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Oh please Christine….

“It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand,” IMF Managing Director Christine Lagarde said in prepared remarks before the German Council of Foreign Affairs in Berlin. “A moment, ultimately, leading to a downward spiral that could engulf the entire world,” she said.

The dire warning from the IMF’s top executive is designed to spur political action in Europe and within the Group of 20 industrialized and developing economies and avoid the political stagnation she said exacerbated the crisis.

Let’s look at the facts, shall we?

The situation facing Europe and indeed the developed world is much like a gambler who walks into the casino with a bankroll and sits down at the tables.  He loses the first few hands but feels the “old alchemy”, and much like a drug addict he likes the rush that is produced, even as his stack starts to dwindle toward zero.  This is akin go the first political promises made to give handouts to people that have no funding behind them.

As the stack in front of the gambler dwindles, however (and the political promises pile up debts) the level of desperation rises.  Now euphoria is replaced by sweat.  You see, the gambler came to the casino with the mortgage payment and electric bill as his stake, just as the IMF committed billions knowing that the entities involved in the game — in this case Greece — lied to get into the Euro and did so with the explicit support and participation of many of the world’s largest financial institutions.

So now, having lost the original bet, we have the doubling down.  And the doubling down on the doubling down.

Anyone who has gambled knows how this ends — in bankruptcy.  Oh sure, there’s the chance that you will pull off the big hand, that you will get back what you lost.  It’s the nirvana that is always just around the corner, just one more hand, just one more pull of the slot machine handle, just one more hit off the crack pipe and you’ll stop….

There is no stopping other than by force, ladies and gentlemen, and that force needs to be applied to the neck of people like Christine Lagarde by the governments involved.

There is simply no other way.

You cannot solve a debt problem with more debt.  You cannot resolve the issues that face the world economy with more borrowing and you cannot “grow out of it”, as mathematically you must either grow faster than the debt increases or shrink the debt faster than GDP decreases.

This is mathematical fact, not politics or policy.

Lagarde doesn’t want to talk about mathematics and she’s not alone.  The rest of the developed world is likewise unwilling to face facts when it comes to the mathematical certainties that underpin what is going on in the economy on a global basis.  The IMF states that “a collapse in demand” will lead to a global Depression (true) but refuses to admit that “demand” fueled by deficit spending is in fact false; it is “demand” that does not actually exist in the economy as a consequence of actions by people and is instead a reflection of “free stuff” being handed out by those governments.

But “free stuff” is never actually free.  It is only a pull forward of demand into today from tomorrow.  Then, when tomorrow comes, we do it again.  And again.  And again.

For how long can this continue?  Can it contiunue forever, as people like Lagarde claim?  Of course not.

Can we expect productivity and improvement in the economy to lessen and fix sovereign balance sheets?  No, because the deficit spending has not stopped and nobody intends to stop it.

But until it does stop, and until the facts are faced there is no resolution, there is no adjustment in the general price level, there is no recognition that the people of these nations have lived at a standard of living that exceeds their ability to earn.

Until that changes — whether by choice or force — there is no resolution to the underlying problem, and thus all so-called “recoveries” will be both short-lived and false.

They don’t give up do they?

PARIS — The head of the International Monetary Fund said the world economy was in danger and urged Europeans to speak with one voice on a debt crisis that has rattled the global financial system.

….

“The world economy is in a dangerous situation,” she told France’s Journal du Dimanche in an interview published on Sunday.

The debt crisis, which continues into 2012 after a European Union summit on December 9 only temporarily calmed markets, “is a crisis of confidence in public debt and in the solidity of the financial system,” she said.

That’s because it’s a public fraud, and you’re a big part of it.

Lagarde added: “National parliaments grumble at using public money or the guarantee of their state to support other countries. Protectionism is in the debate, and everyone for themselves is winning ground.”

“Protectionism”?  It is hardly “protectionism” to refuse to spend your hard-earned money to bail out the profligacy of some other nation.  That’s called prudence and the right to make that decision is called sovereignty.

Of course the IMF doesn’t believe in either.  But Lagarde ought to pay attention to her history; she is French after all.  And I do seem to remember that at one time in French history there was a wee revolt among the people who got damned tired of aristocrats deeding themselves effectively unlimited funds from the productive for their own puerile ends and the fiscal profligacy of the state.

What came next Christine?  Do you recall your history classes?  I seem to recall that things didn’t work out quite as anyone planned, and that the best laid plans for an alleged Constitutional Republic instead devolved into mass executions and violent revolution — well, maybe more than one of them, if you get into the technical.  From the standpoint of the aristocracy as well as the common man this outcome could be reasonably considered a failure, yet it all came from one root — a refusal to heed the fundamental reality that a government cannot spend more than it is able to tax.  This over-reach, which has arisen continually through the ages, almost-always results in the destruction of the government involved, and more frequently than one would like mass bloodshed and loss of civil order comes with it.

