Quantifying The IMF's Ability To Bail Out The World

Tyler Durden's picture

Today is D-Day for Europe, and soon, the world. Shortly, the IMF will take its historic place as the cash cop of last resort, a post traditionally reserved for the Federal Reserve, which incidentally was rumored to have activated its FX currency swaps with European banks last week (whether or not that is true will be disclosed by next week's H.4.1). This action will open a floodgate of consequences, as every semi-bankrupt country forces itself into a spending frenzy to guarantee that it is truly bankruptcy, no ifs about it, and qualifies for IMF (and thus 20% US) aid. And at that point the politics of a US-funded world bailout really will come to the fore. Because while the Fed bailing out America is one thing due to the Fed's untouchable and unsupervisable status, the IMF, as a corporation, does not share the same "above the law" privileges. And in an election year, with Americans slowly realizing that the fate of the world is truly in their hands, and their tax money is being involuntarily taken away from them as we speak yet again, ahead of midterm elections, all bets are off. For those interested in the actual mechanics of the IMF rescue mechanisms available, as well as some of the political implications likely to follow, here is an overview via Bank Of Countrywide Lynch.



IMF Lending Capacity (Jeffrey Rosenberg )

The IMF has nearly $250 bn in lending capacity currently available. To lend beyond that, the IMF needs consent of participants representing 80 percent of total credit arrangements in their backstop lending facility – the New Arrangements to Borrow (NAB). While legislative approval is not required in some countries, it is required in others. In either case, it would be a politically sensitive issue in any non-European country to support the peripheral European countries, especially if this comes on heels of Germany rejecting the aid proposals for Greece next week.

The IMF primarily funds itself through payments of quotas from member countries based on their relative sizes in the world economy. Currently, these quotas total SDR 217 billion (SDR or special drawing rights, is an international reserve asset created by the IMF and is based on a basket of four currencies), or $328 billion. Additionally, the IMF supplements  quota subscriptions through two credit arrangements between the IMF and a group of member countries – New Arrangements to Borrow (NAB) and General Arrangements to Borrow (GAB). The GAB enables the IMF to borrow  from participant countries, or their central banks, under certain circumstances at marketrelated interest rates.The NAB is used as a credit facility intended to backstop quota resources, and was recently approved to be expanded to nearly $550 billion from 38 participants, up from $50 billion and 26 participants earlier. Until the expansion goes into effect, the additional lending amounts are available as bilateral agreements, which would eventually be folded into the multilateral (According to a recent IMF conference call, since the NAB is a multilateral loan framework, the IMF usually draws upon it on a proportionate basis to member commitments) expanded NAB.

In reality, the amount the IMF has readily available for new lending is primarily determined by the one-year forward commitment capacity (though this figure is not a rigid maximum). The amount equals usable resources, including unused amounts under loan and note purchase agreements, plus projected loan repayments over the subsequent twelve months, less the resources that have already been committed under existing lending arrangements, less a prudential balance (The prudential balance is an amount set aside to safeguard members’ quotas and claims, also taking into consideration potential erosion of the IMF’s resource base. The prudential balance is set at 20% of member’s quotas used and any amounts activated under NAB and GAB). Currently, the one-year forward capacity stands at SDR 165 billion, or $248 billion.

Spreading the Political Risk Beyond Europe

The lack of a ready liquidity support mechanism for sovereigns in Europe highlights the importance of the IMF in the Greek bailout. Absent the ability or willingness of member states to extend bilateral loans to Greece, the IMF would
be the only support available, in our view. While its current facilities are of sufficient size, the much larger NAB facilities both are not yet operational and in our view require significant political support to execute. Given that the US represents nearly 20% of the total IMF lending capacity (both current and NAB), the failure of Europe to agree to support Greece would shift that political debate to the US and elsewhere.

