US rejects UK plan to boost aidhttp://news.bbc.co.uk/2/hi/business/4236809.stmChancellor Gordon Brown is using the G7 meeting of finance ministers and central bankers to call for the $100bn International Financing Facility (IFF).
Before the meeting, US Treasury Under-Secretary John Taylor dismissed the plan outright, saying the US wanted to switch money from loans to grants.
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Cold water
Mr Taylor - deputising for Treasury Secretary John Snow, who is unwell - has been particularly vocal in the past in dismissing the IFF.
Heh, I asked this before, but was Snow really sick or did the mal-administration tell him to "call in sick" because they had no confidence in his ability to deal with some of the issues on the adgenda?:shrug:
"Not only does the IFF not work for the US, we don't need the IFF," he told reporters while heading for the meeting on Friday morning.
He also poured cold water on another UK idea: to fund debt relief by revaluing and selling part of the International Monetary Fund's gold reserves.
And he reiterated his own preferred option, of switching international aid from loans to grants. The US argues this will prevent countries becoming burdened with new debts, while critics say it will rapidly drain available aid coffers.
Non-governmental groups were unsurprised by the response.
"This is what we expected from the US," said charity ActionAid's policy officer, Romilly Greenhill.
Oxfam Senior Policy Advisor Max Lawson said: "By throwing down his cards before the G7 meeting has even started, US Treasury Under-Secretary John Taylor has shown a dangerous unwillingness to compromise. If a deal on debt is not reached here, it is the world's poorest who will suffer."
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G7 Aid Proposal for Africa in Jeopardy as U.S. Says NoMore of the same, but with some direct quotes -
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=7539769snip>
"Not only does the IFF not work for the United States, we don't need the IFF," Taylor said as he headed to the Group of Seven meeting, which was also to be addressed by South Africa's Nelson Mandela.
Taylor also said Washington was not convinced of the need to revalue the gold reserves of the International Monetary Fund, raising money by off-market sales to help fund a write-off of Africa's foreign debts.
British officials responded fast to what looked like a potentially devastating blow to their plan for Africa.
A British Treasury official told Reuters, "There is nothing new in John Taylor's position. But we are committed to continue working with the U.S. administration to consider how the IFF could be adapted to their needs."
Charity group ActionAid took the U.S. comments in its stride: "I think it is not entirely surprising. This is what we expected from the U.S.," Romilly Greenhill, policy officer, said.
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IMF Gold Saleshttp://www.kitco.com/weekly/paulvaneeden/feb042005.htmlsnip>
Such off-market transactions are similar to a pure revaluation of the IMF’s gold and do not involve any gold actually being sold on the market. Since many of the same poor countries that the IMF is trying to help are actually gold producers, and since in many cases these countries’ gold exports account for a large (sometimes very large) percentage of their foreign currency receipts, off-market transactions are far more palatable than actual gold sales.
If we assume that some of the IMF’s gold will hit the market, then we have to consider what impact that will have. For instance, if the IMF sells its gold over a period of five to ten years, the net impact on the gold price should be negligible. In a previous commentary (“Central Bank sales and the gold price”, December 5, 2003) I showed that Central Bank gold sales did not affect the gold price during the period from 1990 to 2003. During that time Central Banks sold roughly 5,500 tonnes of gold -- far more than the IMF has to sell -- and since that did not negatively impact the gold market, I have no reason to believe that IMF gold sales will negatively impact the market either.
The only impact that Central Bank sales did have on the gold market during the 1990s was that they caused speculative selling on the date of the announcement. But the announcements were all made in arrears and the gold price always recovered within a few weeks of the announcements. In other words, the actual Central Bank sales, themselves, did not affect the market. That is also exactly what we saw on Thursday: a comment by the British Chancellor of the Exchequer caused a speculative sell-off in gold -- without an ounce of IMF gold being sold. I expect the gold price will recover within a few weeks, unless something else, like a rally in the US dollar, occurs.
Another thing to keep in mind is that the G7 is split over how to deal with the debt of poor countries. To revalue or sell the IMF’s gold will require an 85 percent majority vote. The United States alone has a 17 percent vote, and could therefore block the IMF from selling its gold.
Given that the IMF needs an 85 percent majority to sell its gold, that actual gold sales would hurt the same countries (gold producers) the IMF is trying to help, and that more benign off-market transactions are also a way to help those countries, I doubt that we are going to see massive IMF gold liquidations in the near future.
