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GLOBAL BANKING: THE INTERNATIONAL MONETARY FUND
PART 2 of 3

 

 

 

Patrick Wood
January 7, 2006
NewsWithViews.com

Currency, Monetary Roles and Gold

Two years prior to the collapse of the Bretton Woods system, the IMF created a reserve mechanism called the Special Drawing Right, or SDR.

The SDR is not a currency, nor is it a liability of the IMF, rather it is primarily a potential claim on freely usable currencies. Freely usable currencies, as determined by the IMF, are the U.S. dollar, euro, Japanese yen, and pound sterling.[1]

Since the value of the component currencies change relative to each other, the value of the SDR changes relative to each component. As of December 29, 2005, one SDR was valued at $1.4291. The SDR interest rate was pegged at 3.03 percent.

There should be no mistake in the readers mind that the IMF correctly views itself as the "currency controller" for all countries who have hitched a ride on the globalization express. According to an official publication,

The IMF is therefore concerned not only with the problems of individual countries but also with the working of the international monetary system as a whole. Its activities are aimed at promoting policies and strategies through which its members can work together to ensure a stable world financial system and sustainable economic growth. The IMF provides a forum for international monetary cooperation, and thus for an orderly evolution of the system, and it subjects a wide area of international monetary affairs to the covenants of law, moral suasion, and understandings.[2]

The IMF works closely with the Bank for International Settlements in promoting smooth currency markets, exchange rates, monetary policy, etc. The BIS, as central bank for central banks, more likely tells the IMF what to do rather than vice versa. This notion is bolstered by the fact that on March 10, 2003, the BIS adopted the SDR as its official reserve asset, abandoning the 1930 gold Swiss franc altogether.

This action removed all restraint from the creation of paper money in the world. In other words, gold backs no national currency, leaving the central banks a wide-open field to create money as they alone see fit. Remember, that almost all the central banks in the world are privately- or jointly-held entities, with an exclusive franchise to arrange loans for their respective host countries.

This is not to say that gold has no current or future role in international money. Under Bretton Woods, gold was the central reserve asset, and original subscribers contributed large amounts of gold bullion. Gold was abandoned completely in 1971, but the IMF continues to own and hold gold into the present: 103.4 million ounces (3,217 metric tons) with a current market value of about $45 billion. This is no small amount of gold!

The U.S. Treasury claims to have 261.5 million ounces of gold, but there has never been an official, physical audit of Fort Knox and other repositories to back up this claim. By comparison, Great Britain claims to own 228 million ounces of gold.

The BIS, IMF and major central banks (notably the New York Federal Reserve Bank and the Bank of England) have collectively and methodically sold portions of their gold stocks while claiming that "gold is dead". This manipulation has tended to suppress the price of gold since the early 1970's. Antony Sutton's 1979 book, The War on Gold, dealt definitively on this matter. More recently, the group Gold Anti-Trust Action Committee (GATA) was founded in 1999 with essentially the same argument: gold has been unfairly manipulated.

Suffice it to say that if so many organizations have conspired to keep "gold as money" out of the public mind, then gold is not dead but just temporarily on the shelf. When fiat currencies have been drained dry by the global cartel, gold will likely be brought back by the same people who told us it was forever a dead issue.

Moral Hazard

This is a technical legal term with a precise meaning, but it easily understood. Moral hazard is the term given to the increased risk of immoral behavior resulting in a negative outcome (the "hazard"), because the persons who increased the risk potential in the first place either suffer no consequences, or benefit from it.

While the IMF is riddled with specific instances of moral hazard, its very existence is a moral hazard.

The eminent economist Hans F. Sennholz (Grove City College) sums up the IMF operations this way:

The IMF actually encourages bankers and investors to take imprudent risk by providing taxpayer funds to bail them out. It encourages corrupt governments to engage in boom and bust policies by coming to their rescue whenever they run out of dollar reserves.[3]

The money shuffle goes like this: The World Bank and the BIS develop markets for credit by enticing governments to borrow money. They (and the private banks along side of them) are encouraged to make risky loans because they know that IMF stands ready to rescue countries with defaulting loans -- the moral hazard. As the usury interest builds up and finally threatens the entire financial stability of the affected country, the IMF steps in with a "bail out" operation. Defaulted loans are replaced or restructured with (taxpayer provided) IMF loans. Additional money is loaned to repay back interest and allow for further expansion of the economy. In the end, the desperate country is even further in debt and is now saddled with all kinds of additional restrictions and conditions. Plus, under the phony aegis of "poverty reduction", citizens are invariably left worse off than in the beginning.

Conditionalities

This is also a technical term that has a specific meaning: A conditionality is a condition attached to a loan or a debt relief granted by the IMF or the World Bank. Conditionalities are typically non-financial in nature, such as requiring a country to privatize or deregulate key public services.

Conditionalities are most significant within so-called Structural Adjustment Programs (SAP) created by the IMF. Nations are required to implement or promise to implement the attached conditionalities prior to approval of the loan.

