G-20 Enacts Historic Changes at the IMF: Twilight of Europe?

[Exarch]

Just in case, ppl've been living under a rock, this happened earlier this week:

G20 reaches deal on IMF reform

Eric Bernaudeau

October 23, 2010
AFP
The Group of 20 (G20) nations struck a hard-fought agreement on Saturday on reforming the International Monetary Fund (IMF) emerging nations such as China in the world's financial watchdog.
G20 finance ministers clinched the deal after years of efforts to make the Washington-based Fund better reflect a shift in global power - with the result that China, India and others will gain more weight at Europe's expense.
"It's the biggest reform ever in the governance of the IMF," IMF managing director Dominique Strauss-Kahn told reporters as the G20 bloc of advanced economies and emerging powers met in the South Korean city of Gyeongju.

"It's a very historic agreement," he said.
In a statement, the G20 ministers said the revamp would "help deliver a more effective, credible and legitimate IMF and enable the IMF to play its role in supporting the operation of the international monetary and financial system".
In parallel, the G20 agreed to empower the IMF to exercise greater vigilance over national economic policies.
"We will reinvigorate our efforts to promote a stable and well-functioning international monetary system and call on the IMF to deepen its work in these areas," the ministers said.
The agreement came as the G20 strived to head off a "currency war" between big exporters such as China and deficit-ridden nations like the United States, which accuses Beijing of cheating in trade by keeping its currency cheap.
The United States has long pressed for the IMF to intervene more actively in currency disputes, but China has rejected even mild Fund strictures on its exchange-rate policy.
Formed after World War II to remake the world financial system and prevent a return to the 1930s Depression, the IMF has long been dominated by Western powers. But it has faced growing calls to adapt and grow more democratic.
The deal to reform the IMF's 24-member board of governors was thrashed out by the G20 ministers ahead of a summit next month of national leaders in Seoul. The existing IMF board will have to sign off on it at the start of November.
Strauss-Kahn said Europe had agreed to give up two seats on the board to accommodate developing nations.
About five per cent of voting rights will be transferred, and Brazil, Russia, India and China will all emerge as among the top 10 IMF shareholders.
A senior US official praised European nations for showing leadership and understanding on the issue.
"For the Europeans to do this is genuinely difficult because it means that countries that have occupied these board seats for a very, very long time are moving over and making room for the emerging economies," the official said.
The United States currently provides a major chunk - almost 17 per cent - of funding for the IMF, which has traditionally stepped in to help countries in financial trouble, usually attaching tough demands for reform.
Japan is the second largest shareholder, with Germany, France and Britain also substantial contributors.
But China, whose stunning economic transformation over the past three decades and resilience during the 2008-09 global crisis has shifted financial power eastwards, is now set to become a more high-profile player in the IMF.
The Fund found itself under intense pressure as the financial crisis exposed governments' inability to respond in a world of highly complex financial instruments.
In March 2009 the IMF created a so-called "flexible credit line" to pre-empt financial distress among its members, a system that is still being refined after the crisis laid bare the giddy speed at which capital can take flight.
Strauss-Kahn acknowledged that the IMF still had work to do in developing a South Korean proposal to create a broader "financial safety net" that might reduce the need for countries like China to build up huge currency reserves.

Source: http://news.smh.com.au/breaking-news...023-16yfy.html

it sure is a sign of the times that Europe has to give up political power to the rising BRICs, and as i sip my Shiraz, i can't help but muse at the incredibly irony that not one century ago, Europe was at the zenith of its power. What the God Emperor of Man Giveth, He Taketh Away, apparently.

still, i'm disturbed Geithner would even want to legislate limits on surpluses and deficits; the only way the USG is going to get over the Recession is to produce more than it consumes.

i do think, however that it's a good start for the G-20, making the IMF more egalitarian, as egalitarian as it can get with squabbling world powers "negotiating"

[justicar5]

In parallel, the G20 agreed to empower the IMF to exercise greater vigilance over national economic policies

great so more power to bankers and away from democratic organisations, all hail the plutocracy.

[Oldgamer]

great so more power to bankers and away from democratic organisations, all hail the plutocracy.

Welcome to life as it truly is, Justicar.

