Published On: Sun, Oct 9th, 2011

Politics, Money and OWS

The head of the IMF, Christine Legarde dropped a big bill on Tim Geithner’s desk after the market closed on Friday.

 From the WSJ article:

The IMF could offer short-term lines valued at roughly $50 billion combined to Italy and Spain.

The credit lines for those two countries could double to roughly $100 billion combined once their IMF contributions increase next year.

It’s clear that Lagarde is after the ever-elusive leverage factor. In this case “creative” and “firewall” means SPV.

“We have really tried to be creative about our facilities and instruments.”

The lines could be offered to a group of countries, which could “Install a firewall around the core of the system to prevent or mitigate the propagation of virulent shocks.”

The new credit lines could be used cooperatively with regional financing programs such as the European bailout program.

Really? The IMF is going to be doing some leveraged lending? Bailout money? For Spain and Italy?

The USA share of any IMF bailout is 25%. So Christine thinks she can get Geithner to step up for 25 large. And that would be just for Italy and Spain. Forget all the other troubled EU countries that would be able to borrow under this facility. The USA share of the IMF bailouts could easily exceed $100 billion.

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I never thought Obama’s “Jobs Plan” had much of a chance of passing. After reviewing the report by the CBO on S. 1549, The American Jobs Act of 2011, I’m convinced this legislation will never see the light of day.

This legislation is being sold as a jobs creator. It’s being sold as an economic stimulus. When you look at it, it’s obvious that this is an attempt to swing an election. It has nothing to do with good economic or fiscal policy.

The folks at the CBO look at things on a fiscal year basis. As a result, their analysis suggests that some of the “benefits” of the Bill will extend into 2013. I looked at it on a calendar year basis. This chart shows where the deficits (stimulus) and increased taxes (contraction) take place.

Clearly, this is a one trick pony. There is only one reason why the President proposed this “jobs” bill. He wants to get reelected. He thinks this will help. If the law is passed, it might just do that. The average family would get about $1,500 in their pocket. There would be signs on roads and schools that are being repaired that the work was being done on account of Obama.

That’s precisely the reason why the Bill is D.O.A.

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I’m not at all sure what should be done with the US economy, nor am I sure what the right path in Europe should be. I am, however, certain that if some very dramatic steps are not taken over the next two weeks, the financial system in Europe is going to implode. I’m equally convinced that if the US does not get a meaningful stimulus in 2012 there will be a hell of recession next year.

Obama and Geithner have pushed publicly for “Bold Action” by the EU. That means they have to deliver on the US cost of this. America can’t walk on its obligations to the IMF. If it did, Europe would crumble. At the same time, O & G will fail in their effort to get a spending bill from Congress. So I see a scenario where The US is forced to participate in a EU bailout, while the US economy gets no support, and therefore withers.

I’m off to see the Wall Street protesters today. I expect there will be a big crowd. The press has been maligning these protests. The suggestion has been that  there is no central theme or objectives of the OWS movement.

The OWS protest has legs at this point in history. The failed debate on the stimulus and a USA blank check for the IMF is exactly what the protesters need. A rallying point. I think they will get what they need/want to take this to the next level. It will happen over the next two weeks. As a result, the OWS movement will go nuclear. I wouldn’t be at all surprised if it ends with violence. There are too many cops and way too many angry people. Soon they will have something to be really be angry about.

About the Author

- Bruce Krasting has been writing for the professional press for the last five years and has been on the Fox Business channel several times as a guest describing his written work. In January 2009, he started writing his blog, Bruce Krasting. From 1990-1995 he ran a private hedge fund in Greenwich Ct. called Falconer Limited. Investments were driven by macro developments.They expressed their views in global bonds, currencies, stocks, commodities and derivatives. He closed the fund and retired in 1995. Bruce has also been employed by Drexel Burnham Lambert, Citicorp, Credit Suisse and Irving Trust Corp. He hold a bachelor's degree in economics from Ithaca College and currently lives in Westchester, NY. We are very happy that Bruce has allowed us to post his articles here on These New Times, and we think you'll agree that his insights are detailed and often brilliant and he has a easy, readable style. You can read his blog everyday here

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  1. paulejb says:

    What makes you believe that anyone in the OWS crowd as any idea about what is going on in the world?

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