IMF Scrambles To Double Bail Out Capacity To $1.3 Trillion, May Issue Bonds
The scariest news out of the IMF overnight is not that the scandalized bailout agency telegraphed that the global sovereign debt crisis is about to get into even higher gear after the Dow Jones reported it is "exploring" ways to double its gross lending power to $1.3 trillion (which means that in addition to the EFSF's proposed $3 trillion expansion, global bailout capacity will soon hit $5 trillion), nor is it that the US middle class will soon be on the hook for tens of billions more in real European-facing exposure (over an above the hundreds of billions in USD FX swaps that the Chairman is about to unleash on the world), but that the IMF is in fact considering issuing its own bonds. The reason why this is disturbing to the G-7/8/20 is that such a move would take the SDR one step closer to being an alternative gold-backed reserve currency, an dilute the hegemony of the Western axis much to the delight of Russia and China (which however may be having problems of their own). Well, that's bad, but we take it back - just as bad is that the IMF is about to have $1.3 trillion in bailout power. And yes, they wouldn't scramble to get it if they didn't need it. What next: unlimited rescue capacity, and unlimited exposure for US taxpayers?
From Dow Jones:
The International Monetary Fund, looking to assure markets that it has the financial firepower to deal with deepening problems in Europe and also crises elsewhere, is exploring how it can have at least $1.3 trillion in lending power, according to officials involved with the discussions.
The IMF currently has about $630 billion in usable resources; about two-thirds of that could be lent under IMF rules.
Under the plan be considered, the fund would need to make permanent a $590 billion temporary lending facility that was put in place in response to the 2008 financial crisis.
The IMF is also counting on member nations to finally enact a doubling of IMF member country dues, totaling $750 billion, which have already been approved in principle. Approvals by national parliaments are expected in early 2012.
As for IMF bond issuance (unclear if it will be century bonds like Greece):
The IMF is also weighing whether to sell bonds in private markets on short notice, a move that could bolster its safety net beyond $1.3 trillion. The IMF has never sold bonds of this sort, and the U.S. and Germany among others have resisted such moves out of concern that the IMF would have too much independence from its major shareholders. It's not clear whether that opposition has lessened with the ongoing global financial turmoil.
Probably the saddest take home message from all this is that we have reached a point where nobody has any idea how to deal with the solvency crisis apart from throwing endless amounts of liquidity at it, a process that will achieve absolutely nothing in fixing the underlying cause but will make the symptoms of global default that more palatable for just a few more months. For what happens after, we urge readers to browse last night's BCG piece on precisely this topic.
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