In the United States, Wall Street has gone strongly DEM, in the last two election cycles. Why? Having made all the money they could use in a hundred lifetimes, they now want the protection of government. The DEMs were willing to give it to them, and so the Democrat Party became the Party of the Rich (you really don't believe that Obama got $1 billion in 2008 from the little people, do you?). When they decide that the DEMs no longer protect them, they will switch back to the GOP, and then it will become the Party of the Rich.

Government protection and regulation of financial markets is insurance against poor decision-making ...

@Exarch
I like the title of your thread. It sounds remotely Wagnerian!

[justicar5]

Welcome to life as it truly is, Justicar.

In the United States, Wall Street has gone strongly DEM, in the last two election cycles. Why? Having made all the money they could use in a hundred lifetimes, they now want the protection of government. The DEMs were willing to give it to them, and so the Democrat Party became the Party of the Rich (you really don't believe that Obama got $1 billion in 2008 from the little people, do you?). When they decide that the DEMs no longer protect them, they will switch back to the GOP, and then it will become the Party of the Rich.

Government protection and regulation of financial markets is insurance against poor decision-making ...

@Exarch
I like the title of your thread. It sounds remotely Wagnerian!

Which is why we need strongly regulated financial markets, as insurance against the banks, as their share of the economy means if a bank fails, the economy collapes, and we cannot afford to bail them out ever again. Make the banks pay for 'bankruptcy insurance' seperater commercial and merchant banking so that mortgages and credit cards cannot be underwritten by corporate and sovereign wealth funds, maybe even go as far as seperating credit banks (who run credit cards and unsecured loans, as well as things like car loans) from Building societies, who are saving and mortgage organisations, not offering unsecured loans (or rather would stop doing so) both would still offer overdrafts .

[Oldgamer]

Which is why we need strongly regulated financial markets, as insurance against the banks, as their share of the economy means if a bank fails, the economy collapes, and we cannot afford to bail them out ever again. Make the banks pay for 'bankruptcy insurance' seperater commercial and merchant banking so that mortgages and credit cards cannot be underwritten by corporate and sovereign wealth funds, maybe even go as far as seperating credit banks (who run credit cards and unsecured loans, as well as things like car loans) from Building societies, who are saving and mortgage organisations, not offering unsecured loans (or rather would stop doing so) both would still offer overdrafts .

Of course, you understand that I have an opposite opinion. If the CEOs or CFOs of a corporation make terrible investment decisions, and the corporation is ready to fail, it should be allowed to (which would have a deleterious effect upon the careers of the corporate officers in question). Some regulation is necessary, of course, to stop "Robber-Baronism". But only just enough regulation. How much regulation is that? I don't know, not being an economist.

But I am not in favor of giving government power over the private sector, for the most part. Government must not be used as a prop for failing institutions whose officers have acted in an irresponsible way. Let the market sort it out.

@Orko
Which word?

[athanaric]

@Orko
Which word?

I think he means "Twilight"...
... or was it "Wagnerian" (because Wagner was an anti-Semitic idiot who really should have focused on making music instead of political statements, very much like many artists of our time).

[Admiral Piett]

Of course, you understand that I have an opposite opinion. If the CEOs or CFOs of a corporation make terrible investment decisions, and the corporation is ready to fail, it should be allowed to (which would have a deleterious effect upon the careers of the corporate officers in question). Some regulation is necessary, of course, to stop "Robber-Baronism". But only just enough regulation. How much regulation is that? I don't know, not being an economist.

But I am not in favor of giving government power over the private sector, for the most part. Government must not be used as a prop for failing institutions whose officers have acted in an irresponsible way. Let the market sort it out.

@Orko
Which word?

I agree with you when it comes to most commerce, but not when it comes to these centralized bank hegemonies. They simply have too much power over the economy of the nation without any designated Constitutional authority. If these massive institutions go without any oversight or regulation of risk or action, it threatens the stability of the entire nation. That's more than enough justification for some kind of intervention when it comes to these kinds of monstrous institutions.

Jefferson himself warned against unregulated power of these very kind of banking institutions and argued strongly for oversight by the public eye.

