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A Summary and Related Thoughts on the IMF's "Strategies for Fiscal Consolidation in the Post-Crisis

Submitted by Reggie Middleton on 04/07/2010 04:52 -0400

The IMF has recently released a white paper labeled "Strategies for Fiscal Consolidation in the Post-Crisis
World". Here's a synopsis:

Introduction:

The fiscal state of the developed world is facing the
question of solvency for the first time since WWII, and this time
demographic trends are incredibly unfavorable. See Lies,
Damn Lies, and Sovereign Truths: Why the Euro is Destined to
Collapse! for explicit evidence.
Current fiscal models for the developed world see fiscal
tightening starting in 2011 [in 8 months governments are going to
start tightening liabilities? Possible, but I wouldn't hold my breath
for this one]
The only G-7 economy with debt projected at <85% of GDP is
Canada [True, but is that because it is temporally behind the curve?
See
Easter Weekend News Update:
- Canadian Dollar Too Strong? Bloomberg.com:
- Minority opposition in Canadian Parliament is growing over
  strengthening Loonie
- Leaders fear fallout in exports from CAD nearly at parity with
  USD
- CAD strength is directly tied to Chinese commodity demand (is
  the CAD bubblicious, too?)
  - Relevant BoomBustBlog content (we gave you an explicit warning
    of this in early January): China's
    Most Expensive Export: Price Inflation
  - Canada is undergoing the beginnings of a housing bubble as I
    type this!]

Debts in emerging markets are beginning to look safer as they pare
down stimulus packages plus old debt

Potential Exit Strategies:

Inflating (debasing) one's own currency to pay off debt is too
dangerous on a social level to be seriously considered, especially for
emerging markets
Over the past three decades, the most successful method of
managing debt and securing social safety has been to expand the primary
balance surplus

Reference What
Country
is Next in the Coming Pan-European Sovereign Debt Crisis? -
illustrates the potential for the domino effect

Click to enlarge...

Currently, the biggest step toward renewing primary surpluses in
the developed world would be to phase out entitlement/pension funding
or
drastically modify payout schemes

[But who really knows where all of the bodies are buried? Reference Smoking
Swap
Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer
Beware!

The French

In 1997, the French government received an
upfront payment of £4.7 billion ($7.1 billion) for assuming the pension
liabilities for France Telecom workers in return. This quick cash
injection helped bring down France's deficit, helping the country to
meet the pre-condition to join the Euro zone. You may reference the pdf Laurent_Paul_and
Christophe_Schalck_study for a background
on the deal. I don't necessarily concur with their conclusions, but it
does provide some info

For the record and according to the doc referenced above, according to
the State balance sheet for 2006, total pension liabilities of civil
servants have been estimated at 941 billion €, i.e. 53% of annual GDP in
France. An attempt to reform all special schemes in 1995 collapsed
because of severe strikes on the railways. Sounds awfully Hellenic in
nature, doesn't it??? I, for one, believe that Greece is getting a bad
rap, and not becaue it is being falsely accused but because it is just a
lot sloppier at covering up its shenanigans than its European
neighbors.

Now, back to France. A transaction similar to the France Telecomm deal
took place in 2006 with La Poste which still employs 200,000 civil
servants, but is now facing the same evolution as France Telecom in
1997. But an important difference with France Telecom is the obvious
insufficiency of the lump sum paid by the postal company (2 billion €)
compared to the amount of pension liabilities transferred (70 billion €
at the end of 2006).

