Here is yet another article on this topic in yet another prestigious publication. This article in The Economist has a title that suggests the IMF will find a way to get around the US Congress non approval of the 2010 reforms. But the article itself doesn't really say how they might get that done realistically. Below some quotes and then some comments.
---------------------------------------------------------------------------------------------"AMERICA, the International Monetary Fund’s largest and most influential shareholder, has lately been its most troublesome too. In 2010 the world agreed to expand the IMF’s lending power and rejig its voting rights. But because Congress has not approved America’s contribution to the proposed increase in capital, the reforms have yet to take effect. In December Congress once again passed a budget without paying up."
"The rest of the world is growing impatient."
"Barack Obama’s administration has pressed for the increase, but Republicans, who have controlled the House of Representatives since 2011, have balked, arguing that an increase in the IMF’s lending capacity is an invitation to fiscal recklessness. Now that the Republicans control the Senate as well, approval is even less likely."
. . . . .
"The IMF’s board has begun studying its options, and on January 28th recommended its membership agree on something by the end of June. These interim steps would not be a substitute for the main reform package, for which there is no deadline. Yet the sense of urgency is growing."
. . . . .
"By the time America gets around to approving the IMF’s reforms, it may have become a much less important institution."
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My added comments:
Every time I read an article on this, I feel like this is one topic we have covered pretty well here on the blog. Many of the points we have tried to make here seem to show up in these articles. This article may support a theory we have here and will continue to follow as things unfold.
Our theory starts with Jim Rickards high profile prediction that a new major global financial crisis is coming that will be too big for any national central banks to handle. He follows up that prediction by saying that this time "the IMF will have the only clean balance sheet" in the world to deal with the crisis. If we assume those predictions could happen, we need to figure out how the IMF can get into this position. The IMF will have to be accepted globally as the "go to" institution for these predictions to be realized. In addition, the IMF will have to have a much bigger lending capacity than they have now.
We think this is why so many in the global financial community are so concerned about the 2010 IMF reforms getting passed. This must happen for the IMF to have the solid global support they would need to do what Jim Rickards has predicted. And everyone would have to be on board with the IMF being allowed to function like a "global central bank" (including the ability to create a larger pool of SDR's).
Our theory here is that with the reforms stalled, it may take a huge new crisis to change the situation. Notice who The Economist says is the problem in the US in this article:
"Barack Obama’s administration has pressed for the increase, but Republicans, who have controlled the House of Representatives since 2011, have balked, arguing that an increase in the IMF’s lending capacity is an invitation to fiscal recklessness. Now that the Republicans control the Senate as well, approval is even less likely."
This is exactly the kind of media pressure we mentioned here in our theory on this. We said that the political situation right now is setup to cast the Republican controlled Congress as the problem if a crisis unfolds and people are suffering. We speculated that this pressure could very well lead to rapid approval by Congress of the IMF reforms as the first step in the process Jim Rickards has predicted.
This is only a theory of course. Nothing like this may actually happen. But it is interesting to see this point being made in The Economist and the use of terms like 'the rest of the world is growing impatient" and "the sense of urgency is growing". And then the concluding comment in the article says "by the time America gets around to approving the IMF's reforms, it may have become a much less important institution." (another point we have noted here)
We will just continue to follow this over time. Eventually, time will tell if our theory has any merit or not. The time frame that makes the most sense is sometime before the 2016 elections while the Republicans are setup to take the blame. If our theory does not pan out by then, it is clearly off base. Most people are not even aware all this is going on of course. But readers here will be.
added thank you note: to Jim Rickards for providing this link for readers here who may want to look into this issue in more depth. Here is a follow up article, also from Edwin Truman. Jim has mentioned that he views Edwin Truman as the "go to" expert on this topic. That means it's well worth your time to read what he has to say.
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