The principle of rotation... in the body of [bank] directors... breaks in upon the espirit de corps so apt to prevail in permanent bodies; it gives a chance for the public eye penetrating into the sanctuary of those proceedings and practices, which the avarice of the directors may introduce for their personal emolument, and which the resentments of excluded directors, or the honesty of those duly admitted, might betray to the public; and it gives an opportunity at the end of the year, or at other periods, of correcting a choice, which on trial, proves to have been unfortunate.

We can either prevent banks or lending firms from getting too large, or we can more strongly scrutinize them. Those are the only two common sense ways of protecting the economy from failure.

[justicar5]

Of course, you understand that I have an opposite opinion. If the CEOs or CFOs of a corporation make terrible investment decisions, and the corporation is ready to fail, it should be allowed to (which would have a deleterious effect upon the careers of the corporate officers in question). Some regulation is necessary, of course, to stop "Robber-Baronism". But only just enough regulation. How much regulation is that? I don't know, not being an economist.

But I am not in favor of giving government power over the private sector, for the most part. Government must not be used as a prop for failing institutions whose officers have acted in an irresponsible way. Let the market sort it out.

The rules I set out are designed to stop banks becoming 'to big to fail', the insurance fund is so that a reserve of money is available to cushion the fall, so to speak, preventing goverment from having to cover deposits with the banks. (The scheme would work as now, with up to £50k being covered, but instead of the goverment underwriting directly, the bankruptcy insurance fund does so) the seperation of roles is to prevent any bank becoming so involved in all areas of the economy that it's collpase takes the rest down with it. Then when these measures have insured that the failure of a bank is not a national disaster, they can be cast to the markets to sink or swim. This is an attempt to keep the risks of having a private banking sector as low as possible, not to nationalise said sector.

[Exarch]

@Exarch
I like the title of your thread. It sounds remotely Wagnerian!

i too, love the smell of napalm in the morning, and when i say 'napalm' i mean sizzling bacon
Wagner's not bad, i prefer Tchaikovsky out of the Romantic period composers though

@AUSSIE11
the danger in that regard is the formation of blocs and cliques in the financial order of the world; that's why i reckon europe decided to let go of some of its IMF power to the rising BRICs, give and take a little.

[bigfootedfred]

great so more power to bankers and away from democratic organisations, all hail the plutocracy.

HEIL! HEIL!

I for one, welcome the further concentration of power into the hands of our bankster overlords. A new era of record bonuses and funding for cuddly guys like hitler awaits!

[roy34543]

You realize the US basically still has control over the entire thing ? I mean its technically independent, but its the US that has the real strings attached.

[Exarch]

You realize the US basically still has control over the entire thing ? I mean its technically independent, but its the US that has the real strings attached.

of course, where did i say otherwise?
the US has a massive chunk of votes in the IMF-it is, after all a primarily US isntitution; the point i was making was the Bric gain at europe's expense

[roy34543]

of course, where did i say otherwise?
the US has a massive chunk of votes in the IMF-it is, after all a primarily US isntitution; the point i was making was the Bric gain at europe's expense

THey didnt really have much power in the first place is the point im trying to make, so theres only so much they can give away.

[Exarch]

THey didnt really have much power in the first place is the point im trying to make, so theres only so much they can give away.

i'm reading an interesting article from atimes right now, think everyone should take a look as well:

Geithner's hidden G-20 agenda
By Hossein Askari and Noureddine Krichene

"The concerted and decisive actions of the G-20, with its balanced membership of developed and developing countries, helped the world deal effectively with the current financial and economic crisis. ... Reflecting on these achievements and recognizing that more needs to be done to ensure a strong, sustained and balanced global recovery, the G-20 leaders at [the September 2009] Pittsburgh Summit designated the G-20 as the premier forum for international economic cooperation ... Building on past achievements and close cooperation among members, the G-20 will double its efforts in 2010 to help the world make a successful transition from global recovery to stronger, more sustainable and balanced growth."