The fallout of conditionalities is notable. The globalist think-tank Foreign Policy in Focus published IMF Bailouts and Global Financial Flows by Dr. David Felix in 1998. The report's introduction makes these key points:

The IMF has been transformed into an instrument for prying open third world markets to foreign capital and for collecting foreign debts.
This transformation violates the IMF charter in spirit and substance, and has increased the costs to countries requesting IMF financial aid.
The IMF’s operational crisis stems from growing debtor resistance to its policy demands, soaring fiscal costs, and accumulating evidence of IMF policy failure.
[4]
The general public has not seen such "internal criticism" of the IMF. If an outsider were to make the very same criticism, he would be ostracized for being part of the radical fringe.

So, conditionalities are instruments of forcing open markets in third-world countries, and of collecting defaulted debts owed by public and private organizations. The accumulating result of conditionalities is increasing resistance to such demands, bordering on hatred in many countries. The countries who can least afford it are saddled with soaring costs, additional debt and reduced national sovereignty.

Perhaps the most authoritative report on this topic was produced in 2002 by Axel Dreher of the Hamburg Institute of International Economics entitled The Development and Implementation of IMF and World Bank Conditionality.

Dreher notes that there was no consideration of conditionalities at the founding of the IMF, but rather they were gradually added in increasing numbers as the years passed and mostly by U.S. banking interests.[5] Conditionalities are arbitrary, unregulated, and imposed in varying degrees on different countries according to the whims of the negotiators. The recipient countries have little, if any, bargaining power.

The August Review has observed several times that 1973, with the creation of the Trilateral Commission, was a pivotal year in the stampede to globalization. It is no surprise then that conditionalities became a standard business practice in 1974 with the introduction of the Extended Fund Facility (EFF).[6] EFF created lines of credit, or "credit tranches", that could be drawn on as needed by a troubled country, thus creating additional moral hazards as well.

Dreher also points out the tight coordination with the World Bank:

The reforms under IMF programs have mainly been designed by World Bank economists. Fund conditionality often was supportive of measures contained in Bank supported public enterprise reform operations. The selection of public enterprises to be reformed as well as the modalities and time table was developed by the Bank as well.[7]

So, we see that the IMF does not act alone in the application of conditionalities and in some cases, it is pointedly driven by the World Bank.

Dreher's meticulous research uncovered another interesting statistic: The most frequent condition included is bank privatization -- included in 35 percent of the programs analyzed![8] International bankers have always had disdain for banking operations run by governments instead of by private or corporate ownership. Thus, they have used the IMF and World Bank to force privatization of what remains in government hands in the third-world.

If all of this was not disturbing enough, Dreher informs us that there are direct connections between conditionalities imposed and various private banks who work in concert with the IMF and World Bank:

Since private creditors were willing to lend further only if IMF programs were in effect, the Fund's leverage was enhanced... since for crisis resolution sometimes more money is needed than can be provided by the IFIs, IMF and World Bank depend on these private creditors who should therefore be able to press for conditions which lie in their interest.[9]

With the IMF, World Bank and other international banks forcing governments to run their countries in ways not of their choosing, and with the United States viewed as the primary driver of these organizations, it is no wonder that the third-world musters such intense hatred for the U.S. and for the self-interested globalization it exports wherever possible. The globalization process is most often anti-democratic and completely ineffective at accomplishing it's lofty stated goal of poverty reduction.

It should be plainly evident by now that the "can opener" for globalization to take place is the power of money. Borrowed money enslaves the borrower, and puts him at the mercy of the lender. When President Bill Clinton finally acknowledged the error of his ways during his affair with Monica Lewinski, he stated that it was for the absolutely worst of reasons: "Because I could." Why do these global financial organizations take such advantage of those whom they systematically put in jeopardy? Because they can!

Next: IMF Bailout of Brazil

Click here for part -----> 1, 3

Footnotes:

1, IMF, Overview of the IMF as a Financial Institution, p.11
2, ibid, p. 3
3, Sennholz, IMF Bailouts Make Matters Worse
4, Felix, IMF Bailouts and Global Financial Flows, Vol. 3, No. 3, April 1998
5, Dreher, The Development and Implementation of IMF and World Bank Conditionality, Hamburg Institute of International Economics
6, ibid, p. 9
7, ibid, p. 17
8, ibid, p. 18
9, ibid, p. 21

2006 Patrick Wood - All Rights Reserved

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Patrick M. Wood is editor of The August Review, which builds on his original research with the late Dr. Antony C. Sutton, who was formerly a Senior Fellow at the Hoover Institution for War, Peace and Revolution at Stanford University. Their 1977-1982 newsletter, Trilateral Observer, was the original authoritative critique on the New International Economic Order spearheaded by members of the Trilateral Commission.

Their highly regarded two-volume book, Trilaterals Over Washington, became a standard reference on global elitism. Wood's ongoing work is to build a knowledge center that provides a comprehensive and scholarly source of information on globalism in all its related forms: political, economic and religious.

E-Mail: pwood@augustreview.com

Web Site: www.AugustReview.com


 

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The August Review has observed several times that 1973, with the creation of the Trilateral Commission, was a pivotal year in the stampede to globalization.