Roach

US taxpayers could be on hook for Europe bailout
By John W. Schoen, Senior Producer

The U.S. is coming to Europe's financial rescue.

So far, America's role is fairly limited. But if the crisis continues to grow and the U.S. takes on a wider role, U.S. consumers and taxpayers could feel a bigger impact. The biggest exposure could come from America's status as the single largest source of money for the International Monetary Fund.

The latest round of American financial assistance came Thursday with a promise by the Federal Reserve to swap as many dollars for euros as European bankers need. In the short run, those transactions won't have much impact because the central banks are simply swapping currencies of equal value. If the move helps avert a wider crisis, it could help spare the global economy from another recession.

But over the long term, consumers could feel the impact of central bankers flooding the financial system with cash, according to John Ryding, chief economist at RDQ Economics.

"This is a lender of last resort function," he told CNBC. "With the dollar injections that the Fed has done, it's like giving a patient medicine with really bad side effects." Ryding said the bad side effect in the U.S. has been inflation, which has picked up to 3.8 percent year over year.

Fed policymakers meet next week to decide whether the flagging U.S. economy needs another round of easy-money measures that could include buying more Treasury bonds to push more cash into the financial system.

So far, no one has floated publicly the idea of the U.S underwriting a broader bailout of the European financial system. But Senate Republicans have already voiced concerns over such a move.

"Our concern is that innocent American taxpayers will pay for yet another bailout -- this time to one or several countries whose spending and debt choices led them to financial calamity,” Sen. Orrin Hatch, R-Utah, and seven other Republican senators wrote in a letter to Treasury Secretary Timothy Geithner in June.

The source of the senators' concern is an emergency provision, approved by the Group of 20 industrialized nations in 2009, granting the IMF broad powers to expand its lending authority. That could leave American taxpayers on the hook for any IMF loans that later go bad.

In July, Geithner sought to reassure the senators that won't happen.

"The United States has never experienced a loss on its IMF commitments," Geithner wrote. "The IMF's claims are recognized by Europe to stand ahead of all others. This, along with the IMF's strong financial resources, provides further assurance that our claims on the fund are secure."

On Friday, Geithner made an unprecedented trip to meet with European officials who are wrestling with the creation of a bailout fund similar to the U.S. government response to the Panic of 2008. With European Union leaders deadlocked for over a year, Geithner, one of the architects of the U.S. financial bailout in 2008, urged the group to move more aggressively to solve a widening debt crisis that threatens to send the world back into recession.

(the same recession we've been in )

Investors have become increasingly worried that a $740 billion euro EU bailout fund isn't big enough to cope with potential losses if Greece and other countries default on their debts, wiping out those assets held by European banks. With richer countries like Germany and France unwilling to commit more funds, Geithner wants the Europeans to boost the existing bailout fund's firepower. One idea would be to use the money just to guarantee losses from bond defaults rather than buying up the bonds themselves.

European officials are running out of ideas. This week, German Chancellor Angela Merkel shot down the idea of a unified Euro bond that would be substituted for the debt issued by individual nations.

After a year and half of failed attempts at a solution, the world economy has entered a “dangerous new phase” IMF Managing Director Christine Lagarde said in a Washington speech Thursday.

So far, the IMF has played a supporting role in a "troika" of agencies working to head off a Greek default that include the European Central Banks and the European Union. With Greece approaching a cash squeeze at the end of this month, those agencies are demanding deeper "austerity" measures - budget cuts of higher taxes - before releasing those funds.

As the largest shareholder, the United States provides the biggest single source of funding to the IMF. The ownership stake also gives the U.S. veto power over IMF funding decisions. Geithner is a member of the IMF board of governors. Fed Chairman Ben Bernanke is an alternate governor.

(why am I not surprised )

IMF funding requires congressional approval. But following the financial crisis of 2008, the Group of 20 countries approved a plan to give the IMF emergency borrowing authority, a program known as New Arrangements for Borrowing, which tripled the IMF's lending authority to $750 billion. The borrowing authority is set to expire in November.

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לזיין את הקופים

The Rev

Printing money is pushing a noodle; it will fuel the next boom when the price structure re-balances but it also prevents it from properly re-balancing by struggling to hold prices up, that must fall in order for prices to make sense relative to one another. We've already increased the money supply from less than $1.5 Trillion to over $2 Trillion since 2007. This increase is only slightly less than that which preceded the dot com boom, and the following housing boom. All we're doing with this is setting ourselves up for more distortions of the price structure, crippling the economy's efficiency and ability to produce actual real wealth.

