IMF Eliminates Borrowing Cap On Rescue Facility In Anticipation Of Europe Crisis 2.0; US Prepares To Print Fresh Trillions In "Rescue" Linen

Tyler Durden's picture

Back in April, when we discussed the inception of the IMF's then brand new New Arrangement to Borrow (NAB) $500 billion credit facility, we asked rhetorically, "If the IMF believes that over half a trillion in short-term funding is needed imminently, is all hell about to break loose." A month later the question was answered, as Greece lay smoldering in the ashes of insolvency, and the developed world was on the hook for almost a trillion bucks to make sure the tattered eurozone remained in one piece (leading to such grotesque abortions as Ireland, whose cost of debt is approaching 6%, funding Greek debt at 5%). Well, if that was the proverbial canary in the coalmine, today the entire flock just keeled over and died: today the IMF announced it "expanded and enhanced its
lending tools to help contain the occurrence of financial crises." As a result, the IMF has as of today extended the duration of its existing Flexible Credit Line (FCL) to two years, concurrently removing the borrowing cap on this facility, which previously stood at 1000 percent of a member’s IMF quota, in essence making the FCL a limitless credit facility, to be used to rescue whomever, at the sole discretion of the IMF's overlords. Additionally, as the FCL has some make believe acceptance criteria (and with countries such as Poland, Columbia, and Mexico having had access to it, these must certainly be sky high), the IMF is introducing a brand new credit facility, the Precautionary Credit Line (PCL), which will be geared for members with "sound policies [which just happen to need an unlimited source of rescue funding] who
nevertheless may not meet the FCL’s high qualification requirements." In other words everyone. In yet other words, the IMF as of today, has a limitless facility to bail out anyone in the world, without a maximum bound in how much is lendable. One wonders who would be stupid enough to take advantage of the gullibility of IMF's biggest backers (the US), to borrow an infinite amount of money for any reason whatsoever... And just what all this means for the imminent explosion of the amount of money in circulation...Not to mention the brand new Ben Bernanke smokescreen of having a new justification to print a few trillion dollars when Europe unexpectedly collapses yet again.

In discussing the imminent need for its expanded "Crisis Prevention Toolkit" which also comes with 50cc's of adrenaline, ativan, a crash cart, and a defibrillator, Dominique Strauss-Khan (and that's Missus to you Bob Pisani), the corpulent bureaucrat said: “These decisions expand and reinforce the IMF’s crisis-prevention
toolkit and mark an important step in our ongoing work with our
membership to strengthen the global financial safety net. The enhanced
Flexible Credit Line and new Precautionary Credit Line will enable the
Fund to help its members protect themselves against excessive market
volatility
,” said IMF Managing Director Dominique Strauss-Kahn. What DSK did not mention is that it is precisely the mechanisms used by the Central Banking Cartel to rise the markets ever higher in light of increasingly deteriorating fundamentals, that are precisely what makes the markets excessively volatile, primary culprit of course being HFT, which is nothing but a government endorsed positive feedback loop.

There's more spin:

This strengthening of the Fund’s insurance-type instruments is aimed to encourage countries to approach it in a more timely fashion in order to help prevent a crisis and, also, help to protect them during a systemic crisis. Mr. Strauss-Kahn added that “the revamped financing toolkit rewards countries that implement strong policies. We expect that the availability of these credit lines to a broader spectrum of countries will contribute to a more stable international monetary system.”

So as the world drowns under trillions of excess debt, the IMF's solution is to throw quadrillions (or, technically, "as much as necessary") of new debt at the problem. And why not: when you have an out of control burning oil well, you nuke it (or so the legend says). And what works for geology surely works for unstable monetary systems, correct?

For the specifics of the actual adjustments as part of today's "repackaging" the IMF provided the following summary:

The enhancements approved today by the Executive Board include:

  • Doubling the duration of the credit line (FCL arrangements can now
    be approved for either one year, or two years with an interim review of
    qualification after one year, whereas they were previously either for
    six months, or one year with an interim review after six months);
  • Removing the implicit cap on access of 1000 percent of a member’s
    IMF quota, with access decisions based on individual country financing
    needs; and
  • Strengthening procedures by requiring early Executive Board
    involvement in assessing the contemplated level of access and the impact
    of such access on the IMF’s liquidity position.

The new PCL is available to a wider group of members than those that
qualify for the FCL. In practice, qualification is assessed in five
broad areas, namely: (i) external position and market access, (ii)
fiscal policy, (iii) monetary policy, (iv) financial sector soundness
and supervision, and (v) data adequacy. While requiring strong
performance in most of these areas, the PCL permits access to
precautionary resources to members that may still have moderate
vulnerabilities in one or two of these dimensions. Features of the PCL
include:

  • Streamlined ex post conditions designed to reduce any economic
    vulnerabilities identified in the qualification process, with progress
    monitored through semi-annual program reviews.
  • Frontloaded access with up to 500 percent of quota made available
    on approval of the arrangement and up to a total of 1000 percent of
    quota after 12 months.

And since the NAB, announced with much fanfare, capped out at $500 billion, and since almost 6 months since then have passed, the IMF is now determined to create its own version of Moore's law, by doubling the amount of borrowing availability under its biggest credit facility every six months. To wit, Bloomberg reports: "Talks are ongoing with member countries to raise the IMF
lending capacity to $1 trillion as part of G-20 discussions.
" The $1 trillion will subsequently be doubled to $2 trillion in January 2011, then $4 in June.... and you get the exponential lidea.

Also further confirming that at the end of the day it is the US that will foot these unlimited expenditures (Bernanke's inflationary wet dream has to start somewhere after all), "John Lipsky, IMF first deputy managing director, told reporters on a conference call today that the institution has enough money to fund the new credit lines. At the same time, he said he is confident that member countries will continue to demonstrate a commitment for the IMF to have the resources to make the new credit lines “credible and usable.” You hear that USA? Oh wait, it was your idea all along, we get it now. 

In other words, Europe - prepare: uncle Sam is coming to bail you out once again. Just please give him a reason: our banks demand it, and let's not forget, it is your patriotic duty to bail out US bank balance sheets via semi-hyperinflation. Tonight's move in the EUR and the CHF are a damn good (if on the surface counterintuitive) start.

Lastly, for those lazy readers who always scroll to the very bottom looking for a video clip summarizing all previously said, you are in luck. Here is the IMF's Reza Moghadam condescending, and blatantly lying to all who care, as to what the purpose of tonight's "Crisis Prevention Toolkit" expansion is.