Almost 1/5 of public spending stabilization could come without
affecting public investment, and simply cutting wage and transfer
payments
The IMF recommends setting up government institutions to enforce
budget restrictions (the ridiculousness of one government entity
stopping a handful of spendthrift entities is mind boggling)

Global Adjustments:

Emerging markets that have opted to inflate away debt have seen
interest rates skyrocket for years, while other who opted to adjust the
primary balance deficit have seen interest rates fall
The average G-20 nation will need to adjust its balance sheet 8.8%
by the end of the decade to reach public debt targets [RIIIGHT!!!!
Like the
Maastricht
Treaty which, after 18 years has been respected by exactly
0.000000% of its members, all of whom are well below the 3% debt to GDP

threshold by about an average of negative 300%!!!!
]
Over the past 30 years, Greece has made a "large fiscal
adjustment" once (1995), where they had more success generating new
revenue, and barely managed to cut expenditures. Greece's
inability to make any sort of cuts to preserve fiscal responsibility is
going to embarrass the cheerleaders looking to save Europe without
lifting a finger. Spanish and Italian efforts have yielded similar
results

Long Term Growth:

Over the previous 15 years, a clear inverse relationship has
developed between debt ratios and real GDP growth
Evidence on whether adjustments should be upfront (shock therapy
1990's) or gradual is inconclusive according to IMF staff
One of the easier methods of reducing public expenditures is to
tighten and reform pension policy (the days of mandatory retirements,
backloaded payouts based on final five years average salary, etc, are
numbered)
Countries with higher domestic debt ownership are more likely to
honor debt and have higher debt tolerances among citizenry (i.e.
Japanese JGB hoarding vs. USA tea parties)

Conclusion:

The IMF has an incredible data set to work with yet somehow
continues to see a picture far rosier than what meets the eye. The
impacts of measures to manage sovereign debt loads seemed to be futile
in the medium-long term. The situation we currently see is similar to
the 1950's in data only. The demographic makeup of the world today
(particularly in Europe) is one that is aging, dependent on entitlement
programs, and underfunded pensions that are seeing falling/no incoming
revenue. This is a clear contradiction to the call for managing or
reducing entitlement and wage expenditures at the government level
(globally), and is a sign that fears over a global sovereign default
among advanced economies is a legitimate threat over the next decade.

Related Subscriber Content:

The Pan-European Sovereign Debt Crisis, to date (free to all):

1. The
Coming
Pan-European Sovereign Debt Crisis - introduces the crisis
and identified it as a pan-European problem, not a localized one.

2. What
Country
is Next in the Coming Pan-European Sovereign Debt Crisis? -
illustrates the potential for the domino effect

3. The
Pan-European
Sovereign Debt Crisis: If I Were to Short Any Country,
What Country Would That Be.. - attempts to illustrate the highly
interdependent weaknesses in Europe's sovereign nations can effect even
the perceived "stronger" nations.

4. The
Coming
Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western
European Countries

5. The
Depression
is Already Here for Some Members of Europe, and It Just
Might Be Contagious!

6. The
Beginning
of the Endgame is Coming???

7. I
Think It's Confirmed, Greece Will Be the First Domino to Fall

8. Smoking
Swap
Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer
Beware!

9. Financial
Contagion
vs. Economic Contagion: Does the Market Underestimate the
Effects of the Latter?

10. "Greek
Crisis
Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on
Fire!

11. Germany
Finally
Comes Out and Says, "We're Not Touching Greece" - Well, Sort
of...

12. The
Greece and the Greek Banks Get the Word "First" Etched on the Side of
Their Domino

13. As
I
Warned Earlier, Latvian Government Collapses Exacerbating Financial
Crisis

14. Once
You
Catch a Few EU Countries "Stretching the Truth", Why Should You
Trust the Rest?

15. Lies,
Damn
Lies, and Sovereign Truths: Why the Euro is Destined to
Collapse!

16. Ovebanked,
Underfunded,
and Overly Optimistic: The New Face of Sovereign Europe

17. Moody's
Follows
Suit Behind Our Analysis and Downgrades 4 Greek Banks

The
EU
Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

How
BoomBustBlog
Research Intersects with That of the IMF: Greece in the
Spotlight

Grecian
News
and its Relevance to My Analysis

- advertisements -

Wed, 04/07/2010 - 14:11 | 290186 CookieMonster

Thanks Reggie for this important (truthful!) piece. Now all you have to do is jump up and down like Cramer on TV and people will flock to you......