Every boom sees more and more funds taken from production and moved into speculation, where profits are higher due to the increase in money. So, while people may be getting rich, no wealth is actually being produced. Even where things are produced (houses, for example), they are things no one wants (the houses were built to sell, not live in) so they do not constitute real wealth. This is what is killing us: redistributing wealth without creating it, and consuming what we DO have in activities such as war.

Same old story: How Empires Die.



The Rev

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stonerkid

can you explain some more stuffs guys? i really dont understand much of any of this but wat rev is sayin about real welth kinda makes sense. at least i know how to grow my own food. yayyyyy for Kalo!

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Warning:This users signatures contain one or more chemicals known to the state of California to cause cancer, birth defects and other reproductive harm. Wash eyeballs after reading.

"one small bump for man, one giant line for man kind"

John F. Kerry

i was gonna make a thread about this, but from the opposite point of view , not surprising


but yea, i was gonna title my thread

Marshall Plan II

...because it basically involves us giving money to europe, to help them, but to ultimately help ourselves.

and i think it actually has some promise and if done right could be great.


this could be the perfect opportunity for us to save europe from doom....again... and then we could like all join together in a western nato economic alliance.

imagine how good it would be if, first of all, the us agreed to backstop europe- ok first europe could stop worrying about falling into the abyss...its just like with the economic crash... if we backstop their failing shit, then confidence will return, people will realize that everything will eventually work out because america is going to prevent everything from collapsing.

so then you have more confidence in europe, and ultimately, more european goodwill for america... and just like in the marshal plan, it will end up being good for the US in the long run because we would much rather have europe growing and prospering than say brazil russia india and china growing and prospering at their and our expense.

then, the next step would be that if america and europe would adopt some global economic policies, basically band together in a similar way to the way the bric countries do...we could use our huge leverage and the fact that our 2 economies are like 10x the size of the bric economies... and we could use this to counteract chinas trade bulshit that they pull, and to fight against all sorts of global economic imballances, and use our power of our two massive economies to actually benefit the free countries of the world... or at least the "free-er" ones that have really strong rule of law and developed economies etc...

can u imagine how well europe and the us could "take on" china's bulshit if we banded together and adopted global policies designed to keep things fair and to stop china from pulling all their manipulations at our expense?

a marshall plan 2 would totally be a good idea right now if you ask me, it would send the right message and do all the right things and make our allies see that we support them not just militarily but economically as well... and we would certainly get economic benefits as a result in the long run.

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Nasa under Obama

Kompressor

Rev is basically saying:

modern finance < dark ages.

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Think like a man of action, act like a man of thought. -H. Bergson

The Rev

That's not what I'm saying at all, Komp. How did you come to that conclusion?

I'm saying that an unstable money supply leads to an inefficient economy.



The Rev

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Kompressor

Well, what do you think is going to happen and/or what is your solution?

Empires die, whats left in its place?

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Think like a man of action, act like a man of thought. -H. Bergson

The Rev

The solution is a stable money supply.

When Empires die, new forms take their place. The British Empire slowly gave way to the U.S.A., for example. You mad?



The Rev

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Kompressor

The US hasn't gotten to the global scope of the British Empire, look how the rest of that is.

And a stable money supply =/= productivity.

PS. I'm not mad, i respect your difference of opinion.

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Think like a man of action, act like a man of thought. -H. Bergson

The Rev

Well, money is a supply and demand thing. That is, all the goods and services for sale in the economy equal the demand for money. If the supply is always growing, then the demand for each dollar becomes less (hence, inflation). The problem is, when you have inflation, it isn't equal across the board. Inflation tends to be greatest in speculation markets, where increasing prices cause more demand, not less. This distorts the price structure: the relationship between prices that makes the economy run efficiently. For example, if prices kept changing in your personal life (prices of your labor, your mortage, food, etc.), if they got distorted too far, you'd have some financial distress; if your mortgage increased 150% while your labor increased only 125%, for example. The same thing happens to the economy when we have distortions in the price structure, but on a larger scale.

These distortions, just as they interfere with your ability to efficiently run your household, and make the best plans you can with your money, also interfere with the ability of businesses to work efficiently, and that DOES effect productivity. Imagine you're a manufacturer whose prices keep going up, both in sales and purchases. You're fine so long as they go up in matching proportions. However, if your product is washing machines, and you need steel to build them, then you have a problem, because the market for washing machines is not seeing the inflation that the commodities market for steel is seeing, so soon, you can't make washing machines profitably anymore.

It's for this reason that the solution really IS a stable money supply.



The Rev

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