Monday, May 19, 2014

Bloomberg Article Laments Stalled IMF Reforms

This Bloomberg article provides some insight on how things are going for the IMF lately. Liberal college students and conservative politicians are both down on the organization these days. Not something that suggests the IMF is about to become a major global player for monetary system change.

While this article does not provide any new information, it does illustrate how far away IMF reforms seem right now. While there has been lots of talk about change and currency resets, etc. the reality right now seems to be that no major change is imminent.

The failure to get the reforms approved clearly shows how difficult it would be for the IMF to start making some major real monetary system changes that people would notice. If they can't these relatively minor reforms approved, imagine what would happen if the IMF tried to do a major reset of currency values.

This is why we say we believe only a new major global crisis would prompt major change coming from the IMF. For 188 nations to agree to allow the IMF to take over and manage a crisis, it would have to be a very big event in our view. And the US would, of course, still hold veto power. It would have to be much bigger than the 2008 crisis.

This is also why we think the odds now favor the BRIC nations just moving on to bypass the IMF. They are growing more and more influential globally. They are becoming less and less dependent on the US (and US dollar) as time goes by. If they get to the point where they can withstand a crisis without any need for the IMF, they have less and less reason to stay engaged there.

Some events that could change the equation quickly might be:

- major bank failures anywhere in the world
- a sudden sharp rise in interest rates that triggers interest rate related derivatives
- a major energy supply disruption 
- a major war (which could also cause a major energy supply disruption)
- some event that triggers a massive selloff in the equity markets
- an event that causes a sharp and severe drop in the US dollar index and sharp rise in gold

Because everything these days is so globally interconnected, any of the above anywhere in the world can happen at any time. So we can't rule out imminent change, but right now there is nothing to suggest we are close to it. We'll keep watching though.

addendum:  Bloomberg also covers the upcoming energy deal between Russia and China

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