Wed, 04/07/2010 - 12:01 | 289816 wgpitts

Reggie- We need a piece on this. I have spoken to the legal counsel at the Fed in NY and Atlanta. Its time for a class action lawsuit as well as complaints with the SEC. If anyone would like to tag onto this SEC complaint the number is : [ ref:00D3JxQy.50038jUG2:ref ]

This is a "Florida Issue" and warrants a full blown criminal investigation by the Florida Attorney General's Office

Florida stands to lose $1 billion because of Lehman Brothers' bankruptcy
http://www.tampabay.com/news/politics/article1007445.ece

Florida Lost $250 Million on New York’s Stuyvesant Apartments
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMJ6yR9lHQQM

Dear FBI and SEC:

I have been writing to you for several months without response. So now the Federal Reserve Bank on Thursday April 1, 2010 admits it secretly and illegally purchased tens of billions of dollars of equities in companies, from their co-conspirators/insider traders, and did not disclose this information to investors. This was material information that affected the financial stocks that was undisclosed. This is a felony offense for the following reasons.

1. They were not authorized by law to purchase these stocks or equities

2. These were material transactions that effected entire market segment and investors were not made aware of these material transactions.

3. Only insiders knew of these purchases and invested accordingly

Additionally, the owner’s of the Federal Reserve Bank are the same banks and institutions that received this illegal money. They obtained personal benefit from these illegal/insider transactions.

Investors who had short positions or purchased “put options” were defrauded of billions. I purchased short positions and was defrauded. I want to prosecute.

Those guilty by their own admission should be arrested. Those who lost because of this fraud should be compensated for their loss.

Below is my complaint. I have not heard 1 word from the SEC in 4 months. How much more evidence do you need?

Fed Releases Details on Bear Stearns, AIG Portfolios
http://www.bloomberg.com/apps/news?pid=20601087&sid=aymTlczlMmpA&pos=1

Fed in hot water over secret bailouts
http://www.csmonitor.com/Money/Robert-Reich-s-Blog/2010/0401/Fed-in-hot-water-over-secret-bailouts

The Fed Admits To Breaking The Law
http://networkedblogs.com/21Xqv

Geithner: Pickpocketing Trillions from the People to Give to the Oligarchy Was "Deeply Unfair", But We ... Um ... Had To
http://www.washingtonsblog.com/2010/04/geithner-looting-country-for-trillions.html

Why Is The Fed Actively Managing A $25 Billion Maiden Lane MBS Portfolio When Its $2.4 Trillion SOMA Holdings Have A $1 Billion DV01? (And Are Unhedged)
http://www.zerohedge.com/article/why-fed-actively-managing-25-billion-maiden-lane-mbs-portfolio-when-its-24-trillion-soma-hol

Dylan Ratigan states that US Attorney’s office in New York investigating. Re: Lehman Brothers
http://www.msnbc.msn.com/id/21134540/vp/35841681#35841681

The SEC Complaint filed is below

My complaint below was filed in December. I have not heard any info on this complaint. Please send me a confirmation.

Investors have lost billions of dollars taking short positions on financials while you allowed the private central banks to manipulate the banks financial positions without disclosing to investors. Only the bank insiders knew. They made a killing. This is fraud. What are you going to do about it? My complaint that I filed is below.

So how can the central banks secretly loaning banks hundreds of billions of dollars and not tell the public? How can one make market investment decisions when this info is not disclosed?

How can the central banks secretly provide hundreds of billions of dollars to banks and not disclose this information to investors? Isn’t this market manipulation? Where is the SEC? All those with put options or short sales were defrauded. I am one of those persons!

I am beginning to believe that the SEC is part of this fraud on the American people. I have not heard back on this complaint in over 2 months.

