May 19, 2011

Commentary- The IMF

Posted in Banking, Big Banks, Bonds, Capital, community banks, crises, derivatives, Finance, Forward thinking, government, investment advisor, investment banking, investments, local banks, municipal bonds, San Francisco, Stocks, taxes, Uncategorized tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , at 4:40 PM by Robert Barone

The IMF  is the key organization in the world’s complex currency system.  It was founded in the immediate post World War II period (Bretton Woods) and is an important regulator of the currency system now that the world’s major currencies are all fiat (no real asset backing or restraints).

To date, the IMF has played a key role in dealing with the debt issues surrounding the EU’s weak sisters.  If Greece is allowed to default, the Greek banks will all become insolvent, virtually guaranteeing a long-term depression in that country.  The European banks, which hold $72 billion of Greek debt and $165 billion of loans to Greece’s private sector, could muddle through a Greek default, but most would be severely wounded – with significant consequences for European growth in the near term.

Now, here is the crux of the issue.  If Greece is allowed to restructure, what is to prevent Ireland from following suit?  Look at the exposure of the European banks to Ireland:  Germany: $215 billion; France: $82 billion; Great Britain: $237 billion; the ECB $244 billion.  If Greece were allowed to default, the European banks could not handle an Irish, Portuguese, or Spanish default.  So, now the importance of the IMF should be perfectly clear.  Dominique Strauss-Kahn has been an important player for the IMF in dealing with all of these debt issues, and, it remains to be seen if his absence will have an impact.

My own personal view is that default and a restructuring of the debt of these weak nations is inevitable.  The solutions offered, so far, have treated these debt issues as if they were only liquidity problems instead of what they really are – solvency issues.  Eventually, the insolvencies need to be addressed, and with it the very survival of the EU itself.

Robert Barone, Ph.D.

May 18, 2011

Statistics and other information have been compiled from various sources.  Ancora West Advisors believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.Ancora West Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States.  A more detailed description of the company, its management and practices are contained in its “Firm Brochure”, (Form ADV, Part 2A).  A copy of this Brochure may be received by contacting the company at: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778.
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