Until an actual EU/IMF/Greece agreement has been reached and approved in all relevant countries – including by the parliament in some - uncertainty remains elevated in financial markets. Bear Stearns, Lehman Brothers, and AIG all faced shorter time lines at the end of their crises. The abbreviated time line in financial crises stems from the instability of funding. In the case of Greece, that instability may come from what is otherwise regarded as a source of funding stability – deposits. Under normal circumstances, government guarantee schemes generally support stable deposit bases but these are clearly not ordinary circumstances. This week the risk of restructuring – a Greek sovereign default – roiled financial markets.

Whether this concern spreads to depositors in domestic Greek banks will determine whether time will have finally run out on an EU brokered liquidity bailout. Absent that, the IMF stands as the only viable source of funds to avoid further spillover to systemic risk, in our view. And while they currently have enough capacity to fulfill this role, they would likely need to tap the NAB to enable them to support the broader periphery of Europe’s financing needs in a worst case scenario. Such an outcome would test the NAB and the political willingness of a much broader group of countries to support the fiscal deficit challenges of Europe.



The Bank Run


Much has been said over the ongoing Greek bank run by depositors. Some (RBS) did not believe us. They are now stuck holding bonds about 20% lower from where they could have sold them had they listened to us instead of mocking us. But that seems to be a recurring theme. We harbor no ill will toward the nationalized and failed banking institution. Yet, once again we are reminded that once a cascade of events is in motion, depositors, no matter what the level of assurances, simply refuse to keep their money in a banking system in troble. And while Greece is now done, and reliant on the ECB to collateralize its junk-rated sovereign debt, the spotlight now shifts to Spain, Portugal and Italy: are deposit redemptions in those 3 countries approaching the level seen in Greece? Stay tune and find out. In the meantime, as the TimesOnline reports, Europe has, too late, discovered that by the time the liquidity cascade begins, it is far too late.

Central bankers are also working on a separate scheme to stop Greek banks from succumbing to a run on their funds.

The European Central Bank plans to introduce a new emergency liquidity scheme as part of the wider bailout of the country, said sources close to the talks.

Greek banks have suffered a huge outflow of corporate deposits in recent weeks, reducing their financial strength, according to senior bankers.

The scheme would allow the banks to post junk-rated Greek government bonds as collateral in exchange for emergency loans. It will require a change in the European Central Bank's rules: at present it allows only government bonds with a high credit rating to be used in its emergency lending facilities.


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doggings's picture

The scheme would allow the banks to post junk-rated Greek government bonds as collateral in exchange for emergency loans. It will require a change in the European Central Bank's rules: at present it allows only government bonds with a high credit rating to be used in its emergency lending facilities.

well it worked for the US banks with the FED taking toxic junk in exchange for unlimited backup, why not the rest of the world? it's all just pretend and meaningless numbers anyway.


Adam Neira's picture

There is a limit to the amount of bailouts and stimulus packages that can be granted on the international stage. An important relationship exists between liquidity and confidence. All human beings have the drive to self actualise under the right circumstances. All behaviour is a result of mindset and setting however...

ToNYC's picture

The Germans will cut loose Angela Merkel before she falls for this FEd-induced Shock Doctrine play. She isn't about to employ Hank Paulson's imaginary bazooka. Greece will realize its survival in the EU by self-financing in a mark-to-market  actuarial haircut in real time of future obligations  or they can sell their state treasures at auction. The remaining  SPIIGs need to see this one play out or Game Over.

Ned Zeppelin's picture

If Germany nonetheless proceeds to fund the Grecian bailout, you will know who is in charge, and it's won't be Merkel or for that matter the German body politic - it will be the banks, just as the American voters were powerless to prevent the $700B bailout here (just the downpayment actually, the real cost is in the trillions of $USDs and the clock still running furiously).

doggings's picture

sell their state treasures at auction.

me and a couple of pals would be interested in Paros if it's going cheap enough.

ambrosiac's picture


Define "cheap enough".


A friend owns property on Paros, wants to build but is stuck due to refusing to pay bribes to the zoning board for the necessary permits.


