time, the new popular regime of Greece would by necessity be populist, and start by ousting all foreign migrant workers from the country, stemming remittance outflows from the country. This again would signal the new popular regime means business. An aggressive financial strategy with all other EU27 nations would also be necessary, carefully using the twin arms of debt default menace, and joint venture asset development promise.

THE POST LIBERAL RECOVERY

The IMF’s present role models and dominant ideology cocktails range from the laughable to the absurd and back again. Even as a gold hoarder and semi-legal trader, operating with the Basle-based BIS, the IMF is a failure and like other new style central banks probably has a lot less physical gold than it claims. All it can offer debt-strapped countries is SDRs and new debt, drawing down and destroying, or depreciating to almost nothing any real assets that happen to fall into its hands.

Recovery is almost officially defined by the IMF as an Act of God, or Inch’allah for the Gulf state petro-monarchies brought onside by the IMF whenever possible.

We can be sure that previous feats of the IMF, especially its decades-long debt financing saga with low income resource exporter Third World countries, would have dragged on even longer – if there had not been a sudden, strong and sustained upsurge in commodity prices. This upsurge was totally expected by almost any analyst able to use a two-dollar calculator, and totally unexpected by the IMF and its ruling elite politician friends. The IMF therefore has a proven track record of being surprised, and will be surprised by what we can call post-liberal recovery.

In Greece, Portugal, Ireland, Spain and across the Med in Tunisia and Egypt this post-liberal recovery is emerging, sometimes quite fast. The restored state, the government, national institutions and national identity all have a post-global economy importance which of course is played down by average government friendly media in presently unaffected countries. This is a dangerous trend for fuddle-along debt financing and austerity miracles, which only fatten the regular gang of charlatans, who in any case will quickly lose their ill-gotten gains on the gaming tables of the global financial casino.

The process is also post-ideology in a major way. Carefully unexplained by dominant media and their business editors, the failed dictators of the Arab world, currently including ben Ali of Tunisia, Mubarak of Egypt, Gaddafi of Libya and al Assad of Syria all played squeaky clean copybook export platform economics, yipped on by IMF-friendly economists and commentators. Inside their countries the story was a lot different. Street resistance was not driven by ideology or by demonstrators waving pictures of Che Guevara – but by citizens sick of not being able to afford to eat and the victims of permanent mass unemployment, casually described by well paid IMF experts as “an adjustment phenomenon”.

Forcing the economy to ground zero, which again is official IMF medicine, drives society to a rapid search-and-select of what counts and what does not. The flimsy global economy and its tinsel promises weigh little, and outright resistance to austerity measures and cures will rise.

The fear of anarchy and revolution in the post-liberal world – and a total loss for global finance players – is now moving up the teleprompter, prompting European, US, Japanese and other remaining defenders of Orthodox ‘no alternative’ economics to throw money at emerging national governments in a string of countries. Played right, Greece might also benefit from this.  

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2 Responses to “A NEW DAWN FOR THE IMF: SWITCHING DEBTS TO ASSETS”

  1. Eric V. Encina Says:

    PHILIPPINE – BATAAN NUCLEAR POWER PLANT RACKET OF DEBT MONEY SYSTEM OF THE AMERICAN MULTINATIONAL COMPANIES AND BANKERS

    By Eric V. Encina

    DO NOT BELIEVE IMF even if there is change of leaderships. We do not need IMF. What we need is: each government-created money-debt-free.

    SO MANY BULLSHITS IN FINANCE AND ECONOMICS AND WE’RE SUFFERING SENSELESSLY.

    How unspeakable it is that Philippines is also heavily and odiously indebted to US Firm Westinghouse and US EXIMBANK OR U.S. Export and Import Bank from the original loan of US$1.2 Billion to US$2.1 Billion that since 1980’s has been paying from US$350,000 to US$400,000 up to the present in the amount of US$155,000 DAILY INTEREST OR US$56,575,000 every year, PAYABLE UNTIL THE YEAR 2018 and beyond! How lamentable it is that the overburdened Filipino people or taxpayers in the quagmire of poverty are being forced to pay taxes in more radical tax reform measures to pay interest charges to these transnational banks for these odious debts contracted by the traitorous leaders of the government. Hence, this nuclear power plant has been the most useless, the most expensive, and one of the most dangerous nuclear power plants in the world. This is a colossal wastage of money for the destruction of the Filipino people and the environment. This is a scheme of the hocus-pocus and chicanery tactics crafted by the US Westinghouse Company in collusion with the voracious government leaders financed by the interest-bearing loans from the US EXIMBANK. It is not just an odious debt but the bitter fruit of vastly damaging debt money system. This debt, like other country’s domestic and foreign debts, must be repudiated now.

