Copying a Bad Idea

Why is there an IMF? It seems a good question, so here is the short answer: in the post gold standard world, central bank-supported fractional reserve banking has enabled the emergence of such huge credit booms, that governments frequently get into severe trouble when a boom collapses and their countries' current account deficits are suddenly no longer funded by foreign investors. Then they feel forced to go hat in hand to the IMF.

It should be obvious that the solution to the problem is not to let a tax payer funded bureaucracy treat the symptoms, but to strike at the root by returning to a sound monetary system. The only truly sound monetary system would be a market-based one. By adopting such a system, one could do away with a great many bureaucracies and regulations in one fell swoop.

Note in this context that today's popular views on the gold standard – or rather, the views that are promoted by all those with a stake in the current system – are entirely wrong. Not one of the canards brought up against it has any merit (we're thinking of a few often used lines like 'there is not enough gold', or 'we would not have the flexibility that is needed for central banks to steer the economy' and similar nonsense).

 

Even the historical account regurgitated over and over again is completely distorted. The gold standard never 'failed'. It was deliberately undermined and sabotaged by governments in order to finance the waging of war. Once this was done, they kept at it because they wanted to have unrestrained spending at their disposal at all times.

The IMF is a kind of ugly afterbirth of the whole sordid process. We are saddled with fiat monies today, the adoption of which has imposed enormous costs on society, not only in terms of lost material wealth and progress, but also in terms of lost freedoms.

The reason why we bring all of this up is that the so-called 'BRICS' (Brazil, Russia, India, China and South Africa) want to set up 'their own IMF'.  In addition they want to install their own version of the World Bank, a mini-imperialistic venture if you will.

 

The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim Lukov has said.

Brazil has already drafted a charter for the BRICS Development Bank, while Russia is drawing up intergovernmental agreements on setting the bank up, he added.

In addition, the BRICS countries have already agreed on the amount of authorized capital for the new institutions: $100 billion each. "Talks are under way on the distribution of the initial capital of $50 billion between the partners and on the location for the headquarters of the bank. Each of the BRICS countries has expressed a considerable interest in having the headquarters on its territory," Lukov said.

It is expected that contributions to the currency reserve pool will be as follows: China, $41 billion; Brazil, India, and Russia, $18 billion each; and South Africa, $5 billion. The amount of the contributions reflects the size of the countries' economies.
[…]

The BRICS countries are setting up a Development Bank as an alternative to the World Bank in order to grant loans for projects that are beneficial not for the U.S. or the EU, but for developing countries.

The purpose of the bank is to primarily finance external rather than internal projects. The founding countries believe that they are quite capable of developing their own projects themselves. For instance, Russia has a National Wealth Fund for this purpose.

"Loans from the Development Bank will be aimed not so much at the BRICS countries as for investment in infrastructure projects in other countries, say, in Africa,” says Ilya Prilepsky, a member of the Economic Expert Group. “For example, it would be in BRICS' interest to give a loan to an African country for a hydropower development program, where BRICS countries could supply their equipment or act as the main contractor."

 

(emphasis added)

Good grief.

 

Of Missed Chances and Possibilities

It strikes us as eminently funny that this venture is being set up by the governments of countries that are part of an acronym ('BRICS') coined by a Goldman Sachs analyst a few years ago. Without that, they might not necessarily even have found each other on a map.

We can of course understand why these governments would want to do something like this: the IMF itself is in the hands of the Western nations. The US share is e.g. just large enough to enable the US government to veto all IMF decisions.

However, they would have done their own economies and the world a far greater favor if they had instead opted for the adoption of sound money. Contrary to the overindebted Western welfare/warfare states, most emerging market countries have not yet progressed beyond the point of no return in terms of their outstanding debt. In other words, it would still be comparatively easy for them to step away from the brink.

In the Western world is has simply become politically impossible to do anything but plow on with a system that everybody probably knows deep down is fated to eventually crash and burn rather spectacularly. It has become a question of 'sooner' (voluntarily) or 'later' (involuntarily),  and every official in power will instinctively opt for 'later' – i.e., not on his watch. No doubt the system has quite a bit of staying power, not least because it will take time to completely consume the accumulated capital of several generations. However, that only ensures that its eventual demise will be all the more catastrophic.

It is a pity that no-one on the planet is trying to set a different example – it would be great to simply be able to see what is possible in an unhampered market economy, to see the progress it would be able to achieve. It would probably overtake the rest of the world in terms of wealth creation in a very short time even if it were set up on a stretch of barren desert.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

2 Responses to “Please, Not Another IMF …”

  • jimha:

    JimWillie says that gold is going to be incorporated into the BRICS bank.

  • BK:

    Heh, it is weird you ever hoped for something else.

    All these states are creatures of Pax Americana. Whey hate and fight the US to the various degrees, of cause, yet their aspiration is not to build something new (they do not know what and how), but to supplant the US, and grab the dominant role in the current world order. They dream about controlling the world fiat construct to utilize it fully to their own advantage. Hence all the simulacra and imitation.

