Why is the IMF Giving More Funds, When the G20 Won't?

Phoenix Capital Research's picture

So… the IMF is going to bail out Europe.

 

In case you missed it, the headlines just broadcast that the IMF will be expanding credit lines to Europe.

 

Didn’t the IMF already do this for Greece? How’d that work out? It didn’t. In fact, after two bailouts, quite a bit of debt write-downs, AND a default, Greece is still broke and on the verge of collapse.

 

And now the IMF is going to pull a similar stunt with Europe?

 

What’s really odd about this whole move is that the IMF, which is ultimately backed by the US, Japan, and other nations, is doing this when the G20 Countries themselves won’t:

 

No new Euro zone money for debt crisis at G20

 

The Euro zone won verbal support but no new money at a G20 summit on Friday for its tortured efforts to overcome a sovereign debt crisis, while Italy was effectively placed under IMF supervision.

 

Leaders of the world's major economies, meeting on the French Riviera, told Europe to sort out its own problems and deferred until next year any move to provide more crisis-fighting resources to the International Monetary Fund.

 

"There are hardly any countries here which said they were ready to go along with the EFSF (Euro zone rescue fund)," German Chancellor Angela Merkel told a news conference.

 

http://www.reuters.com/article/2011/11/04/us-g-idUSTRE7A20E920111104

 

So the IMF move is just a backdoor bailout that the Powers That Be are hoping the public won’t notice. None of the IMF backers were willing to commit money at the G20 meeting last month… so why are they willing to do so via the IMF now?

 

Regardless, the whole European situation is really quite simple. The markets have lost faith in various EU countries and so are no longer willing to lend to them at current rates. As a result of this, various EU sovereign bonds are tanking, which in turn pushes interest rates higher, which in turn makes it more difficult for these countries to service their debts.

 

You cannot solve this problem by bailing out Europe. You cannot make an insolvent nation solvent by lending it more money. It just doesn’t work. Greece has proved that. And Greece is ultimately a minor player in this mess (GDP of  $304 billion vs. Italy’ GDP of $2.05 TRILLION).

 

So now that Italy and Spain are imploding, somehow the IMF is going to save the day?

 

Folks, no one can save the day. Not some unelected Central Banker, not some new political leader, not even the IMF or ECB. The problems Europe faces are based on simple math.

 

The problems are that there’s too much debt. And the only options for dealing with too much debt are:

 

1)   Default/ restructuring

2)   Mega-inflation (a type of default in of itself)

 

More defaults are coming. It’s no longer a question of if, but when. And when we start seeing nations like Italy default, we’re going to see some REAL FIREWORKS in the markets.

 

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Good Investing!

 

Graham Summers

 

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