continued

The description of the Group of 20 on the organization's official website is designed to mask the facts that this is a self-appointed body that has little legitimacy, has achieved precious little since it started holding two yearly summits two years ago, and it provides a better forum for the powerful to pursue their own agenda. US Treasury Secretary Tim Geithner is becoming a master at juggling G-20 agendas to mask and push his agenda - short-circuit the market and support US economic growth and job creation at the expense of East Asian economies and oil and commodity exporters. Geithner's disruption of Southeast Asia's export-oriented economies will not solve the US economic crisis, which is deeply rooted in US economic and financial policies. Disruption of Southeast Asian economies could have serious consequences for them and for the rest of the world that has enjoyed competitive and affordable goods flowing from China, South Korea, Malaysia, Singapore, and the like. The toll would be high on a number of countries in Southeast Asia that are fully integrated into the global economy and have followed an export-oriented growth by developing their competitiveness. The toll would be equally high on many consumers around the world, including those in the US who could see their Japanese cars and Chinese products disappear from the market, thanks to Geithner's trade-capping agenda. Geithner's agenda to entrust China, Japan, and other trade surplus countries to International Monetary Fund tutelage is a plan that can but only increase global recriminations and economic tensions. Capping the trade surplus of oil and commodity exporters could have similar results and reduce the availability of oil and other commodities and bring on higher prices. Geithner has been the proud manager of the largest peacetime fiscal deficit in US history, at about 13% of GDP, and a rapid build-up of US national debt. The Federal Reserve has just announced its intention for a new round of monetary easing. These policies can only make the US external deficit more problematic. They will erode US exports and step up imports. Through setting interest rates at zero bound and mounting trillions of dollars in liquidity injection, the US has deliberately depreciated its currency and sparked the race in competitive devaluations. The dollar has depreciated significantly versus gold, the yen, euro, and a number of other key currencies. Yet the dollar's depreciation has not promoted US exports, engineered a US export-led recovery, or reduced the US external deficit. Capping the trade surplus of oil producers and emerging market countries, as urged by Geithner in South Korea last week while attending a gathering of G-20 finance ministers, will not expand US exports and will not improve its current account position. Markets do not limit US exports; there are simply not enough US goods left for export. The US consumes too much and produces too little. It would be naive to believe that US farmers would not produce and export corn and wheat at such high prices if there were sufficient cereal and bread in US stores. The priority for Geithner should be to change US policies and not force a counterproductive change on other countries. By attacking surplus economies, the G-20 has yet again highlighted its illegitimacy as an organization pulled out of thin air by some of its powerful members and its irrelevance in a world that needs more cooperation and trade and less recrimination and barriers to trade. As in the past, the G-20 has been misguided in its approach. Under the influence of the Barack Obama administration, the G-20 has called for unlimited fiscal deficits and monetary expansion. A number of G-20 countries have disavowed fiscal profligacy despite strong US pressure to maintain these policies until full recovery is achieved, with fiscal balance only as a long-term objective. Instead, many countries have embarked on reducing their fiscal deficits in spite of the social unrest that austerity programs have set off in Greece and more recently in France. Unlimited monetary expansion is causing high instability in exchange rates, which will be damaging to trade and investment. By engaging in a zero rate interest policy, the US is directly forcing the dollar into free fall. By the same token, it is setting off countervailing reactions in the form of currency depreciation and capital controls in emerging market economies. Geithner's agenda is misdirected. His priority should be to re-establish US fiscal and monetary discipline. Curtailing the trade surplus of well-managed countries will only make the situation worse for the US and the rest of the world. The US was able to finance its fiscal deficits through the surpluses of these countries. In the absence of these surpluses, the rate of inflation in the US would have been in the double digits as was the case in the 1970s. Recently, a number of prominent economists, such as Joseph Stiglitz, Allan Meltzer and Robert Mundell, have expressed concern regarding US policies. Still, the Fed continues to be addicted to its loose monetary policy, and is spreading more financial instability in US and around the world. The G-20 should be an elected body with legitimacy. It should recognize what is urgently needed for all countries and what is politically and economically feasible. The most urgent priority is to renounce a decade long loose monetary policy. Leading industrial countries should renounce quantitative easing and near-zero interest rates and revert to controlling monetary base within safe limits. They have to renounce controlling interest rates as under the Reagan-Thatcher era and regain monetary stability and a cooling off of asset and commodity price inflation. There should be a call for reserve currency central banks to realign their interest rates with those prevailing in some emerging countries so that a measure of exchange rate stability can be established. Interest rates in the interbank market of most emerging market countries are above 5%. In contrast, the US near zero-interest rates will remain a powerful destabilizing force. The beneficial effects of monetary stability will be the renewed confidence of entrepreneurs and companies to increase their real [COLOR=green ! important][COLOR=green ! important]investment[/COLOR][/COLOR] and for speculators to retrench. Trade imbalances should not be addressed by anti-market approaches, such as capping surpluses. Trade imbalances have been on the international agenda now for many years. They are structural and have little to do with exchange rate misalignments. Trade imbalances could not be corrected in one meeting of the G-20 in Seoul. Today's trade surplus countries were large deficit countries when Europe and the US were large surplus countries. It took decades of development and export promotion for these countries to be become trade surplus economies. Most of Southeast Asia's exports are consumer goods at competitive prices. Their export to Asia, Middle East, and Africa is not displacing American or European exports; curtailing these exports will deprive consumers in parts of the world from buying affordable goods. Curtailing Japanese car exports would hardly help US car exports. The US has an edge in aviation industry, heavy engines, and farm products. Other countries have an edge in textiles, shoes, and other consumer goods. Changes in exchange rates will not dramatically alter the volume of exports. Disrupting trade could have deep consequences in a number of countries. The US external deficits are structural and are also related to the role of the dollar as a reserve currency. US external imbalances long preceded China's trade surplus - trade is multilateral and cannot be attributed to any single country, and imbalances cannot be solved by interfering into the exports of other countries. The US external imbalances can be solved only by the US itself through reducing its fiscal deficits and restraining its monetary policy. The distinguishing feature of a reserve country is that it can run external deficits forever and without tears, that is, without paying in real resources for these deficits, as long as other countries will accept its currency as payment. Other countries had to develop exports to pay for imports, the US did not. It simply printed money to pay for exports as the case is now. Greece could not print money and had to curtail its external deficits once others would no longer lend it money. The US external deficits will persist and grow larger as long as the dollar is a reserve currency. The G-20 has been dominated all along by the misconception that the world is simply constrained by demand, and that US and Europe economic recovery should be just based on expansion of demand. Therefore, the simplicity of Geithner's view and of European supporters is that if only China renounces its exports, the US and Europe will grow on the strength of higher exports. But every country, including the US, can promote exports if they can compete in terms of price and quality and it has enough resources for investment and enough goods left for exports. Flashing indicators including the eruption of the gold price to near US$1,400 an ounce, the free fall of the dollar, the abundant liquidity, and commodity inflation have not impressed the G-20. Its agenda has instead been deflected to topics such as trade imbalances, which are deeply structural. The urgent priority is to avoid marching down the same road that in the first place led to financial and economic turbulence of 2007-2010. Hossein Askari is professor of international business and international affairs at George Washington University and Noureddine Krichene, who has a PhD from UCLA, is professor of finance at INCEIF in Kuala Lampur.