There seems to be this quaint notion that today we are immune from such foolishness.  Of course we are not; the “aristocracy” is now the banksters, who have through their schemes and frauds ripped off literal millions of people.  It is not just dodgy mortgages and similar trickery in the pedestrian manner; this behavior rises to high crimes and misdemeanors.  Jefferson County Alabama anyone?  How about Greece, which was “helped” to produce outright fraudulent statements of account on a national level, with the ill-gotten profits, of course, retained by those very same banksters.

There is no reason for the nations that have been abused by these tactics to “cooperate” in the saving of those who embarked on such foolishness, nor should one penny be allocated to those nations and their governments that have given protected status to and refused to prosecute the fraudulent edifices upon which this pyramid of schemes has been built.

Indeed, the wiser choice is to force those institutions, whether public, private, or quasi-governmental, to eat their own cooking, and to withdraw any alleged “protection” from both civil and personal criminal liability for their acts.

I would cite Christine’s pronouncements as a latter-day version of “Let them eat cake!”, but there is question as to the provenance of that alleged statement.  Therefore, I will simply observe that aristocratic privilege through the ages is one that tends toward abuse, and that in both the case of the French and America, those abuses eventually gave rise to upheaval, convulsion and great harm.

One would think that being French Lagarde would have a respect for the lessons of history and not be inclined to risk a repetition.  But then again, history also teaches us that aristocracy by any name never outgrows the unwise arrogance that is its inevitable companion.

And here comes Uncle Sam:

• IMF APPROVES CREDIT LINE PROGRAM CHANGES TO PROVIDE LIQUIDITY
• IMF CREDIT LINE CREATES NEW SOURCE OF FUNDS FOR MEMBER NATIONS
• IMF ADDS EMERGENCY FUNDING TOOL TO ASSIST COUNTRIES IN CRISIS
• IMF NEW CREDIT LINE AVAILABLE FOR SIX MONTHS TO TWO YEARS
• IMF CREATES PRECAUTIONARY AND LIQUIDITY LINE
• IMF SAYS ACCESS UNDER 6-MONTH LIQUIDITY LINE COULD BE UP TO 500% OF
  MEMBERS QUOTA

And here is the math: Italy’s quota is 7,882.3SDR; Spain is 4,023.4 SDR. Multiply by 5 and you get 40 Billion and 20 billion SDRs respectively, which  translates to $61 billion and $31 billion. A total of $91 billion in additional capacity? And that’s it: enough to fund Italy and Spain for… two months. This is the best the regime can come up with?

Good thing America can get its own house in order so it can go out and fix the world next, not with one, but two credit lines. Incidentally, absent the US ratifying these two credit lines they are as good as useless because with 17.7% of the total allocation, the US is the defacto lender of only resort (since this is used to bail out Europe, which effectively means Europe will not be lending into these credit lines). And good luck passing a global bail out vehicle through the Frankenstein monster that is the US legislative body.

And the final nail why this move is completely irrelevant:

The IMF board of governors agreed December to roughly double quotas from around $375 billion to around $750 billion. But out of the 187 member countries, only 17 have legally accepted the increase, including Japan, the U.K. and Korea. Most of the countries with the biggest quotas, such as the U.S., China and Germany, haven’t yet gone through the legal process, such as parliamentary or congressional approval, need to hand over their promised dues.

Q.E.Dead

The precautionary Credit Line:

Precautionary Credit Line     The Precautionary Credit Line (PCL) has been established to provide effective crisis prevention to members with sound fundamentals, policies, and institutional policy frameworks that have no actual balance of payments need at the time of approval of the PCL, but moderate vulnerabilities that would not meet the FCL’s qualification standard. Members may request an arrangement with duration of between one and two years. Access under an arrangement with one-year duration shall not exceed 500 percent of quota, with the entire amount being made available upon approval of such arrangement and remaining available throughout the arrangement period subject to an interim six-monthly review. Access under an arrangement with a duration of more than one year shall not exceed 1000 percent of quota, with an initial amount not in excess of 500 percent being made available upon approval of the arrangement and the remaining amount being made available at the beginning of the second year of the arrangement subject to completion of the relevant six-monthly review. Purchases under PCL arrangements are repayable in 8 quarterly installments 3¼ – 5 years after disbursement.