Now redefine "cheap enough"  :))

AnAnonymous's picture

A misguided effort. First thing I did when crisis started to kick  was to check mineral assets reserves all around the world.

Answer: collapse not for this time.

Largely enough to keep the scheme going on.

The IMF is not limited in its access to money. The money is limited in what it might buy.

Just a matter of emitting new credits. The IMF can carry out that in a trice. On the other side,  largely enough assets are left throughout the world to bail out the 'whole ' world (or more exactly, get one part of the world to bail out the other part)

Mercury's picture

I guess we'll soon find out when TBTF is overwhelmed by Too Big To Bail.

For now, TB or not TB, that is the question.

plocequ1's picture

Good, I hope it works. I cant wait for my 90% tax increase. Besides, I love Feta Cheese.

Observer's picture

my comment below

Observer's picture

The IMF funds come from the 'rich' states who use it usually to control the 'not so rich' and 'poor' states anyway. all very 'rich' coming from countries whose central banks accpet any junk as 'collateral'. the countries in trouble should create their own bailout anyway by printing money and temper it by instituting price and capital controls till production catches up with excess money supply and stick the finger at the IMF. otherwise they are on the 'road to ruin'

jkruffin's picture

Greeks should just stop working at all now, if this bailout package goes through.   Tax increases and wage cuts in one swoop.  I bet non of the top officials get hit like that.  It is always the less wealthy folks flipping the bill.   I think Greeks need to make a stand here and refuse.

Broker NotBroke's picture

The bankrupt paying the bankrupt. Can't we just let it crash already? Everyone is going to default eventually. If we let it crash now, we may have a chance at a decent life sometime within our lifetime. If things keep going, our grandchildren will lament the futures of their grandchildren.


Let the world eat itself for a spell.

lesterbegood's picture

Perhaps the world will open its mouth wide for us...

exportbank's picture

In a fractional banking system doesn't the 500 Billion at the IMF become 40 trillion in available loans? (80 to 1 leverage like Citi) seems like enough to fix most problems. We live in a fraudulent finance world that needs reality but unfortunately that reality would involve the death of every bank, pension, FDIC and government. Reality is too nasty to allow. You want your 401K to "sort of" be worth something, you want your saving to remain so the only cure seem to be inflation and since that's already running at 9% (I know they tell you it's 2%) we're on the way. See shadowstats for real inflation data.

LeBalance's picture

General question(s):

Are Grecian creditors (those holding its debt, etc.) first in line to trade their toxic assets in for the IMF and ECB "loan" funds?  If so, does Greece ever actually see these funds that it is borrowing OR do these funds just "heal" its Debt/GDP ratio and allow it to turn over a new leaf?  In turning over this new leaf, Greece would then need to run its economy in a responsible fashion (cough Keynes cough) in order to realise the ability to sell new debt (cough usury couch same boat as before cough).  But does anyone believe that Greece (cough defaulting every 1 out of 2 years since independence cough) will do this? (Only the CB gang again?  Those naughty world twisters!)


Duuude's picture

It's a merry merry go-round. Ya just gotta see the diagram in tha link.

The numbers quickly mount. Ireland is heavily indebted to Germany and Britain. The exposure of German banks to Spanish debt totals $238 billion, according to the Bank for International Settlements, while French banks hold another $220 billion. And Italy, whose finances are perennially shaky, is owed $31 billion by Spain and owes France $511 billion, or nearly 20 percent of the French gross domestic product.

“This is not a bailout of Greece,” said Eric Fine, who manages Van Eck G-175 Strategies, a hedge fund specializing in currencies and emerging market debt. “This is a bailout of the euro system.”

Solutions are also not easily forthcoming. “In the end, we’re all saying we don’t know how to deal with it,” said Dirk Hoffmann-Becking, a bank analyst with Alliance Bernstein in London. “We don’t know how the channels work, or where the problems will pop up next.”



LeBalance's picture

Thanks, Duuude.

