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Sunday, 25 September 2011

Pulling yourself up by your own bootstraps

The IMF seems to think it might have invented the fiscal equivalent of a perpetual motion machine.to tackle the eurozone debt crisis and support the global economy.

In a communique on Saturday, the global lender said it would review the resources it had available to tackle the crisis. The statement added that eurozone nations would do "whatever necessary" to resolve Europe's debt crisis.  However, the communique, issued during a meeting between G20 finance ministers, the IMF and the World Bank, did not give specifics on whether extra funds would be available to the global fund. "Our lending capacity of almost $400 billion looks comfortable today but that pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders," said IMF managing director Christine Lagarde in an action plan presented to the fund's policy steering panel.

Well excuse me, but the problem here is that the whole of the Western world with the notable exception of a few countries such as Norway and err,,.. Norway, have been running their governments at various levels of deficits, which just look worse when the implicit or explicit support for their banking systems are factored into account.  The banks of course are looking shaky because of their exposure to governments.

So what is the IMF's potential solution? To use its financial muscle to stand behind those governments if necessary and help them out if necessary.  And where are the IMF going to get their funding?  By calling on their funders in accordance with their subscription agreements.  And who are those funders?  Why, the whole world, but mostly very same countries that they will be bailing out.

Don't mess with the first or second laws of thermodynamics. It will only end in tears.

UPDATE: The International Monetary Fund (IMF) has warned it may not have enough money to bail out larger eurozone countries if the debt crisis were to spread. IMF chief Christine Lagarde says the global lender can meet its current obligations but this could change if the crisis worsens.

Clearly Mme Lagarde reads THE FINANCIAL CRIMES.

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