Friday, November 11, 2016

How Will Trump Win Impact US Relations With the IMF?

If Hillary Clinton had won the election, we could assume that not much would change in terms of US relations with the IMF. But now we have a new world with an incoming Trump Adminstration. It's reasonable to ask how this might change things. In this article by Jim Rickards published in August, he looks at this very question. This article gains quite a bit of relevance post election. Below are some excerpts and then some added comments.


So What Does The IMF Do In The Face Of A U.S Election?

"They hunker down.
When looking into Donald Trump and his positioning on the IMF – it appears he has a limited scope on the Fund. That’s not a direct criticism of Trump.
The IMF is something that very few people know about. They like it that way.
Currently, the U.S maintains the number two guy at the the Fund.
His name, David Lipton.
David Lipton is America’s inside guy at the IMF. Lipton is Harvard trained and serves as First Deputy Managing Director. The current IMF Chairman is Christine Lagarde of France. She is the first female head of the Fund and the fifth from France following Dominique Strauss-Kahn’s disastrous exit. Per customary tradition over the past seventy years, Europe holds the reins at the IMF and the United States keeps leadership at the World Bank.
With brief historical context, I do not anticipate Trump gaining overnight interest in the Fund. He is, most likely, not going to change the U.S approach.

Much of the IMF agenda, from a U.S standpoint, will depend on who is the incoming Secretary of the Treasury is for 2017. The Secretary of the Treasury typically guides the presidential appointment of who will be the eyes and ears at the IMF. They will report directly back to the White House."

The IMF And The 2017 White House.

"For a potential incoming Trump administration, expect an overload of appointments to navigate through. With the Trump campaign launching an internal project to purge the bureaucracy you can estimate that the IMF will not be high on the purge list.
As it stands now in government, there are an estimated 4,000 jobs in the federal bureaucracy that are vital positions, not including cabinet appointments. These people are distributed throughout the bureaucracy. They have been carefully selected by the Obama Administration and when the next U.S president comes in it will go two ways.
In a potential Hillary Clinton administration, she won’t be acting with urgency. She will be comfortable working through those who are currently in place. In essence, carrying the baton.
In contrast, Trump is out to make a significant purge. These types of “cleaning house” activities will take years and the IMF is not an immediately task. Expect the IMF and its associated U.S bureaucrats to keep their heads down, make friends and not to pick fights."
. . . .
"If we have a panic like 2008, that’s when they act. This is called the shock doctrine. The shock doctrine is the idea that I’ve got an agenda and I recognize it’s unpopular. But once a panic hits, those in power are going to be so scared that they’ll do whatever is proposed. That’s what we could see, as this is specifically when a big SDR issuance will be executed.
It’s not on a sunny day, but in a panic, the White House will be just as nervous."
My added comments: Some bullet points from this article -
- Trump is not likely to make a change in US relations with the IMF high priority
- The IMF is likely to simply keep a low profile and look to stay out of Trump's way
- Where things could get interesting is if we get the huge new global crisis Jim Rickards predicts during the next four years. This is when he expects the IMF to step forward as global lender of last resort using the SDR. How would a Trump Administration react to this situation?
That last question has injected huge uncertainty into an already complex system. At this time, because nothing was asked of either Presidential candidate about this kind of situation during the campaign, we truly have no idea what to expect from a Trump Administration. We would have expected a Clinton Administration to work hand in hand with the IMF and take a "globalist" point of view. All we know at this point from Donald Trump is that he has said the following:
- he has said he thinks we are in a "bubble" at least partially created by US Fed  monetary policies that will eventually burst. He has basically predicted a crisis somewhat like Jim Rickards has talked about sometime during his term of office.
-he has sharply criticized the US Fed and some people think he will replace Janet Yellen at the first opportunity. He has also called for an audit of the Fed. Would he partially blame the Fed for any new major financial crisis?

- he has repeatedly pointed a finger towards China for currency manipulation and unfair trade practices. Would he blame China for any new major global financial crisis?

-he has said almost nothing on the record that I can find about the proper role in the future for the IMF and always talks about being against "globalism" and putting America first. The IMF seems to not be too excited about him. Same thing at the UN.

You tell me what to expect if we get the kind of crisis Jim Rickards predicts while Donald Trump is President. Jim says under such crisis conditions even a Trump White House would cave in to pressure to let the IMF step in. But would he really do this with a Republican controlled Congress not likely to be willing to give up US control to a global institution like the IMF? I have no idea. All we can do here is follow events and see what actually happens. If Trump is right about us being in a bubble, we may get the chance to find out sometime in the next fours years what he would do.

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