I am well aware of the fictional nature of countries and that a more realistic picture would be closer to (Power Elite)(Their Banks)(Country Construct)(citizens) as the PE do "legally" own everything.  I am just trying to build up in my mind the ethno-centric picture and how the functionally illiterate citizen might feel about this part of the grand shit storm.

snowball777's picture

Their pentagram is upside down.


kaiserhoff's picture

New GDP numbers are out, but the lefties aren't dancing around the May pole.  We "grew" at 3.5 % but over half was inventory build, the rest was consumer spending as in tax refunds and selling the family silverware.  If you think I'm kidding you need to get out more.  This country is bleeding out.

Note to Ben and Timmy.  If you've got a plan B, this might be a good time.  This dog won't hunt.  Unemployment is building.  There's a tsunami of foreclosures coming, and oh yeah, Europe and the states are about to implode.  Just thought you should know. 

Our last president was famous for his loyalty.  Commiebama, not so much.  I hear it's cold in Siberia.  You might want to pack some wool socks.  Have a nice day;).

Ned Zeppelin's picture

All correct, but Obama is no worse, and no better than anyone before him.  POTUS is not in charge, and has little real power to accomplish anything. You are witnessing the Janitorial Presidency.

kaiserhoff's picture

Where are the free market Democrats?

First principles:  the falacy of equivocation is to treat unequal things as equal.

RockyRacoon's picture

There are no "free market" anybodys.  There are no free markets...period.

youngandhealthy's picture

ZH is whining about USA's 20% quota of SDRs (in fact it is 17%) and its obligations to bail-out all other countries that has been cheating. I can tell you that EU has higher aggregated SDR quota than the USA and in the case of Greece, EU will top with at least another €35Bn. We live in a globalised world both on the asset and the liability side.

jm's picture

Why should a US or German or ANY taxpayer be involved in this?

The issue is between too generous a set of creditors and a debtor nation in dire straights.

It's not whining to tell the pathetic to get their pants on and walk like men.  Bailout creeps need to learn some toughness from Latvians.

AnAnonymous's picture

Tax payers are only involved in later terms.


Why people keep focusing on this point and acting like current tax payer was involved?


Rogerwilco's picture


How is Katy vanden Heuvel doing these days? You two must have had a nice conversation at yesterday's May Day festival.

Go spread your wealth around, I'll decide what to do with mine.

akak's picture

"We live in a globalised world both on the asset and the liability side."

So, "from each according to their assets, to each according to their debt", eh, is that it?

Fuck you and your neo-Marxist attitude that lays claims for the profligacy of the short-sighted against the wealth of the responsible and/or the innocent.

youngandhealthy's picture

Jeeez...calm down Limbaugh...

ZackAttack's picture

Why does any sovereign bond yield any more than any other, then?

doggings's picture

@ Ambrosiac.. heh, I reckon a couple of kilos of Gold for the island would be a fair deal?

not that cheap, but I could justify paying that much.

doublethink's picture


Quote of the Day


“We will have make sacrifices that will be difficult but necessary…but at the end of my term in office Greece will be reborn.”     --G-Pap




Miramanee's picture

RE: "...And at that point the politics of a US-funded world bailout really will come to the fore. Because while the Fed bailing out America is one thing due to the Fed's untouchable and unsupervisable status, the IMF, as a corporation, does not share the same "above the law" privileges. And in an election year, with Americans slowly realizing that the fate of the world is truly in their hands, and their tax money is being involuntarily taken away from them as we speak yet again, ahead of midterm elections, all bets are off..."

Tyler, I have a differing opinion here. The American public's tax money has nothing to do with this deal. The FED (and Treasury) can tweak the IMF's and ECB's reserve accounts upward---by trillions if they so choose---without ANY tax implications for the American public. At least from an operational standpoint this is true. Tax dollars are NOT necessary for the computer operators at the FED to add 1's and 0's to the reserve accounts of the ECB. The only rationale for raising taxes is for the government to see if the dollar still holds value. Tax increases, increases respected and adhered to by the public, means that the dollar remains viable because people need dollars to pay said taxes. If, or when, the people come to REFUSE to honor their tax liabilities, then AND ONLY THEN do the operational issues at the FED become mitigated.

