As Mark Weisbrot of the Center for Economic Policy and Research recently observed , "Last week President Obama woke up to the fact that "the Troika" -- i.e. the European Commission, European Central Bank (ECB), and the International Monetary Fund (IMF) -- could pull the U.S. economy down the toilet along with Europe, and so he sent Tim Geithner to crash the Eurozone ministers' meeting. His job was to tell them to get their act together before their mess spreads across the Atlantic and costs Obama his re-election. Yesterday Obama took the even more unusual step of making his criticisms public, saying that the crisis in Europe was "scaring the world" and that the European authorities had not acted quickly enough.
Yet there is no sign that the Administration is even using its influence within the IMF to avoid disaster. But why not?!
One of the main triggers to the most recent financial turmoil was another fight between the IMF and Greece over a measly 8 billion euro loan disbursement. The IMF -- presumably with U.S. approval -- has been threatening to hold up this money unless the Greek government implemented further budget tightening. However, in the face of massive protests and Greek public opposition to further punishment, this intransigence by the IMF once again threatened to push Greece into chaos and default. That, in turn, could bring major European banks to insolvency and risk a full-blown financial crisis, worldwide. And all because the Greek government couldn't meet its budget targets for an 8 billion euro loan disbursement?!
If that sounds incredibly irresponsible or even stupid, it gets worse. The reason Greece cannot meet its budget targets is that the policies imposed by "the Troika" have succeeded in shrinking the Greek economy and therefore its tax base as well. The IMF has repeatedly had to adjust downward its forecast for the Greek economy; it is now projecting a decline in GDP of five percent this year, as compared to a forecast of a negative 3 percent just six months ago. When the first "bailout" package for Greece was negotiated in May of 2010, the country's debt was about 115 percent of GDP; it is now projected to hit 189 percent of GDP next year. Clearly the Troika's policies have had the opposite effect of their stated intention!
However, the "stated intention" of the IMF rarely has anything to do with their ACTUAL intention, according to John Perkins, former World Bank negotiator and author of 'Confessions of an Economic Hit Man'. The reality is that the IMF proscriptions are probably working just the way their authors intended them to do.
If the real intentions of the IMFers were as stated, one would expect them to have ironed out the problems in their prescriptions during the more than half a century that the IMF has been in existence. And yet without exception, their "advice" (like that of a capo who "advises" a storekeeper that he'd best keep up his protection payments) has almost without exception led to the ruin of each country so advised.
The author says that "this intransigence by the IMF once again threatened to push Greece to a chaotic default and that this, in turn, could bring major European banks to insolvency and risk a full-blown financial crisis.
Some might ask who could possibly benefit from major European banks on the verge of insolvency, with a full blown financial crisis to follow close on its heels. The answer to this question is that it is the bankster-speculators (a.k.a. "bond vigilantes") at places like Goldman Sachs who might very well benefit. By what means will they benefit? An emergency fund with limited resources will embolden the bond vigilantes to push up yields (on bonds) and make it more costly and difficult for cash-strapped countries in the south of Europe to finance government operations. That, in turn, will lead to more layoffs, more belt-tightening and bigger deficits. But it will greatly profit the vigilantes who get rich off of the fat yields from the bonds.
Something else to consider: our Federal Reserve is heavily invested in those European banks, and has, in a very real sense, 'loaned' them hundreds of billions dollars of our tax money. And so, if they go, we go. In other words, American taxpayers will once again be responsible for "taking up the slack."
Hence Obama's worry -- and Geithner's quick trip over there to try and talk some sense into European banker heads.
But why didn't Geithner go to the IMF instead?
In the current issue of his emailed newsletter, Thom Hartman answers the question like this:
Are the banksters fueling a global market meltdown? Heads turned yesterday when stock trader Alessio Rastani went on the BBC and predicted that the Eurozone is going to crash within the next twelve months, and that a lot of banksters will make a fortune off it. (Surprise, surprise.) "This problem cannot be solved," Rastani said. "I'm fairly confident that the Euro is going to crash, and it's going to crash hard." Rastani then admitted that he, as well as traders in giant banks on Wall Street, have actually placed bets that global markets will crash, and are poised to make huge profits when their bets come in.
Rastani said, "The depression in the 30s wasn't just about a market crash. There were some people who were prepared to make money from that crash. The governments don't rule the world," Rastani added; "Goldman Sachs rules the world. And Goldman Sachs does not care about this rescue package."
From manipulating food prices that causes a hunger crisis around the world, to distorting oil prices that trigger recessions here in the United States, to bringing down an entire global economy -- it's all part of a day's work for traders like Rastani and Goldman Sachs.