    I can only predict that BRICs “IMF” would be much more disgusting, weak, and disorganized comparing to the current one. These creatures do not have Western skills to run fiat, and absolutely do not trust each other.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Do You Hear a Bell Ringing?
      Do You Hear a Bell Ringing? The sun shines brightest across the North American continent as we enter summer’s dog days.  Cold sweet lemonade is the refreshment of choice at ballparks and swimming holes alike.  Many people drink it after cutting the grass, or whenever else a respite from the heat and some thirst quenching satisfaction is needed.   Regardless of whether companies were able to “beat estimates” (which as often happens, were revised lower just before the...
  • Sovereign Bonds – Stretched to the Limit
    Anti-Vigilantes We dimly remember when Japanese government debt traded at a negative yield to maturity for the very first time. This happened at some point in the late 1990s or early 2000ds in secondary market trading (it was probably a shorter maturity than the 10-year JGB) and was considered quite a curiosity. If memory serves, it happened on just one brief occasion and it was widely held at the time that the absurd situation of a bond buyer accepting a certain loss if the bonds were...
  • The Motte and Baley Fallacy - Precious Metals Supply and Demand
      Spoofers vs. the Underlying Trend The price of gold fell seven bucks, but the price of silver was up $0.16. In other words, the gold-silver ratio did a little more reverting to that long-forgotten mean.   Launceston Castle in Cornwall, an example of a motte and baley fortification. The castle was built in 1067-1071 AD, either by the Count of Mortain (the half-brother of William the Conqueror) or Brian of Brittany. [PT] Photo credit: P. Vincent   Some story or...
  • Global Stock Markets: Danger Lies Directly Ahead
      A Global Pattern You are no doubt aware of the saying “sell in May and go away”. It is one of the best-known and oldest stock market truisms.   Mark Twain's famous saying about stock market speculation (the other one was “There are two times in a man's life when he should not speculate – when he cannot afford it, and when he can”).  From a seasonal perspective he was definitely right about September and October. [PT]   The saying is in fact justified...
  • Bond Yields in the Netherworld - Precious Metals Supply and Demand
      A Record Amount of Bonds with Negative Yields to Maturity Last week the price of gold went up $22, while the price of silver dropped ¢17. The big news last week was that the yield on all German government bond maturities is now negative. They are also all negative in Switzerland. And in Denmark, all maturities out to 20 years are negative. Interest rates are dropping rapidly in the US as well.   More than $14 trillion in bonds now trade at negative yields to maturity –...
  • Writing on the Wall
    Not Adding Up One of the more disagreeable discrepancies of American life in the 21st century is the world according to Washington’s economic bureaus and the world as it actually is.  In short, things don’t add up.  What’s more, the propaganda is so far off the mark, it is downright insulting.   Coming down from the mountain with the latest data tablet... [PT]   The Bureau of Labor Statistics (BLS) reports an unemployment rate of just 3.7 percent.  The BLS also...
  • Retail Holders Sell Their Gold - Precious Metals Supply and Demand
      A Myriad of Reasons to Buy Gold – But Small Holders are Selling Big moves occurred in the prices of the metals last week, with that of gold up $57 and silver $0.77. We have now reached a price of gold (if not silver) not seen since 2013, when it was on the way down. What is causing this sudden spike in price and renewed interest in gold?   A well-known depiction of investor emotions over a complete market cycle. Interestingly, it appears as though many retail gold holders...
  • Rising Stock Market Volatility – Another Warning Sign
      Bad Hair Days Are Back We recently discussed the many divergences between major US indexes, which led us to expect that a downturn in the stock market was close (see The Calm Before the Storm for details). Here is an update of the comparison chart we showed at the time:   The divergences between various indexes seem to be resolving as expected.   The next chart shows analogous divergences between the S&P 500 Index and two major foreign stock markets:   US...
  • Getting to a Special State of Ugly
    Suspicious Phrases There are certain phrases – like “trust me” or “I got this” – that should immediately provoke one’s suspicion.  When your slippery contractor tells you, “trust me, your kitchen renovation will be done before Christmas,” you should be wary.  There is no way it will be done before late spring.   USD-CNH (offshore yuan) exchange rate – the support/resistance level at 7 finally breaks amid escalating trade war rhetoric. [PT]   Or...
  • Bitcoin – From Greed to Fear
      A Noteworthy Sentiment Change Bitcoin and other cryptocurrencies have declined quite sharply in recent days. Here is an overnight snapshot of the daily chart:   Bitcoin corrects again...   It is difficult to gauge sentiment on BTC objectively, but there is a service that tries to do just that. According to its greed & fear barometer, the recent decline seems to have triggered quite a bit of apprehension:   The BTC sentiment measure of alternative.me has...
  • Interest Rate Watch and Bond Market Curiosities
    Things To Keep An Eye On Below is an overview of important US interest rates and yield curve spreads. In view of the sharp increase in stock market volatility, yields on government debt have continued to decline in a hurry. However, the flat to inverted yield curve has not yet begun to steep – which usually happens shortly before recessions and the associated bear markets begin.   2-year note yield, 3-month t-bill yield, 10-year note yield, 10-year/2-year yield spread,...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!