Evans-Pritchard Reacts To The Passage Of The Cornyn Amendment For Blocking Indiscriminate IMF Bailouts

Tyler Durden's picture

Yesterday we highlighted the passage of the Cornyn Amendment to FinReg which essentially makes US participation in IMF loans to countries which have greater debt than GDP very difficult if not impossible. The amendment has received little if any press, until this morning, when Telegraph's Evans-Pritchard savages what it means for a now partially defunct Europe. "This is obviously aimed at Greece, which will have a debt of 130 per cent by the end of this year. The debt will rise to 150 per cent by the end of its the rescue/death package, leaving Greece in a worse position than before. The IMF share of the Greek bail-out is 30 times quota, more than double any other rescue in the history of the Fund. There is a very strong suspicion in Washington that the IMF is being misused by French chief Dominique Strauss-Kahn – French presidential candidate in waiting – to support ideological purposes regardless of economic logic or sanity. This can (and in my view most likely will) destroy the credibility of the Fund itself unless the US and Asians can wrench the institution back from the Europeans." As more people realize the ramifications of this Amendment, we expect the IMF to increasingly lose credibility as a backstop to any upcoming European risk flareouts.

More from AEP:

In this case it fair to assume that China shares many of the Senate’s concerns. The latest US Treasury Tics data shows that China is rotating is vast reserves back into dollars, and presumably away from euro bonds. If we treat this as Chimerica – the US/Chinese single currency or condominium – we have a force in the world that cannot be pushed around.

And then we get this about face from one of the smarter mainstream pundits out there:

Personally, I have changed my mind on Greece. My initial reaction earlier this year was that it had to be saved to avoid a sovereign Lehman. Many posters on this blog cried “shame”, saying it was just another moral hazard rescue for bankers. They were right. I flagellate myself and wear a dunce’s hat.

The correct policy would have been – and still is – to help Greece out of its debt-deflation death spiral through an orderly “pre-emptive debt restructuring” along the lines of the IMF package for Uruguay. In Greece’s case it would require a haircut of 50 per cent or so for foolhardy creditors, ie your bank and mine, your pension fund and mine. This would not do much good unless Greece also devalued by 30 per cent to 40 per cent to retrieve competitiveness and put the whole fixed-exchange nightmare behind it.

This would be the normal IMF policy in these circumstances as countless ex-IMF officials have stated. I suspect that many in the Bundesbank and the Bundestag finance committee would have liked this policy too – making an example of a country that was so far gone, and had so flagrantly broken the rules.

The IMF-EU should instead have drawn up its defences in Iberia, along the Lines of Torres Vedras – to borrow from Wellington. Portugal and Spain are at least defensible – arguably – and more deserving.

The solution is being blocked because Brussels views any step back in the EMU Project as intolerable. So the IMF is squandering its scarce resources on an unworkable plan in Greece.

As we can now see, by misusing the IMF so cavalierly the euro-elites have provoked a reaction from Washington that will vastly complicate any future rescue for any eurozone state.

In fact, we are already living in a post-IMF world. There is no bailer-of-last-resort. Sobering, isn’t it?

Perhaps America is finally realizing that it is the bailer out of last resort not only of US, but European banks. We doubt it, but Cornyn was a loud shot across the bow. We hope that this morning's bounce in the EURUSD is sustainable because should Italy soon need IMF assistance, we doubt that a forewarned US will be as cavalier about spending another $100 billion or so, to bail out the next European nation (read banks that have trillions to lose should contagion spread), that comes begging to Washington. Little by little the escape mechanisms are being eliminated.

 

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cossack55's picture

But what about Adolph Bernanke's Big Shoppe of Horrors and all its totally opaque back-channels that will never see the light of day nor end of the flow of FRNs.

Popo's picture

Pritchard is a Keynesian ass.

A_MacLaren's picture

That would be "arse", at least phonetically adjust the spelling to his pronunciation.

justbuygold's picture

Americans will still end up bailing out the European countries.  If not through the IMF , then it will be done secretly through the infamous Federal Reserve.  Its hard to believe Amercians still allow the FED to exist , let alone without proper auditing of their dealings with foreign banks and central banks.  I just shake my head at the stupidity of the Senate to adopt the Sanders amendment over Vitter.

pan-the-ist's picture

This is true most certainly true, but the amendment kinda makes you feel good doesn't it?

SWRichmond's picture

...it will be done secretly through the infamous Federal Reserve.

Will be?

justbuygold's picture

Good point !  But we will never find out if your right, will we .

RonnieHonduras's picture

...Going long pitchfork and tumbrel manufacturers.

Steaming_Wookie_Doo's picture

Indeed. Timmay and the O-man have unconstitutionally just decided to fork over 1 trillion to the EU-- no congressional vote, no nothing. Can we get the impeachment team out here? For all my relatives had to suffer thru 3rd world economies and war, it seems I may get a taste of the same in the new Banana States of America. I think my only hope is to declare myself a bank holding company/oil well driller.