And the Flexible Credit Line:

Flexible Credit Line     The Flexible Credit Line (FCL) has been established to allow members with very strong track records to access IMF resources based on pre-set qualification criteria to deal with all types of balance of payments problems. The FCL could be used both on a precautionary (crisis prevention) and nonprecautionary (crisis resolution) basis. Members may request either a one-year arrangement with no interim reviews, or a two-year arrangement with an interim review of qualification required after twelve months. Upon expiration, the Fund may approve additional FCL arrangements for
the member. Access is determined based on individual country financing needs and is not subject to a pre-set cap. Purchases under FCL arrangements are repayable in 8 quarterly installments 3¼ – 5 years after disbursement.

Source: IMF

ZeroHedge

I think we may be there.

The IMF entered the picture in November 2008, advising the government to reconstruct the banking system in a way that “includes measures to ensure fair valuation of assets [and] maximize asset recovery.” The government created three “good” new banks from the ruins of its failed banks, transferring loans from the old to the new banks at a discount of up to 70 percent to reflect their fair value, based on independent third party valuation.

The vultures became owners of two out of three new Icelandic banks. On IMF advice the government negotiated an agreement so loose as to give them a hunting license on Icelandic households and businesses. The new banks acted much as U.S. collection agencies do when they buy bad credit-card debts, bank loans or unpaid bills from retailers at 30% of face value and then hound the debtors to squeeze out as much as they can, by hook or by crook.

A hunting license eh?

There comes a time when one must recognize that all “shooting galleries” where the target is a living human on the end of the range inherently results in the target having the right to shoot back.

That is, there is no such thing as a one-way hunting festival when the quarry is another human being.

Those who refuse to recognize that this is the moral equivalent of an armed takeover of the nation are fools.  The culprits here are “vulture funds” that came in and “recapitalized” but then at the same time are short-term trading on these distressed situations.  Their intent of course is to make as much money as possible, but there is no harm and no foul to be done to the people responsible — instead, the household is the one who takes in the seat, just as has happened here in the United States.

At some point the people must rise and put a stop to this.  The IMF has done this repeatedly through history in various nations, and there is no reason for any sovereign people to stand for it.  These are not your friends and they have every intention of screwing you to the maximum degree.

A few years ago Icelanders held a literal “torch vigil”; the implicit threat was clear.  It appears to be time for another one, and if the vultures that are involved in this charade are not immediately shown the door by the government the unfortunate reality is that the people may have to eject both the banksters and the government by whatever means are necessary.

We should, you know, especially when the head of the IMF spews crap like this:

As we all know, a major cause of the crisis was too much debt and leverage in key advanced economies. Financial institutions engaged in practices that magnified, disguised and fragmented risk, while households borrowed too much.

Right.  There’s the admission.  But let’s remember that without the financial institutions households could not have borrowed too much.  It’s somewhat like a crack addict – you can want all the crack you want, but if nobody is selling it you’re not going to be smoking it.

So where is the accountability for those institutions?  Oh, it’s missing – indeed Christine calls for more theft from you through public balance sheets to prop these jackasses up!

Put simply, while fiscal consolidation remains an imperative, macroeconomic policies must support growth. Fiscal policy must navigate between the twin perils of losing credibility and undercutting recovery. The precise path is different for each country. But to meet the credibility test, each country needs a dual focus: a primary emphasis on durable measures that will deliver savings tomorrow which, in turn, will help to create as much space as possible for supporting growth today—at least by permitting a slower pace of consolidation where possible. For instance—measures that change the rate of growth of entitlements, health or retirement.

Monetary policy also should remain highly accommodative, as the risk of recession outweighs the risk of inflation. This is particularly true as (i) in most advanced economies inflation expectations are well anchored; and (ii) pressures from energy and food prices are abating. So policymakers should stand ready, as needed, to dive back into unconventional waters.

Micro-level policy actions to relieve balance sheet pressures—felt by households, banks, and governments—are equally important. We must get to the root of the problem. Without this, we will endure a painful and drawn-out adjustment process. Structural reforms will surely help boost productivity and growth over time, but we should take care not to weaken demand in the short term.

In a word, no.  What should be done is to impose the corporate death penalty on those institutions that cannot cover their own debt loads.  We should force the bad debt into the open and default it.  We must return to a sustainable level of public and private debt, and in the United States that’s about half of what’s outstanding right now.

Pretending that we can “grow” out of this is a lie.  We cannot.  To do so we would need to double GDP over the next decade, and yet do so without taking on one penny of additional debt anywhere in the system.  That amounts to 7% growth each and every year for the next ten, with zero additional debt.  That exceeds any long-run GDP growth the United States has experienced on a debt-adjusted basis at any point in the modern era and as such is simply not going to happen.

The dreams of political fools must accede to mathematical and historical facts, and on this point the data is clear – we cannot grow out of this.  We must instead consolidate out of it and accept the economic pain that will result.

