Thursday, April 02, 2009

Funny Money


I have in my hand one trillion dollars


"The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy." (G20 communique)

Yes, but what does it actually mean? Is it anything like the boost Gordo and the BBC are hyping?

Reading around, and between, the lines, it seems to break down like this:

  • In terms of Cold Hard Cash, the actual new money pledged to the IMF amounts to $240bn, less than one-quarter of the $1.1 trillion in the G20 headline. That $240bn is coming from just three lenders - China ($40bn), Japan ($100bn), and the EU ($100bn). None is coming from the US, and the $100bn from Japan has already been announced once, in February. So real new money amounts to just $140bn, or less than 0.2% of world GDP (pre-Crash).

  • Another $250bn for the IMF is supposedly coming from lenders yet to be identified - in reality it will probably have to be raised on the global capital markets.

  • The IMF's final $250bn is coming in the form of additional Special Drawing Rights (SDRs). They are the ultimate funny money, basically comprising a committed credit line on which interest is charged. Moreover, the new SDRs will be allocated in proportion to so-called IMF quotas, which means that most will go to the richest countries. And guess what - the richest countries are the ones that won't actually need to draw on them.

  • The $100bn of extra lending by the MDBs (multilateral development banks, like the World Bank) will be raised on the international capital markets, not directly from G20 members.

  • The $250bn extra trade finance sounds like classic vapourdosh. First, how's it going to divvied up? Second, how's it going to be measured against existing plans? And third, who's going to do the monitoring and enforcement?
Overall, it seems that $1.1 trillion headline may be a teensy bit of an exaggeration. It certainly isn't the coordinated global jump-start promised by Gordo.

But that can't be right, you say. The equity markets have soared - they clearly love it.

Hmm. More likely, they've finally caught up with the sound of whirring printing presses. In 1975, just a year before our economy crashed and burned so badly we were forced to call in the IMF, the UK stock market rose by 140%.

Funny things, markets.

Just like G20 communiques.

PS As we know, Gordo has a long and shameful record of numerical exaggeration and double-counting. Most of his budget speeches were crammed full of such stuff, and he's now taken precisely the same skills onto the G20 stage.

PPS Much to Bishop Snow's embarrasment, this evening he managed to get Lord Mandy blind-sided by another guest. Entirely ignoring the agreed line of celebration and mutual admiration, this other guest - who will definitely not be invited back - blurted out that the UK is generally thought to be heading for another IMF bailout. His name is Simon Johnson, until recently head of the IMF's economic research department.

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