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And on those shenanigans I was talking about...The War To Save The U.S. Dollarhttp://www.trinicenter.com/oops/iraqeuro.htmlPART 2: Tequila trap beckons Chinahttp://www.atimes.com/atimes/China/FK06Ad01.htmlsnip>
The Mexican financial crisis of 1982 set the pattern for subsequent financial crises around the world. For that reason, a thorough understanding of the Mexican financial crisis is necessary to understand what lies in wait for China.
To recycle petrodollars that the US printed by fiat to pay for sharply higher oil prices beginning in 1973, US banks had sought out select Less Developed Countries (LDCs) with acceptable political risk, meaning solidly anti-socialist authoritative governments, such as Brazil, Mexico, Argentina, South Korea, Taiwan, the Philippines, Indonesia, etc, for predatory lending. By 1980, LDCs had accumulated $400 billion in dollar debt, more than their combined GDP. This is money they cannot produce through sovereign credit as they cannot print dollars, but must earn dollars through export. This debt bubble was hailed as a miracle of free markets and effectively used as Cold War propaganda against socialist economies. If the socialist economies would only get rid of socialism and export at low wages to earn fiat dollars, they too would enjoy the prosperity of capitalism, god's gift to the poor.
The World Bank reports that after two decades of globalized prosperity, more than a billion people, or one in five living on this earth, still have to survive on less than a dollar a day and more than half of the world's population live on less than $2 a day. China bought this propaganda lock stock and barrel in 1979 with little understanding of the threat of this financial narcotic that would make the Opium War of 1840 look like a minor scrimmage.
Mexico's love affair with neo-liberalism was unraveling by the end of 1982. Neo-liberalism is a socio-economic-political ideology that rejects government intervention in the economy, focusing instead on achieving socio-economic progress through free markets, with emphasis on raising national income as measure by gross domestic product (GDP) statistics. Issues such as income-disparity, impaired national sovereignty, social injustice and environmental damage are considered necessary prices to pay for global prosperity. It is an ideology that is controversial even if successful, but it is a bankrupt ideology that fails even to deliver the prosperity it promises. The record of the past three decades shows that neo-liberal ideology brought devastation to every economy it invaded. China seems to be heading along a similar path.
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The ESF was established by Section 20 of the Gold Reserve Act of January 1934, with a $2-billion initial appropriation. Its resources have been subsequently augmented by special drawing rights (SDR) allocations by the IMF and through its income over the years from interest on short-term investments and loans, and net gains on foreign currencies. The ESF engages in monetary transactions in which one asset is exchanged for another, such as foreign currencies for dollars, and can also be used to provide direct loans and guarantees to other countries. ESF operations are under the control of the secretary of the treasury, subject to the approval of the president.
ESF operations include providing resources for exchange-market intervention. The ESF has also been used to provide short-term swaps and guarantees to foreign countries needing financial assistance for short-term currency stabilization. The short-term nature of these transactions has been emphasized by amendments to the ESF statute requiring the president to notify Congress if a loan or credit guarantee is made to a country for more than six months in any 12-month period. Short-term currency swaps are repurchase-type agreements through which currencies are exchanged. Mexico purchased dollars in exchange for pesos and simultaneously agreed to sell dollars against pesos three months hence. The US earned interest on its Mexican pesos at a specified rate.
It was Bear Stearns chief economist Wayne Angell, a former Fed governor and advisor to then Senate majority leader Bob Dole, who first came up with the idea of using the ESF to prop up the collapsing Mexican peso. Bear Stearns, a Wall Street giant, had significant exposure to peso debts. Senator Robert Bennett, a freshman Republican from Utah, took Angell's proposal to Greenspan and Rubin. Both rejected the idea at first, shocked at the blatant circumvention of constitutional procedures that this strategy represented, which would invite certain reprisal from Congress.
Congress had implicitly rejected a rescue package that January when the initial administration proposal of extending Mexico $40 billion in loan guarantees could not pass. The chairman of the Fed advised Bennett that the idea would only work if Congress's silence could be guaranteed. Bennett went to Dole and convinced him that the whole scam would work if the majority leader would simply block all efforts to bring this use of taxpayers' money to a vote. It would all happen by executive fiat. The next step was to persuade Dole and his counterpart in the House, Speaker Newt Gingrich. They consulted several state governors, notably then Texas governor George W Bush, who enthusiastically endorsed the idea of a bailout to subsidize the border region in his state. Greenspan, who historically opposed bailouts of the private sector for fear of incurring moral hazard, was clearly in a position to stop this one. Instead, he used his considerable power and influence to help the process along when key players balked. Moral hazard infected not only the banking system, but also the political system making a mockery of the constitution. Few in Washington were prepared to be reminded that it was this kind of systemic corruption in the name of the common good that had brought down the Roman Empire.
more...very long article
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