On the Swiss, the IMF and the G-20

Bruce Krasting's picture

There will be some drama, and few splashy headlines out of the G-20 meeting in D.C. this weekend. Europe is cracking up (again), and the IMF and big guns of the G-20 will spout about “expanded firewalls” and “global co-ordination” in the final communique Sunday evening. If we don’t get a big dose of “happy talk” then the markets will crap out.

A big agenda item for the weekend is the $400b capital raise for the IMF. There will be plenty of corridor conversations and side deals regarding which country puts up what, and what deals it gets for the money. There are two sideshows of interest in the IMF's new money raise. The first is the USA; the second is Switzerland.


The USA is not going to be a player in the IMF deal. That blows my mind. The USA is the biggest stakeholder in the IMF, but when push comes to shove, and there is a Rights Offering of the common shares, the USA says, “No thank you”.

The USA "no-show" at this critical juncture is due to election year politics. Tim Geithner knows that he could not sell Congress (much less the American people) on a plan where US funds are used to bailout the EU, while there is so much pain at home.



The “We’ll take a pass on this one” attitude by the US speaks volumes about the credibility of the happy talk we will hear on Sunday. Without the US involvement in backstopping the Euro Zone, there is no backstop. This reality will undoubtedly be a topic of those corridor chats.



It will be an important weekend for Switzerland and its citizens. Every indication is that the Swiss will be big players in the IMF deal. As of this writing, the amount the Swiss are in for has not been revealed. The head of the IMF, Christine Lagarde, hinted at what the Swiss were willing to pony up when asked about the size.  She responded:

"a considerable amount"

What does that mean? The following countries have made commitments to the IMF:


Switzerland has a GDP of $0.6T. Based on the above information, it might be expected to commit about 2% of GDP, or approximately $12B. I suspect the amount will be much higher. The reason is that Switzerland has a mountain of reserves that it has accumulated on the backs of the EU countries. The Swiss have built up these reserves through years of currency intervention. Now it will pay the price that comes with an undervalued currency.

All of the big hitters from Switzerland will be in attendance this weekend. The President, Eveline Widmer-Schlumpf, the Minister of Economics Johann Schneider-Ammann, and the new boss at the Swiss National Bank (SNB), Thomas Jordan, will all be at the party. The big shots should be there, after all, they are about to give a large chunk of the country’s money away.

The side deals on the Swiss IMF participation should be interesting. What would the Swiss get in exchange for a giant check?

One thing that will be up for discussion is the SNB’s currency peg. A month ago, the IMF blasted the SNB over the peg. My guess is that the criticism goes away if the Swiss write a check for $25 large. What a system…



China is expected to play in the IMF deal for $50B. And the USA can’t come up with a dime. Just who is the economic super power these days? What did China get for playing big in the IMF bailout deal? Happy talk, of course:


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barliman's picture



I am sure you've read this article by Andy Xie in Caixin:


In a very unsympathetic article, this may be one of the more damning observations:

In 1998, Asian economies quickly tightened their belts amidst the financial crisis. GDP contracted at double digit rate for several economies. Restaurants went empty, as did business class seats on commercial flights. Luxury hotels had to offer massive discounts to attract business travelers. Nothing of this sort is happening in Europe. While euro zone economies have contracted a bit, people seem to be bent on enjoying life as usual. Restaurants, especially the expensive ones, have waiting lines. Luxury hotels are packed. Business class seats seem to fill quicker than ones in economy class. Europeans, while worried about the crisis, don't seem to be acting the part.

I find Xie's comments most accurate in providing a Chinese commentary regarding a "work" mind set (Asia) versus a "right to leisure" mindset (EU). China will NOT backstop the IMF and the EU if Xie's remarks reflect any of the thinking of China's powers that be. I also think his article was targeted at Japan, Korea and other Asian nations who may object to funding the European lifestyle choices.

The Swiss may also prove to be interested consumers of Xie's article. From the outset, I have reasoned the Swiss peg was a political response to Obambi administration power plays and Bernanke's "beggar everybody else" QE.  I see the Swiss peg as part of moving to align with China against American financial policy.

IF the Swiss only offer up a token contribution of 10 billion or so, the "Happy Talk" on Sunday will sound pretty shrill.



AnAnonymous's picture

People go down to luxury hotels, fancy restaurants and flying on business class might be people working, actually working business people.

That Chinese guy is a US citizen.

Check his analysis on the supply side. Typical US citizen angle.

Dollar Bill Hiccup's picture

For 25 large, I hope your countrymen at least get a happy ending!

Canucklehead's picture

Everyone acts as though this is an important meeting.  $26B won't buy you anything.  There are two issues that need to be discussed... social program spending trends and government/corporate corruption.

As things now stands, no one believes a word said by any of these governments.  No action on their part results in no change of direction.  Europe is a fail.

LawsofPhysics's picture

You are correct, and the U.S.S.A will follow.

Canucklehead's picture

The USSA is dominating the global culture.  The rest of the world will implode before the USSA explodes.

If serious changes are made to government spending trends, and mixed with 4% inflation, the majority of USSA citizens will make out okay.  There will be lifestyle changes.  The USSA will look to the implosion of Europe to see how people will manage the transition.  The EU will lead the way for the USSA and show where change worked, and where change didn't work.

Europe has no one to blame but themselves.

MrBoompi's picture

This is all bullshit.  Three years from now we'll find out the Federal Reserve lent then a couple of Trillion minutes after Geithner's comments.

Do you think we trust any of these fucking people?