On Europe:

First, sovereign finances need to be sustainable. Such a strategy means more fiscal action and more financing. It does not necessarily mean drastic upfront belt-tightening—if countries address long-term fiscal risks like rising pension costs or healthcare spending, they will have more space in the short run to support growth and jobs. But without a credible financing path, fiscal adjustment will be doomed to fail. After all, deciding on a deficit path is one thing, getting the money to finance it is another. Sufficient financing can come from the private or official sector—including continued support from the ECB, with full backup of the euro area members.

Again, no.  There is no reason on God’s Green Earth that those nations with reasonable fiscal policies should subsidize those who do not.  Since the Euro zone failed to put in place actual incentive and punishment mechanisms for those nations that fail to act in a reasonable fashion there is now only one reasonable outcome – those nations must default and those entities that lent them money they cannot pay must lose part or all of that investment.

After all, lending money is an investment and comes with risk.  This is why you earn a return; removing risk makes it not an investment at all but rather a tax.

Second, banks need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalization—seeking private resources first, but using public funds if necessary. One option would be to mobilize EFSF or other European-wide funding to recapitalize banks directly, which would avoid placing even greater burdens on vulnerable sovereigns.

Those institutions that cannot raise private funds must be closed.  No European should stand for any attempt to force them to cover the bad bets of private companies that have been more than happy to pocket the profits.  Such acts, if attempted, should be met with open resistance using any means necessary as they are open declarations of war.

Not all wars are initiated with the discharge of firearms.  Some are initiated with briefcases, suits and dresses.  But all initiations of force are deserving of the same response.

Third, Europe needs a common vision for its future. The current economic turmoil has exposed some serious flaws in the architecture of the eurozone, flaws that threaten the sustainability of the entire project. In such an atmosphere, there is no room for ambivalence about its future direction. An unclear or confused message will add to market uncertainty and magnify the eurozone’s economic tensions. So Europe must recommit credibly to a common vision, and it needs to be built on solid foundations—including, for example, fiscal rules that actually work.

This is absolutely true. But such negotiation must take place free of the use of force.  If the use of force to bail out private institutions is the means by which these negotiations are “entered” or “maintained”, then the people of Europe must rise and forbid such actions – again, by any means necessary.

In the United States, policymakers must strike the right balance between reducing public debt and sustaining the recovery—especially by making a serious dent in long-term unemployment. A fair amount has been done to restore financial sector health, but house price declines continue to weaken household balance sheets. With falling house prices still holding down consumption and creating economic uncertainty, there is simply no room for half-measures or delay.

Baloney.  House prices rose for thirty years at an unsustainable rate.  This is not a ten year problem and won’t be fixed that way.  In particular:

First—the nexus of fiscal consolidation and growth. At first blush, these challenges seem contradictory. But they are actually mutually reinforcing. Credible decisions on future consolidation—involving both revenue and expenditure—create space for policies that support growth and jobs today. At the same time, growth is necessary for fiscal credibility—after all, who will believe that commitments to cut spending can survive a lengthy stagnation with prolonged high unemployment and social dissatisfaction?

Revenue and expenditure are easy problems.  The government cannot provide that which we are unwilling or unable to pay for with current tax revenues.  Period.  That’s the beginning and end of this, and it’s not that hard to figure out.  We simply must stop screwing around and deal with the facts – our government has promised things that our people have not been asked to pay for.

It may be that we’re unwilling to pay.  If that’s the case then we cannot have those things.  It’s that simple.

Second—halting the downward spiral of foreclosures, falling house prices and deteriorating household spending. This could involve more aggressive principal reduction programs for homeowners, stronger intervention by the government housing finance agencies, or steps to help homeowners take advantage of the low interest rate environment.

Nonsense.  Those institutions that unreasonably lent against nothing but speculative fervor must be forced to eat their losses.  If this blows them up then so be it. Home prices must come down.  It is specifically this problem – the attempted prevention of a normal market adjustment that is 30 years in the making – that is causing our difficulties.  This abuse of leverage is not limited to homes – it also infests medical care and college educations, to name two parts of our economy.  It must end – everywhere – if we are to return to a stable and prosperous economic environment for everyone, not just a handful on Wall Street.

It is rather amusing to watch the IMF chair speak of “consolidation” and “sustainability” when in fact the IMF has a nearly-unbroken record of exploiting a crisis for its own aggrandizement and the protection of the banksters.  The people of this nation and indeed the world would be far better off without these jackals.  Banking’s essential purpose in the clearing of payments does not have to intersect with the building and maintenance of Ponzi Schemes that are nothing more than a way to asset-strip the populace.