Tuesday, August 9, 2011

Abolish the IMF!

Abolish the IMF!*

"Men desire authority for its own sake that they may bear a rule, command and control other men, and live uncommanded and uncontrolled themselves"- Saint Thomas More

I recently watch the new film on the crisis narrated by Matt Damon entitled “Inside Job.” In it leading pillars of virtue such as disgraced New York Attorney General Elliot Spitzer, disgraced former IMF head Dominick Strauss-Kahn (DSK) and globalist billionaire George Soros are given lengthy interviews as to the cause of the financial crisis. My stomach wrenched as I endured the brown-nosed liar Strauss-Kahn on camera inventing stories which have questionable basis in reality. For example, he told a story where he says that bankers are begging him for more intensive financial regulation to combat their own personal greed. The chickens begging the wolves to come and guard their coup!

The banking regulations as advocated by the IMF and other globalist organisations will not solve any of the current financial crisis. We have had three phases of banking regulations promulgated by the Basle Capital Accords of 1988, 1999 and more recently in 2011. These regulations are always overly simplistic and detached from the real workings of the market. The supposed recent reforms do injust to the concept of reform as many of the fundamental criticisms of the original Accord are completely ignored and merely tinkering of the details occurs. Bank capital ratios are set at a measly 8% for example, a number which they appear to have plucked out of thin air for they never explain from where they picked this number. 10% would be more understandable given that was the traditional reserve ratio. Then they form hermetically sealed risk ratios that correspond with assets which are completely detached from reality. After the 1988 Accord for example, Mexican government bonds and US bonds were allocated the same risk ratio of 0% by the Accord, despite the fact that Mexico was far more prone to default, as it demonstrated numerous times in devaluing the Peso. The Accord thus encouraged banks to retain excessively low reserve ratios for assets that held far higher risk classes.

Without going into detail, there is only one contract that needs to be abolished, that being the deposit-loan contract. Nearly all the inflation in the current system is generated by the banking system and it is responsible for the vast misallocation of credit. The central banks are in fact relatively unimportant in comparison to the leveraging of deposits that takes place in the banking system. In Europe, this reaches extremes of 50 to 1.

Established in 1944 as part of the Bretton Woods Standard, the IMF originally had four reasons of being:

1) Promotion of exchange rate stability

2) Cooperation of monetary policy

3) Expansion of international trade

4) To function as a lender of last resort.

In the early days of BrettonWoods, with a complex array of fixed exchange rates, at least some of these goals could not have been promoted by individual countries. The collapse of Bretton Woods, which was notably predicted by the great Austrian economist Henry Hazlitt (Will the Dollar Save the World, 1947), led to a shift to a global system of flexible-rate monetary regimes. Central banks could now unilaterally expand their monetary base to combat liquidity crises, irrespective of depreciations of exchange rates (which had been constrained under the previous Bretton Woods system). There was no need to explicitly coordinate cross-border monetary policies. Each country’s central bank could pursue its own policy, for better or worse, and reap the benefits or shoulder the costs of its own decisions.

These changes led to a crisis of relevance for the IMF. Effectively, it was left with only one of its four original goals to pursue: maintaining the stability of exchange rates. However, the prevalence of flexible rates gave the Fund an excuse to begin intervening at the slightest whiff of trouble to ensure that exchange rates remained “stable,” or “controlled,” lest the now-secondary goal of promoting international trade be threatened. Indeed, calls for increasing regulation over monetary affairs became the norm.

The IMF is a mercantilist institution that has embraced every discredited economic theory for the past five centuries. Mercantilism is the statist notion that one country's wealth is achieved at the expense of another's. It is the beggar thy neighbour ideology of political economy. According to the IMF, each government should discourage imports and encourage exports. Trade deficits, immigrants and foreign capital are distrusted. It is by its essence the enemy of free-trade and sound money. Its first pillar ‘to promote exchange rate stability’ is dependent upon the existence of a plethora of fiat currencies in auto-destruct. It is unsurprising to discover that the key entry requirement into the international monetary community is that your currency is tied to ANYTHING except gold. This is because the international gold standard by its nature removed all exchange rate instability and hence would render the IMF automatically obsolete in the world today.

Since the 1990s, the IMF has embarked upon an unprecedented expansion of its operating powers. Effectively, the Fund had become a “lender of first resort” (Daniel Cohen and Richard Portes, “Toward a Lender of First Resort,” International Monetary Fund working paper WP/06/66, 2009). It has institutionalised moral hazard into the global financial and government debt system to such an extent that even the president of Iceland was proudly boasting at the peak of the boom about how they did not care if a bubble was forming in their economy since they were convinced that the IMF would bail them out no matter what! (Deep Freeze: Iceland's Economic Collapse, 2010).

In a word, the IMF is a creditors club. Its main backers behind the scenes are those who own government bonds, namely big investment banks and such entities, who use the IMF as a tool to guarantee their profits at the expense of wider society, deliberately forgetting that the market is both a system of profit and loss.

The IMF is a destructive, crisis-generating global welfare agency that should be abolished. The hour is at hand to run a sword through this corrupt global institution.

* Url:http://irishlibertyforum.org/researched-articles/127-abolish-the-imf.html