DosZap's picture

Look who's in power,and you won't have to shake your head.

Miyagi_san's picture

After reading this twice...This is good news, yes. 

 OK , I'll read it again

I flagellate myself

-1 GS

What_Me_Worry's picture

Those in glass houses...

TraderMark's picture

John Paulson's latest moves

Unchaned on GLD, C (TBTF)

Adding to BAC (TBTF)

Starting BZH (homebuilder), MGM (no risk in buying too big to fail casinos)

http://www.fundmymutualfund.com/2010/05/john-paulsons-q1-2010-moves.html

 

It's the Too Big to Fail portfolio.

lizzy36's picture

Obama has already said, in a signing statement, that he doesn’t recognize Congress ability to tell the administration how to vote at the IMF. Such a restriction, the president said, “would interfere with my constitutional authority to conduct foreign relations.”

bernorange's picture

Congress can decide whether or not to fund the IMF.  That's not the President's perogative - he doesn't control the purse strings.

DosZap's picture

berno,

10/4, he needs bitch slapped back into his place.

Way past time he needs to be sat in the corner, and defund his ass.

Come November, he will be...........

That's why he's pushing his agenda so hard and fast now.

RonnieHonduras's picture

This is what the exective order is for.  We are at war, Dammit!  And you, sir, are an economic terrorist for disagreeing!

 

zice's picture

The Soft Parade has now begun
Listen to the engines hum
People out to have some fun
A cobra on my left
Leopard on my right, yeah

JacksCompleteLackOfSuprise's picture

hmm .. euro banks collapse, leaves US banks to loot the corpse

THE DORK OF CORK's picture

Ok I accept the principle that Washington cannot and should not bail out Europe and its banks but to carry this to its conclusion the Dollar will have to give up its reserve status.

You guys cannot have it both ways - The European bank bailout via AIG was mere scraps when compared to the exorbitant privilege of a paper reserve currency.

The Argument that the American taxpayer is burdened with a 2nd rate Europe is a false one - Any efficiency gained by parties outside the American - Chinese dual currency unit is extracted and converted into wasteful consumption within this area.

Do you expect the old powers of Continental Europe and Japan to remain vassal states forever ?

snowball777's picture

More succinctly, isn't this kind of "protectionism" what caused the most damage during the Great Depression?

Do we do ourselves a favor by making the FRN that much stronger (in relative terms, of course) while trying to spin our tires in the mud?

I'm going to get an SBA loan and start a printing machine manufacturing and ink wholesale business just in case.

 

THE DORK OF CORK's picture

Protectionism is the logical outcome when globalisation is not working - regionalism or perhaps nationalism is a natural progression or regression if you like when many supranational mechanisms are being used to extract a smaller and smaller global surplus.

Canucklehead's picture

...Do you expect the old powers of Continental Europe and Japan to remain vassal states forever ?

I think that is a question to be asked of the vassal states.  The US and China value "opportunity" more than Continental Europe.  Once the opportunity cost rises above a certain threshold, investment decisions are made to nip "opportunity cost" in the bud.  Europe needs to decide where it's future lies.  If the future is not seen as being sustainable, Europe needs to develop a plan to address those deficiencies.

In the meantime, individuals and states will make decisions to manage risk.

THE DORK OF CORK's picture

Globalisation has reached its apex for now , not unlike the end of the Edwardian era - the dynamic between the state and non state actors are in flux.

Resources are now being sunk into unviable investments to sustain the illusion of the old model - it will not last , something will break and fracture this dream of consumption increase without capital appreciation.

My feeling is that Japan will be the most unpredictable of all the nations given its complete dependence on the American Imperium.

A nuclear Japan would destabilise the whole Asian landmass and give a whole new meaning to the word Risk.

 

But who knows what monsters will rise from this great fall of oil based civilisation.

 

Captain Willard's picture

Evans-Pritchard has it right, finally. And he gives us all an important reminder: the Euro/EU is a political project, not just an economic one. This crisis started as a financial problem, but it will rapidly become a big political crisis too.

On the ZH blogs, people have been downplaying or ignoring this important dynamic. The EU bureaucrats love this crisis, because it makes the case for "tighter political integration". The average European is waking up to the realities of the Faustian bargain he made. Most of the "goodies" from the EU ended up being chimerical; the problems and inequities are permanent. But in the meantime, he has given up his sovereign rights.

We are going to come out of this crisis broke and enslaved, whereas we were just broke before. Under the guise of saving economies, Governments and Authorities are going to engineer a massive increase in scale and intrusiveness of central power and a massive diminution of personal and economic freedom.

SWRichmond's picture

The average European is waking up to the realities of the Faustian bargain he made.

The average European didn't make one.  The average European was bombarded with scare tactics and false hopes, then if necessary he was offerred multiple "chances" to vote until he voted the way he was supposed to.