Bear's picture

I tried to push the green triangle 100 times ... This is a constant liefest and with the elections approaching they will say and do anything to retain power so watch out

masterinchancery's picture

And Japan, facing debt armageddon is throwing in how much?

b_thunder's picture

Tiimy isn't giving money tot he IMF not becasue he doesn't want to, but because this is the election year - just imagine Romney TV ads if Obama pledges anything to the "old europe" (while calling for higher taxes at home.)

But don't worry, Bruce, The Bernank is the one who will be doing the "heavy lifting" -  and by "heavy" i mean multi-trillion dollar LTROs.  ECB with BuBa on their tail won't be able to LTRO into infinity - they're about done.  That's when the baton passes to The Bernank.  That's when those Fed/ECB currency swap agreements come so handy.



masterinchancery's picture

What blows my mind is that the US is still in the IMF, with its record of propping up criminals on the backs of the poor and the developed world's taxpayers.  And if Ben does the same, he should prepare to flee the country when the roof caves in.

withnmeans's picture

Just watch what is to come ahead, we will be there with a "phoney" check just like Japan. We can't fix our own problems "nor Japan", however our printer can solve Europe's....

Nothing from history is ever learned. Print, print, print "Hmm, somebody should make a song", music catches the Main Stream of kids today.


Somebody hire a rapper "QUICK"

Dr. Crime's picture

I agree that the Swiss will ask (demand) a continued devaluation of their currency as a concession for writing the check. Last fall the currency was considered to be one of the "safe haven" currencies and it climbed all summer until the SNB intervened and pegged it at 1.20 to the Euro and they have held the line since then, dammit. I mean last August 1 franc got you $1.38! To put that in perspective, the franc went from $.88 in July 2011 to $1.38 in August 2012. Serious money to made there. Somebody got scared and it has been 1 f to $1.09 since September.

Last year every radio show, newspaper, politician in Switzerland was alarmist over the loss of export because of currency rates. Remember that SNB president Hildebrand resigned because of his wife's currency purchases prior to the lock down. So its not like this decision wasn't seen coming.This was a calculated and serious policy decision. And they are still serious about pegging the franc to the euro, be it for political solidarity with the rest of Europe or export/import considerations. Based on this essay it looks like it going to stay pegged to the euro for a long time.

Börjesson's picture

The Swiss will, along with "other countries" (unclear which ones), fork up $26bn, according to the Telegraph.


NotApplicable's picture

Likely Timmah is loaning Japan (and any other broke-ass "contributor") the money. That way it all looks neat and clean.

eddiebe's picture

I don't quite understand why you say the Swiss currency is undervalued Bruce?

NotApplicable's picture

Because the SNB has been playing in the FX market to keep it from rising, ala the "evil Chinese."

I didn't junk you, BTW.

LawsofPhysics's picture

Bruce,  while I always like your analysis, on this front you can only present the information being made available.  I would be more than willing to bet that there are considerable negotiations taking place that will none of us will ever hear about.  That is the information we really need.

Same as it ever was, until it isn't.  Hedge accordingly.

Freegolder's picture

Why does it take 20 countries to print so much paper?

It's all just like rearranging the deckchairs on the Titanic.

I'm eager for the world to wake up to the reality of its situation, as there is no way this illusion of calm can be maintained.

One day you will awaken to the reality of currencies collapsed to nothing, whilst paper gold markets crash, and real gold goes deep into hiding for a while.

Then we'll see who is an economic superpower, when trade imbalances have to be cleared and settled. (hint for Bruce, it ain't fucking America buddy).

Almost Solvent's picture

As painful as it would be initally, America needs to rebuild its manufacturing ($ way way lower than it is today) OR lots of folks have to be out of the current system (i.e. no longer living). 

Either way, America can be rebuilt once it hits rock bottom, which ain't gonna happen until the $ falls or lots of people are no longer alive.

Chump's picture

Sadly, I think it's 'and,' not 'or.'

crzyhun's picture

G-20 squirts...nothing- dry heaves.

withnmeans's picture

It just must be that time of day, you know where your pissed off about sheeple and muppets. Then, just then somebody writes something so not serious.... Well, actually dead serious..

I really needed this, I laughed my ass off, I had to reread it 4 times and I still laughed every time.


Thank you, crzyhun

G-20 squirts...nothing- dry heaves.

csmith's picture

"Without the US involvement in backstopping the Euro Zone, there is no backstop"


But it DOESN'T MATTER because the Fed will give them every dime they ask for through the back door, so to speak.

Vince Clortho's picture

Does that come with a reach-around?

Moe Howard's picture

NO it does not include a reach-around. That cost extra money baby.

Troll Magnet's picture

well, so long as ben shalom isn't giving them nickels...

NEOSERF's picture

Without the US involvement in backstopping the Euro Zone, there is no backstop. This reality will undoubtedly be a topic of those corridor chats.

This is the essence of the issue this year...many EU markets are already revisiting the lows from 2009 and are looking to head much lower into depression territory..the US will be affected but as long as these middling economic numbers and stock market pumps continue, the Fed will NOT be able to pull out the $3T bazooka to save Spain and thus the world...expect a BIG drop in the markets the next 2 months to get this bazooka done by 4th of July...

johnjkiii's picture

Don't worry, after he gets re-elected, Obammy will be more flexible with taxpayer cash. Ben prints it and gives it Tim who will stash it for a bit and the rent seeking, can kicking world rolls on. Until it stops.

andrewp111's picture

Don't count those chickens before they hatch. Mr. Mittens might have other ideas.