Asian and European leaders today called for more international regulation and a stronger role for the International Monetary Fund in response to the worst financial crisis since the 1930s. The call for changes to the international financial system came at the end of a two-day summit of 43 Asian and European leaders in Beijing, discussing what began as a crisis in the US housing market that went on to infect the global economy. Echoing the call from Beijing, the US president, George Bush, said that agreement on principles for reform would be essential in preventing another disaster. Bush, who will host a global summit on the financial crisis next month, said in his weekly radio address: "In recent weeks, concerns about the availability of credit, the safety of financial assets, and the volatility of the stock market have made many families understandably anxious about their economic future." Governments have pledged around $4 trillion to support banks and restart money markets to try to avert a global recession that will hit developing countries hardest. The UN secretary-general, Ban Ki-moon, yesterday warned that the crisis could strike a "final blow" to some poor countries. – Guardian
Dominant Social Theme: Markets fall. Regulation rises. It's the natural order of things.
Free-Market Analysis: It is just astonishing that the IMF is creeping back into the picture in a big way. The IMF is putatively supposed to help countries that have spent too much money and are in danger of going broke. Of course, once upon a time, such countries were third world. The idea that Iceland would be among them was not contemplated, at least to begin with.
What is the IMF's method of operation? Before it will loan money, it insists on higher taxes along with lessened expenditures. And its repayment procedures can be onerous. In fact, there is a small cottage industry of books that accuse the IMF of preying on the countries it purports to help, squeezing them for resources and assisting privatizations for purposes of making those private situations available to "connected" Western (Anglo-Saxon) companies for a song.
For all these reasons, as we have pointed out in past Daily Bells, most countries have wanted little if anything to do with the IMF except as a very last resort. One can hardly blame them. From a free-market point of view, a banking entity that goes into a country insisting to begin with on higher taxes is an entity that puts more value on government than private industry. It is well known by now that lower taxes stimulate wealth and growth. By insisting on higher taxes to "balance the budget" the IMF is treating the government as if it were part of private industry – and amenable to private industry fixes. Of course it is not.
What is also notable in the above article excerpt, besides the threatened re-emergence of the IMF as a main global player – is the amount of money that "governments have pledged" to help alleviate the market crisis. How much? $4 trillion, apparently. Of course that may not include dollars that are being printed by central banks. We will stick with our $8-$10 trillion figure. That's a whole lot of inflation.
The above article also makes a point about the concern of the developed world for the developing one. So much progress has been lost due to this financial crisis, and now impoverished countries and individuals are not much better off than they were many years ago. The problem with this line of reasoning is that the current financial crisis is one of fiat money. If those individuals and banking entities shedding crocodile tears over the plight of the impoverished were sincere, they would start campaigning right away for an international gold or silver standard. That's the only way to avoid this sort of cataclysm again. We won't hold our breath.