Source: http://www.atimes.com/atimes/Global_.../LJ27Dj04.html

[removeduser_487563287433]

I hate threads with titles as stupid as this.

"Banks: THE DEATH OF ALL YOU HOLD DEAR?!"

[justicar5]

I hate threads with titles as stupid as this.

"Banks: THE DEATH OF ALL YOU HOLD DEAR?!"

Given the current econmic collapse being directly attributable to the gambling and recklessness of banks, the question, thos stated in a hyperbolic way, is well, valid.

[Yorkshireman]

Surely this is a good thing ? It means that more nations are in a position to contribute more funds to the IMF. Increased voting rights to China, Brazil etc means they contribute more. (I think ?)

[Orko]

Please don't ever mention that word ever again.

[AUSSIE11]

the European Nations will still wield more than enough power when combined... in order for anything to pass the IMF you need 85% of the vote (this is how the US with its original 16.3% of the vote controlled the IMF) so even if the BRICs controlled 80% of the IMF nothing could go through... as it is the UK, Germany and France could block anything they wanted when combined.

[Mr. Scott]

Western Europe may be in its twilight, but I do not feel Eastern Europe is. We may see Eastern Europe (russia excluded) start to grow stronger and eventually may even par with western Europe as time goes on. They certainly have a bit more oomph left in them compared to western Europe.