Popo's picture

+1000

 

The story of the European Constitution is all you need to know.  If at first policy doesn't receive support,  keep ramming it down their throats until it does.

 

 

Captain Willard's picture

I always respect your posts SWR, but I beg to differ.

They all voted and it passed. People voted for the goodies coming from the EU. Everyone is in favor of free beer, so long as someone else pays. Now that it has ended in tears, they claim they were duped. Bullshit.

The tragedy of socialism and corporatism is that free people often willingly impose it on themselves.

Steaming_Wookie_Doo's picture

They "voted" for it like Diebold did in Florida.

SWRichmond's picture

If your point is that people are too easily and even willingly misled, I agree.  But in the face of a media blitz by an owned and vested media interest, IMO they had little real "choice".  Plus, the repeated-where-necessary "voting" showed clearly that the outcome was preordained.

Here's another gem: http://www.bloomberg.com/apps/news?pid=20601087&sid=ayttBFQlmtjU&pos=2


EU Vows to Avoid Continent-Wide Austerity, Keep Recovery Alive

May 18 (Bloomberg) -- European finance ministers vowed to avoid a continent-wide austerity drive in the wake of Greece’s debt crisis that would risk thrusting the economy back into a recession and further undercut the euro.

Only high-deficit countries including Greece, Spain and Portugal will be ordered to make additional deficit cuts, while budget policies will remain untouched in better-off nations such as Germany and Finland.

“Countries with no or little fiscal space will need to frontload or accelerate measures, while others that have more fiscal space should maintain their less-restrictive fiscal stances for the sake of growth in Europe as a whole,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels after a two-day meeting of European finance ministers.

The hopeful will believe this, but the statement is an obvious lie, obvious, at least, to those who've caught enough lies to look for them.  Once the ones without "fiscal space" adopt spending cuts, will the ones which currently have "space" still have it?  Do they even really have it now?  False hope is a staple.

Guaranteed endless free money for the banks, and guaranteed slow death via "austerity" for the middle classes.  Someone has to pay with lifestyle reductions, why not let it be the serfs?

 

DosZap's picture

That is exactly what we DO NOT WANT..............

Freedom isn't free...........Jefferson comes to mind.

rawsienna's picture

Obama would be a great President for France.

andrew123's picture

What prevents the President from certifying that the loan will be [paid back regardless of the actual likelihood of that happening?  I am not asking a rhetorical question.  I would really like the answer if it is known.

Citizen of an IKEA World's picture

The vote was 94-nil and the issue has ginormous populist political undertones. 

The campaign ads virtually write themselves.

ruffian's picture

anyone know if this would be retroactive to include the current greek/european bailout by the IMF? thanks

ruffian's picture

does anyone know if this senate bill would be retroactive to include/negate greek bailout?

Abhishek's picture

Chinamerica is no single force.To think it is of a single entity is pure folly.The Chinese will play till it suits their purpose.I am sure if they had an alternative they would not be putting their reserves in dollar.

Trifecta Man's picture

Time for everyone to throw their debt off balance sheet.  I know!  Debt swaps and GDP swaps.

docj's picture

If the monetarist oligarchs have lost Evans-Pritchard...

Steaming_Wookie_Doo's picture

I think AEP still shills for the Empire. Ultimately, they would prefer to see the Continent mired in petty bureaucracy and utter chaos. Oh, wait...

darkpool2's picture

I think we would all be better served if this crisis ( of structure) does lead to the eventual collapse and disintegration of the EC. Small is beautiful !....and after that, lets not exclude the looming fascist USofA 

 

Yardfarmer's picture

One must expect that the congressional weathervane is once again pointing away from the direction of the prevailing winds, this time coming from the upcoming mid-term elections which promise to be at the very least a stalemate á la the latest in the UK, or perhaps a real catastrophe for incumbents.

Yet the legislative branch has time after time proven its impotency in the face of secret Federal Reserve policies and executive fiat and one might expect that the Coryn Amendment is so much empty posturing and political bluster as well. In other worlds the die is cast and this millionaire gentlemens club is boxed into a conundrum which allows escape as little as the implacable economic dilemma allows the western sovereign governments.

As many of the more astute commentators constantly remind us, it is QE to infinity regardless of the falsely well intentioned, self serving legislative initiatives which are as worthless as the paper upon which they are printed and even more so than the hurricanes of fraudulent reserve notes which they seek to displace. The only alternative is deflation which is anathema to the international banking cartels for whom these "public servants" are working.  

Crisismode's picture

+100

 

The collapse of fiat money has to start somewhere, and it might as well begin with the Euro.

What's next? Yen? Yuan? Matters not, they too will fail.

 

Then the USD becomes the only monarch left standing until, by virtue of it's ever-expanding FRN mass, goes supernova and collapses into a black hole from which nothing excapes --

 

except PMs.

 

Got gold?

RockyRacoon's picture

Yup.  And damn glad of it.  Thanks for asking.