Bank of England tells of secret £62bn loan to save RBS and HBOS
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6646923/Bank-of-England-tells-of-secret-62bn-loan-to-save-RBS-and-HBOS.html

Bank of England advisers not told about secret £62bn loan to HBOS
http://www.guardian.co.uk/business/2009/dec/03/bank-england-secret-loan-hbos

Bank gave RBS and HBOS 'secret' £62bn loan
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6929451.ece
Fed Refuses to Disclose Recipients of $2 Trillion
http://www.bloomberg.com/apps/news?pid=20601109&sid=apx7XNLnZZlc

Fed Fights Request To Disclose Who Got $2 Trillion In Bailouts
http://www.istockanalyst.com/article/viewarticle/articleid/3775032

Is Obama manipulating the stock market?
Economist claims president 'jawboning' economy to boost Dow
http://www.wnd.com/index.php?fa=PAGE.view&pageId=92100

VIDEO: Federal Reserve Manipulating Stock Prices?
http://www.chartingstocks.net/2009/09/video-federal-reserve-manipulating-stock-prices/
Does The Government Actually Manipulate The Stock Market?
http://www.businessinsider.com/does-the-government-actually-manipulate-the-stock-market-2010-2
Sent: Mon 12/28/2009 1:57 PM
To: Will Pitts; 'enforcement@sec.gov'
Subject: RE: Copy of Complaint filed with SEC
How do you find out the status of your complaint?

From: Will Pitts
Sent: Thursday, December 03, 2009 11:54 AM
Subject: Copy of Complaint filed with SEC

Names, Address, Telephone #s and Other Biographical Information about Individuals Involved

Bank of America,
Goldman Sachs,
Citigroup
Royal Bank of Scotland
BlackRock (BLK, Fortune 500)
AllianceBernstein (AB)
Oaktree Capital Management
Invesco (IVZ)
Angelo, Gordon & Co
Marathon Asset Management
RLJ Western Asset Management
The TCW Group and Wellington Management Company.
Federal Reserve Bank
Bank of England
US Treasury

How you Learned about the Transaction or other Activity
From a recent news release it was disclosed that secret transactions between the Central Banks, and the large banks are occurring that results in a manipulation of stock prices and automatically creates insider advantage trading for the banks to purchase each others stocks.

BoE Secretly Loaned $102.9 Billion to RBS
http://www.cnbc.com/id/34126826

Federal Reserve Banks Secretly Lent Out $2.2 Trillion and Refuses to tell Senate Where Money Went
http://www.youtube.com/watch?v=oOpQkRsEfaU

This is the information available to investors. Following this information and by the review of the large banks financials it would make no sense to hold or buy but would make sense to short. Unless you had the inside information that the BoE and Fed was secretly providing hundreds of billions to the banks for the purposes of buying each other’s stocks to pump up the market..

Details About the Transaction(S)
In March and April of 2008 relying upon released financial information from Citigroup and Bank of America showing they were going to experience significant cash flow problems I sold these stocks. A Few months later I took short positions against these stocks relying upon their released financial data. I learned yesterday that the Central Banks and possibly even the US Treasury was secretly providing cash to these banks and even potentially making direct purchases of their stock thus driving the stock prices up. This information and the extent was not disclosed to shareholders and is material information that impacted my decision to sell and my decision to short this stock. Additionally there is reasonable suspicion that insiders at these banks had knowledge of this significant undisclosed investment/loans to the banks and made significant stock purchases and realized gains from having this undisclosed insider information.

As a result of this non disclosure The Federal Reserve Bank and Bank of England are suborning securities fraud and those at the banks that were aware of these transaction that did not disclose are guilty as well.

We deserve to know every transaction and every bank and financial institution that received this $2 trillion and under what conditions it was provided.

Was this material information disclosed to some like Goldman Sachs and RBS and others who made billions?

Was it withheld from shareholders who sold that would not have, had they known the banks cash flow was well supplied? Was it provided to those who shorted the banks stocks and lost?

