Thursday, August 6, 2015

IMF - Looking like the "Referee" for Greece and Europe

An interesting thing seems to be happening in regards to the role of the IMF in the Greece saga. If you look past the headlines and seeming confusion, a trend appears to be emerging. The IMF is now being presented more and more as the "grown up in the room" to act as impartial "referee". 

Below are just a few article links that illustrate this trend in media coverage of the IMF. Below are links to the articles with a brief quote or summary below each one. After that an added comment.


Bloomberg - IMF Gets Smart About Greece

"By hesitating to play a full financing role in the latest bailout program for Greece, the International Monetary Fund risks alienating both the Greek government and its European partners. Yet the institution’s approach isn't just warranted; it could well hold the key to the success of the challenging task of restoring Greece's growth and financial viability within the euro zone."

CNBC - Can the Greek Bailout Survive Without the IMF?

"Michael Hewson, chief market analyst at CMC Markets, said on Friday that without the IMF's participation, Greece did not stand much of a chance of making the payment deadline."

The Australian - Greek Bailout in Jeopardy as IMF Doubts Grow

"According to a confidential summary of IMF talks leaked by the Financial Times, the Fund will “participate in policy discussions” over the coming weeks to ensure the new bailout programme “is consistent with what the Fund has in mind”. However, the IMF will not agree to take part in the programme until Greece has agreed on a comprehensive set of reforms and after eurozone governments have agreed on debt relief."

Reuters - Greece, Europeans must reach deeper deal before IMF program possible

"The IMF and the United States argue that Greece's loan burdens are unsustainable and have advocated for an easing of some of the terms of Greece's debts to international creditors. European governments have resisted the idea as they negotiate with Athens on further bailout funds.
The IMF also wants Athens to enact laws that would overhaul its economy. It sees debt relief concessions made by the Europeans and economic reforms enacted in Greece as necessary for ensuring Greece can pay back its debts over the long run.

"It will take some time before the two sides are ready to take these decisions," the IMF official said."
My added comments: 

We have noted here that you can think of what is happening in Greece like a real world laboratory where we get a glimpse into how a banking and financial system crisis will be handled. Please note how this is all unfolding. Increasingly, it is the IMF who is being seen as the voice of reason. It is the IMF who is being presented as the organization to look to for crisis resolution. Just read the media coverage above to see the trend.

Let's keep that in mind for the future. If we do get another major global financial crisis worse than 2008, we can expect to see the same game plan unfold at that time as we see in the real world experiment with Greece right now. Jim Rickards has predicted that we will get another global crisis worse than 2008. He has predicted that the world will turn to the IMF to solve the crisis (and use the SDR as a global currency as well). 

These events taking place now related to Greece are supportive of his analysis as they demonstrate that the IMF is presented as the organization to oversee the resolution of the crisis. The IMF is viewed as the "problem solver". The IMF decision to delay inclusion of the Yuan in the SDR basket may indicate there is some friction behind the scenes between the US and China. Will the IMF emerge as the referee for that too? We can watch to see how that works out.

These events also illustrate why we have focused on two big questions to follow here on this blog in the future:

1) Will we get another major global financial crisis bigger than the one in 2008?

2) Will the SDR used at the IMF some day become a global currency that everyone can use?

A yes answer to either or both questions will mean we will see major monetary system change that impacts the life of the average person. So far the answer to both questions has been no, but it could take several years to get a final answer to both questions. The potential for more rapid answers is present all the time though.  We will continue to follow news, events, and credible expert opinions related to both questions to see what does happen.

Added note: If you are looking for our list of systemic risk warnings from the IMF and the BIS, you can find that page by clicking here.

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