Ned Zeppelin's picture

"The American public's tax money has nothing to do with this deal."

That is of no interest to the folks in charge, who view these assets as their's to deploy irrespective of our opinion on the matter. Our bailout was no different on our shores - it benefited only the banks and the very wealthy, and had nothing to do with the best interests of the American taxpayer. We can only stand back and watch. 

Miramanee's picture

@ NED Zep:

The point is NOT that ALL of this crap benefits the wealthy and super-wealthy. That's tautological silliness, with all due respect. The POINT is that taxes and the FED's operational abilities under a system of irredeemable floating currency are mutually exclusive issues. To make the assertion that American taxpayers will bear the brunt of our bailout of the Eurozone states or of the IMF is incorrect. Additions to the RESERVE ACCOUNTS at the FED are made irrespective of changes in tax policy. Heck, the Obama team could theoretically CUT taxes, and the FED (and Treasury) could still 'infuse' trillions MORE into ECB and IMF accounts at the FED.

The issue viz taxes has to do with the eventuality that Americans, who watch all of the goings on with regard to American bailout of EVERY BANK and EVERY INSTITUTION and EVERY NATION---and who themselves watch their standard of living collapse and their unemployment benefits evaporate, etc.---these Americans may come to eventually say "screw it all", and en masse refuse to service their tax bills. When THAT happens, IF that happens...then we're talking implosion of the dollar---and of the global economy.

Implicit simplicit's picture

The continual creation of US dollars whether here or abroad would eventually induce  a "hidden" tax" in the long run by creating inflation. Ultimeately, this is the problem with creating fiat currencey with no backing in an economy that is not growing.

Miramanee's picture

@ I.S.

Agreed, but with a caveat. Yes, this is "a" big potential problem. And, while I am more in the deflationary camp (viz massive private debt-deflation and deleveraging), I DO see inflationary pressures as being problematic over the mid-term.

HOWEVER...inflation would have to serve as the precursor to a citizen-based tax revolt. It is the citizens refusal (or inability) to pay taxes that would makes the dollar worthless, not the inflationary forces of current monetary policy.

Bam_Man's picture

You are IMHO partially correct. Under such abuse, the US dollar would lose most of its status as "money". While still useful as a means to settle tax liabilities, its utility as a universal medium of exchange would be greatly impaired. The price of oil and gold would absolutely reflect this, and are indeed already beginning to.

Implicit simplicit's picture

What's the od saying: infation in things you need and deflation in discretionary, or something like that. Bottom line creating money from nothing,  and chicks for free can't be a good thing for the economy. Well maybe not the chicks for free part.

The bottom 40% don't pay much income taxes, and this group are finding more ways to not pay other taxes as the economy slumps for them. Its a bifurcated economy where the top earners are doing ok but the bottom getting slammed. A lot more people working under the table and using bartering to make ends meet. Can't blame them. Not just a form of protest against the present system, but a means of survival.

AnAnonymous's picture

Front-running inflation or waiting for the real inflation to pop in (you know, not the scrap people describe to be inflation, money chasing more goods djajdaj... but when mass production is no longer big enough to drown speculative efforts)

No matter what, the USD (or any other currency) is bound to buy less as goods are to become less numerous.

Once again, it sounds finer to buy when there are plenty on the table, meaning being fluid and freely emitted credits are a best than waiting for times when there is much less on the table.


But some people like so much to depict themselves  like victims they dont seem able to admit this point.

Implicit simplicit's picture

You could see the opposite effect in real estate. Plenty of supply, low interest rates, and thus supposedly, discounted homes. However,  after the bond yields rise in response to the diminished dollar, mortgage rates will increase, but houses will fall further in price. This diconnect between inflationary interst rates and lower house prices  happens because the banks will still need to qualify pieople for loans, thus house prices fall when interest rates rise. The opposite of what brokers and bankers tel lyou.