BoE Secretly Loaned $102.9 Billion to RBS
http://www.cnbc.com/id/34126826

Federal Reserve Banks Secretly Lent Out $2.2 Trillion and Refuses to tell Senate Where Money Went
http://www.youtube.com/watch?v=oOpQkRsEfaU

If on the Internet, All Relevant Internet Addresses

BoE Secretly Loaned $102.9 Billion to RBS
http://www.cnbc.com/id/34126826

Federal Reserve Banks Secretly Lent Out $2.2 Trillion and Refuses to tell Senate Where Money Went
http://www.youtube.com/watch?v=oOpQkRsEfaU
Bank of England tells of secret £62bn loan to save RBS and HBOS
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6646923/Bank-of-England-tells-of-secret-62bn-loan-to-save-RBS-and-HBOS.html
Bank of England advisers not told about secret £62bn loan to HBOS
http://www.guardian.co.uk/business/2009/dec/03/bank-england-secret-loan-hbos

Bank gave RBS and HBOS 'secret' £62bn loan
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6929451.ece

Fed Refuses to Disclose Recipients of $2 Trillion
http://www.bloomberg.com/apps/news?pid=20601109&sid=apx7XNLnZZlc

Fed Fights Request To Disclose Who Got $2 Trillion In Bailouts
http://www.istockanalyst.com/article/viewarticle/articleid/3775032

Is Obama manipulating the stock market?
Economist claims president 'jawboning' economy to boost Dow
http://www.wnd.com/index.php?fa=PAGE.view&pageId=92100

VIDEO: Federal Reserve Manipulating Stock Prices?
http://www.chartingstocks.net/2009/09/video-federal-reserve-manipulating-stock-prices/

Does The Government Actually Manipulate The Stock Market?
http://www.businessinsider.com/does-the-government-actually-manipulate-the-stock-market-2010-2
PPIP Watch: Banks as Bidders and Sellers...Hmm, Remember Enron
http://seekingalpha.com/article/129639-ppip-watch-banks-as-bidders-and-sellers-hmm-remember-enron
Is this group assembled to manipulate the markets or make investments. If they are manipulating the markets this is a federal offense.

Presidential Working Group on Financial Market Directly Buying Stock in the Stock Market?
http://www.youtube.com/watch?v=X06kz9dzXho

Plunge Protection Team
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm

Use this area to add any additional information that you wish.
Based upon the following researched information and the non disclosure from the banks of "secret" capital infusions I was defrauded out of my holdings and enticed to take short positions. The economic loss to me is several million dollars.

E.U. to Release Some Bank Stress Test Results - Twenty-two large banks in Europe may have accumulated credit losses of close to €400 billion for this year and next
http://www.nytimes.com/2009/09/26/business/global/26banks.html?adxnnl=1&adxnnlx=1254074645-1PA+ThG/oSOKyEoCHBgpBw

US Losses on Banks' Big Loans: $53 Billion - 9-25-09
http://online.wsj.com/article/SB125383526833139325.html?mod=wsj_share_facebook

2,256 banks an score an "F"
http://www.investorsinsight.com/blogs/thoughts_from_the_frontline/archive/2009/09/18/the-hole-in-fdic.aspx

The Coming Consequences of Banking Fraud
http://seekingalpha.com/article/160619-the-coming-consequences-of-banking-fraud?source=hp_mostpopular

Banks Face Loss of Debt Guarantee - WSJ.com
http://online.wsj.com/article/SB125253151037397187.html?mod=wsj_share_facebook

Are We Facing a Banking Crisis?
http://www.marketoracle.co.uk/Article13110.html

Why I’d Get Short Financial Stocks As Soon As Possible | Daily Markets
http://www.dailymarkets.com/stocks/2009/09/14/why-id-get-short-financial-stocks-as-soon-as-possible/

Some additional relevant information:

How Lehman, With The Fed's Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility
http://www.zerohedge.com/article/how-lehman-feds-complicity-created-another-illegal-precedent-abusing-primary-dealer-credit-f