    Many experts, economists, politicians and bankers believe and assume that the international debt crisis is so complex. But who makes it so complex? They are pretending to be ignorant about it. They know all about it and yet they keep on their conspiracy to continue hiding the ugliness and crime of debt money system because of their vested interest and profits. But to Social Crediters, Monetary Reformers and economic and monetary activists, it is not so. The monetary reformers know the solution and we have the alternatives. We have presented such solutions and alternatives many times for many years but rejected. The so-called economic peritus or experts to whom we rely for too long on debt issue, money, and poverty problems have taken us over to wrong direction of the financial enslavement of the debt-usury system of money creation by the banking system with millions of daily casualties, hopelessly struggling to survive to death in the Philippine countryside.

    The Philippine debt crisis has not been abated but in fact it is getting enormously apocalyptic than ever killing more millions of Filipinos in savage cruelty. As a Filipino Monetary Reformer and activist for economic and monetary justice, working for a mission for alternatives, I experience daily and witness the inhuman sufferings and difficulties of fellow Filipinos in the countryside in rural and urban villages, towns, provinces, and cities caused by the enormity of debt-related poverty owed and contracted by our successive government administrations to multilateral and bilateral financial institutions in the developed world. Dreadful poverty at the national level is parasitically permeating down to the lives of the poof and the most vulnerable Filipinos in the countryside. The burden of the dollar induced debts to transnational banks borne by the poor with billions of pound upon their back, who pay for interest charges a cost of human life. Payment of interest in terms of income reduction, under-funding or no more funding for health and education services and more and or forceful collection of taxes are really terrible. BANK CREATED MONEY OR DEBT MONEY SYSTEM LEADS TO DEPRIVATION AND MARGINALIZATION OF THE POOR FILIPINO POPULATION INTO IRONIC STAGE OF PERPETUAL FINANCIAL HEMORRHAGE.

    Philippine dollar induced debts are onerous. We have more than enough of debt payments always being prioritized (getting almost 50% of the national budget) above any item in public expenditures, including education, health, housing, environment and agriculture. The Filipino people who are oppressed by the system want to cancel or write off debts to IMF, WB, and ADB and to most bilateral rich creditors in the West. We want to stop payments of interest to US banking institutions such as to US EXIMBANK and J.P. Morgan Banking and to others, those debts that go to graft-ridden and environmentally destructive projects in the countryside. We want to be free from the calamitous consequences of colossal debt bondage, iniquitous and stiff taxes imposed by the international bankers, non-existent public services, skyrocketing interest charges and rates and the negative impacts of loan at interest conditions. ABOVE ALL WE WANT TO BE FREE FROM THE ENSLAVEMENT OF THE MOST PERNICIOUS WESTERN-BASED DEBT-MONEY-SYSTEM.
    THE NATIONAL MONETARY REFORM PROPOSED SOLUTION:

    To radically cure the problem of the present miserable poverty in the Philippines, first, we must get out from the present defective financial system; cancel all debts, for these are all odious debts (we have paid more than enough) under the tricks of the banking system. We must resist by all possible means with prowess and strong public opinion to repudiate further payments of interest both domestic and foreign debts. Filipinos must stop paying taxes. Reform the banking system, that is, to return to government the sole power of money creation debt and interest free or the so-called GOVERNMENT CREATED MONEY THROUGH THE CENTRAL BANK (in contrast with privately-bank created money as a debt with interest) according to natural resources and needs of the population. MONEY GETS ITS VALUE ROM PRODUCTION AND MUTUAL CONFIDENCE. Money is a national matter, not a private matter for private interest and profits. In a more clear understanding, the Philippine government must take back its prerogative on money creation debt and interest free. Give a national dividend to each citizen from the cradle to the grave as a right of citizenship and the share of the country’s abundance and progress.

    It is also imperative that Philippines must cut off its membership to IMF and WB of the G-8 nations and it is necessary to revise or change the defective provisions of the PHILIPPINE CONSTITUTION in the light of alternative debt free money system. The Filipino government leaders and officials must then get in time to implement national money reform or Social Credit Economic Policy to be participated by the whole educated population as enlightened by money reform proposals for the issues of debt and poverty. With new clean economics and politics of monetary reform, the Government will order the Central Bank – as the sole government’s financial institution as nationalized on financial and credit matters and as administrator of Filipino people’s money, TO CREATE THE MONEY DEBT AND INTEREST FREE based on the production capacity in the country and the real needs of the government and the population. The private banking institutions will remain in their operation but very limited to their functions as monitored by the Government. Their fractional reserve debt money system will be strictly prohibited. Bankers can continue to keep money not as their own but only as accountants and administrators of Filipino people’s money. THEY MUST NEITHER ASK NOR REQUIRE INTEREST CHARGES OR ANY PERCENTAGE OF USURY FROM THE LOANS THEY GRANT BUT MUST ONLY RECEIVE SERVICE FEES ON THEIR SERVICES IN THE MONETIZATION OF PEOPLE’S MONEY.