AnAnonymous's picture


The sub-prime stuff was a clever trick to reroute resources towards the US to allow homes building.

The money paid now is the price that the US public can afford.

The US pumped it its home market in order to direct the prroduction towards its territory. 240k$ houses, an offer only possible in the US and a direct consequence of the high quality general environment in the US which has a price.

Reality: same houses are sold 80k$, many other places in the world to compete for this range of prices. Worst: in the US, 80k$ do not cover for labour costs. Making it impossible to build these houses in the US.

The subprime 'crisis' was a clever way to snatch resources that could not have been used in the US.

Houses are in the US. Nowhere else. Good for the US.

Maybe time to stop playing victims?

Madcow's picture

The asymptotes will have their way with the fiat masters.

There's no way of preventing a deflationary (hyper-inflationary) economic collapse. There can't be 'reform' until the current system fails.

Citizens of the West will quit paying taxes because 1) they won't have any money to pay taxes; and 2) the lucky few with remaining incomes will come to realize that "government" is really just a bunch of gangsters, thieves and parasites.  People tend to lose their enthusiasm for cooperating with the "State" when the "State" is revealed as a massive criminal enterprise. 




Miramanee's picture

@ Madcow

A tad hyperbolic...but, I guess that is your right considering your name.

I happen to think that it will take a very VERY long time before the American government, and the fiat dollar, hit the skids due to a tax revolution. Remember, before the government allowed such conditions to evolve, they would create a federally-funded job system, in which any unemployed man or woman could earn $8-10/hour doing any of a myriad of government-sponsored things. How about a million people cleaning up the oil from the Gulf Coast beaches!!

My point is cynical, I know. But the government DOES have two things on its side: (1) The ability to create as much money in the near term as it wants to, and (b) the ability to create as many jobs in the near term as it wants to (Can you say, "Census"?) These jobs would mean more taxpayers, more spending, and thus---AT LEAST FOR NOW---the survival of the dollar.

taraxias's picture


The survival of the dollar is solely depended on the rest of the world's willingness to accept it for oil and other commodities. When these foreign entities realize that the game is being sustained only by more and more printing, the game will be over right there and then.

Bam_Man's picture

Precisely. It has been my contention for quite a while that at some point one or more Gulf States will announce that they no longer accept irredeemable fiat dollars as payment for their precious and ever-dwindling oil resources.

This will ultimately be what forces the G20, kicking and screaming, back onto some sort of a (fractional) gold standard.

Miramanee's picture

@ Bam Man

Why in heaven's name would they do that?!! It would be akin to shooting oneself in the foot with a Howitzer. AS LONG AS THE DOLLAR HAS VALUE, THE GULF STATES WANT THEIR ACCOUNTS AT THE FED STUFFED FULL OF THEM!!!

IMHO, you are ALL missing the key point in these discussions. There is absolutely no reason for foreign entities to swear off dollars, because dollars are still valuable. AND, dollars are valuable because Americans think they need these dollars to pay their taxes.

Taxes as such are not the issue---it is the BELIEF that dollars are needed to PAY said taxes.

Miramanee's picture

@ Taraxias

You are missing my fundamental point. The rest of the world will continue to accept the dollar as long as the American people accept the dollar. And the American people "voice" their acceptance of the dollar by agreeing that they NEED those dollars to pay taxes. Now...do I think that, at some point, the American people might rebel against a dollar that is being used to 'save the world' from all of its own fraud and malfeasance? Yes I do. But to state that "...When these foreign entities realize that the game is being sustained only by more and more printing, the game will be over right there and then..." puts the horse in front of the cart. The rest of the world already KNOWS that their reserve accounts at the FED are being electronically pumped. They are FINE with that---as long as the American taxpayer continues to believe in HIS need to accrue dollars to pay is taxes.