Archives of “Economy” category

rss

IMF is $318 billion short of solvency

  
Economy, Education
#  #  #  #  #  #  #  #  #  #  #  #  #

Those observing the emperor’s lack of clothing are multiplying. Earlier today, someone opened their mouth, and remarked on the blatantly obvious. Next thing you know Hungarian CDS was 30% wider, Romanian bond auctions were failing, the euro was tumbling, the PPT was scrambling, US markets closed green with nobody trading, etc. Yet the “letting the genie out of the bottle” award of the day has to go to the head of IMF’s policy-steering committee, Youssef Boutros-Ghali who said that the IMF is essentially insolvent in its current form of being the go to backstop for a European bailout. “If we are going to start including funds made available to Europe, then the IMF is not properly resourced,” Youssef Boutros-Ghali told Reuters, adding that IMF members were talking of doubling the amount of SDRs. The means the IMF is $318 billion short of solvency. And what is the IMF long? Why gold…3,005 tonnes worth.

The IMF has to have more resources after the support for Greece and needs to “very significantly” increase the amount of special drawing rights, the head of the Fund’s policy-steering committee said on Friday.

What does this mean in English? The IMF currently has 204 billion in allocated SDR to member countries (or $318 billion). Boutros-Ghali has basically said that in order to preserve its front-man status as a world bailout force (just because the Fed knows that the political whiplash of it being the bailout provider of last resort would mean the end of it, thus needing a strawman such as the IMF), the IMF will need to raise another $318 billion. Where will the IMF get that money? Here’s an idea: the IMF holds 3,005 tons of Gold. At today’s fixing, this equates to just over $116 billion (and much more should the price of gold mysteriously skyrocket). Of course, any fiction that the SDR is backed by gold will then disappear, but it’s not as if anyone even remotely pretends that any fiat currency (and the SDR is no exception) has any value left whatsoever. And since the US will end up having to fund the bulk of the SDR allocation, at least US taxpayers would be on the hook for a far more manageable $200 billion that the IMF needs in order to fully bail out Greece and everyone else in Europe.

 

IMF WARNING: Britain could follow Greece?

  
Analysis, Economy, Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

There were fears that Britain could follow Greece into a financial crisis after a global finance chief warned of economic “contagion” spreading across Europe.

The head of the International Monetary Fund urged politicians to finalise a bail-out for the debt-laden Mediterranean country, saying that every day lost in resolving the problems risked spreading the impact “far away”.

Dominique Strauss-Kahn’s comments came amid more evidence of Europe’s mounting fiscal problems after Spain’s debt was downgraded – a move recently applied to its under-pressure neighbour Portugal as well as Greece.

On Wednesday, shadow chancellor George Osborne raised the spectre of the crisis affecting the public finances of the UK, which faces dealing with its own £163 billion mountain of public borrowing. (more…)

Will Japan Be the Next Debt Crisis?

  
Analysis, Economy, Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Japan may spark the next global debt crisis unless the nation’s new leader addresses its widening fiscal deficit, Kusano Global Frontier Co. said.

What is bothering foreign investors the most is Japan’s debt issue and the related risk of Japan triggering the next sovereign debt crisis,” Kusano said in an interview.

Japan’s 10-year yields have stayed mostly below 2 percent in the past decade partly because domestic investors hold over 90 percent of government debt, according to Kusano. Overseas investors will start avoiding Japanese bonds as the supply of the securities exceeds local demand, Kusano said.

“Japan’s inability to finance its debt sales domestically is approaching,” Kusano said. “And when that time comes, you can’t expect foreign investors to accept Japanese debt with such a low coupon

International Monetary Fund (IMF) Needs Money

  
Analysis, Economy, Education, Gold / Silver
#  #  #  #  #  #  #  #  #  #  #

 International Monetary Fund (IMF) issued a statement that it would begin selling large holdings of its gold reserves

IMF: Says will shortly begin ‘on market sales’ for remaining 191 tons of gold; To start selling up to $7B of gold to market

– Gold will be sold in a “phased manner” to avoid disruptions to gold market

– On market sales does not preclude sales of gold to interested central banks.
– Off-market sales would reduce amount of gold to be sold on the market.

So why is the IMF selling its gold? Is it that the monetary fund is looking ahead to more countries needing cash bailouts? Or does the IMF view gold as a worthless commodity in the future?

The announcement did impact the gold price as reflected on this gold chart which shows the reaction.

IMF-GOLD SELLING

Is the China bubble about to burst?

  
Analysis, Economy, Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

China bubbleAn aggressive and arrogant China is entering 2010 with a bit of uncertainty. Although there was no let-up in its exports in 2009, its internal financial position looks uncertain. China watchers are expecting a bubble that will eventually burst.

In 2009 banks in China lent internally about US$1.4 trillion to businesses, including the real estate industry, with dubious performance records. James Chanos, a successful U.S. stock market dealer, has predicted that China’s financial collapse could be far worse than Dubai’s.

China soothsayers wish to prove Chanos wrong – and they may be right. With US$2.2 trillion in foreign reserves, it would seem China could weather any storm. But the problem is that its cash reserves are uncashable. The United States and Europe are not just waiting to repatriate the money to China. So China could be left to its own devices if it faces a financial storm where markets tumble and poor people with money tied to investments see their savings vanish.

Easy credit, too much money in the economy, excessive foreign direct investment, a completely undervalued currency and rising real estate prices have definitely created a bubble. This bubble could burst with any minor international event. That is the price China would have to pay for designing policies that serve Western consumer markets. (more…)

Go to top