    The Filipino bankers and the economists themselves must be reformed and must unite to be of potential resistance against the International Bankers’ monopoly of credit. They can be of great help for the effective implementation of money reform to cure poverty. Bankers must stop their greed and avarice for profits. This is one of the essential solutions to realize the equitable distribution of wealth in the Philippines.

    Once the government gives orders to do so, the bankers are duty-bound to obey the monetary reform law. Under the GOVERNMENT-CREATED-DEBT-FREE MONEY SYSTEM, there will be balance between the money of the consumers and the prices of the goods and services. The Government will be capable of financing its fiscal expenditures such as public works, environmental improvement and health matters effectively from the new creation of money through debt-and-interest-free scheme, not from savings, not from loans, not from taxes and not from foreign aid any more. And finally, the Central Bank through the mandate of the Philippine Government will procure and provide the NATIONAL DIVIDEND or supplementary basic income or debt-free monetary credit to every citizen in a monthly or yearly basis without any means test or conditions or discriminations. The dividend scheme to every Filipino citizen is debt-free money as a share of the abundance of the country’s wealth and progress. Every Filipino citizen is a co-contributor and a co-heir of the country’s progress. A NATIONAL DIVIDEND TO BE PROVIDED TO EVERYONE FROM THE CRADLE TO THE GRAVE WILL CERTAINLY CURE AND PREVENT POVERTY OF MILLIONS OF FILIPINOS IN THE COUNTRYSIDE. With the financial-economic security to be guaranteed through this national dividend scheme or citizen’s income or supplementary basis income to be equally provided buy the Philippine Government, the Filipino people will have the chance of living with security and harmony with each other and the peaceful life and better world will be possible. Therefore, 75 Millions or whatever rate of population growth we have annually are not a problem but will be guaranteed of P25, 000 or US$500 – whether or not the citizens have other incomes from other sources. This national dividend scheme that can certainly ameliorate and augment the bare necessities of life, coming from the creation of the new money debt and interest free from the existing wealth, production and capacity of the country and as computed according to the needs of the general population, IS WITHOUT DEBT TOWARDS ANYBODY. It is the only precise implementation of the ‘financial-economic justice for all’ – the most humane and Christian principle for the attainment of the economic security for the Filipino people as the founder Social Credit – C.H. Douglas has boldly declared: ‘THE DISTRIBUTION OF CASH TO INDIVIDUALS SHALL BE PROGRESSIVELY LESS DEPENDENT UPON EMPLOYMENT. THAT IS TO SAY THAT THE DIVIDEND SHALL PROGRESSIVELY DISPLACE THE WAGE AND SALARY.” However, it must be clearly elaborated to the consumers and retailers (to the people in general) that under the compensated discount of Social Credit Monetary Reform policy, the Central Bank will decree a general discount on retail prices. This means that the consumers will only pay less then the costs or prices of goods of the retailers. The same Central Bank of the Philippines through its channels, designated banks and post offices and agencies will pay back to the retailers the amount of the prices that was discounted. This is however an opposite of the sales tax and value added tax where the most of the general consumers are deprived to buy in satisfaction of their basic needs because of the lack of money in front of the expensive prices of such goods. This is also to increase the buying power to the level of production. More production means more money. Production is affected by the shortage of money.

    EMERGENCY SOLUTION TO DREADFUL POVERTY IN THE PHILIPPINE PROVINCES:

    Let’s us are honest in our diagnosis. Most of the Philippine provinces are in astronomical debts: municipal, city and provincial debts, to be precise, as the reflection and effect of the NATIONAL GOVERNMENT’S HUGE INDEBTEDNESS under the debt money system. The provincial citizens are moaning and groaning in dreadful poverty, economically impoverished and in the cruel circumstances of death because of the chronic shortage or absence of money. Without overseas remittances, Filipinos in the provinces would not survive for long. Most of the provincial government officials are not effective to help the poor, and at times helpless to do or implement any development or rehabilitation projects without debts and additional burden to citizens. It is because of the lack of money or necessary funds. In our Capiz province alone, population here is continuously fluctuating between hope and despair in the holocaust of uncertainty, insecurity, in grinding poverty affecting the senior citizens and ageing members of the community, also saddled by man-made and natural calamities. We are suffering in our province despite of the fact of the existence of natural resources, God-given wealth, manpower and progress. Unfortunately, this progress is superficial and connected to debt and corruptions. We are suffering because of the ‘control of money’ of the debt-based economy. Many people do not know anymore on how to wrestle, tackle and withstand poverty and chronic shortage of money. Bankruptcies and violent crimes are rampant as the reflection of the defective financial-economic structures of the national government.

    Thank you very much with all gratitude.

    Long live and God bless!

    Sincerely and Gratefully yours,

    Eric V. Encina

  2. Davide Rohansa Says:

    Davide Rohansa…

    […]A NEW DAWN FOR THE IMF: SWITCHING DEBTS TO ASSETS « 21st Century Wire[…]…

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