CIA Says Obama's Deficits Are National Security Threat | The FOX Nation
http://www.thefoxnation.com/business/2010/03/17/cia-says-obamas-deficits-are-national-security-threat

FED GAVE Banks Access to 23.7 TRILLION DOLLARS NOT $700 Billion! http://www.youtube.com/watch?v=lDJc0PZV-Bk&feature=player_embedded
Sticker Shock: $23.7 Trillion Bailout?
http://abcnews.go.com/Business/Politics/story?id=814

Tracking the $19 Trillion Bailout Funds
http://blog.newsweek.com/blogs/wealthofnations/archive/2009/09/22/tracking-the-19-trillion-bailout-funds.aspx

Fed Lends Two Trillion Without Oversight
http://www.youtube.com/watch?v=oxuqmPyKqcs&feature=player_embedded

more info here: http://www.facebook.com/wgpitts?ref=profile#!/note.php?note_id=383150183339&id=1054329942&ref=mf

Wed, 04/07/2010 - 11:36 | 289733 Yardfarmer

The Global Economy and Financial Turmoil: Finding our Footing

Speech by First Deputy Managing Director John Lipsky,
International Monetary Fund,
At the Center for Strategic and International Studies
Washington D.C., September 18, 2008

As Prepared for Delivery

Introduction

Financial market developments over the past few days have been dramatic: The bankruptcy of a major U.S. investment bank, the acquisition of another by a large commercial bank, the federal government's intervention to shore up the GSEs, followed by the Federal Reserve's provision of a massive emergency loan to stave off a disorderly bankruptcy of the world's largest insurance firm, are the latest searing manifestations of a financial crisis that has expanded suddenly to historic proportions.

There is now almost universal consensus that the global economy is set to weaken, with the debate shifting from whether emerging economies would decouple from the advanced economies to whether the slowdown will be shallow and somewhat protracted or deep and very long. While the events of the past week underscore the seriousness of the situation, my message is today straightforward: this storm can be weathered without a damaging global recession, but attaining such an outcome will require clear and coherent policy responses from public authorities and institutions around the world, together with the restoration of private market functionality and an end to investors' spiraling crisis of confidence.

It is obvious that the challenges at hand are daunting. The confluence without historic precedence of three shocks-to commodity prices, to housing markets, and to the financial sector-represents the source of the sharp strains sweeping across financial markets.. The contours of the challenges are shifting, however. With energy and commodity prices well down from their earlier, all-time highs, inflation pressures should begin to recede in most advanced economies, opening the prospect of a gradual restoration of consumers' purchasing power. At least in the battered US housing market, the prospect is emerging of an eventual bottoming out in the steep drop in activity, and we expect prices to begin to stabilize in the course of the coming year

Wed, 04/07/2010 - 10:43 | 289643 DOT

Thanks again Reggie. I am expecting a call soon from Morgan et.al. Their push recently has been " searching out and offering better yeilds than are being offered in insured accounts " Seven percent return on the dollar is a great deal with one big problem: IT IS A LIE.

Wed, 04/07/2010 - 10:42 | 289637 dnarby

I see at least a 10:1 currency devaluation coming for the US.

It's the only way they can pay all the obligations. "Hey, we said we'd agree to pay you X... Not that we would guarantee X would be able to purchase the same amount next year as it did this year!"

The reaction to keeping to the letter of those obligations without keeping to the spirit of them should be... Interesting.

Wed, 04/07/2010 - 10:14 | 289606 Lionhead

Here's another point of view from an Australian looking at debt to GDP of the two countries (USA & Australia):

http://www.incrediblecharts.com/economy/keen_debt_gdp.php

"Since America is even more of a Ponzi-dominated economy than Australia, this reduction in private debt — now that the Ponzi Scheme has collapsed — is the key cause of the USA's current slump." [GFC in the article refers to Global Financial Crisis.]

Let's see how the 10yr UST auction is received this afternoon.

A Summary and Related Thoughts on the IMF's "Strategies for Fiscal Consolidation in the Post-Crisis

The French

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