A Trillion Dollars of Smoke and Mirrors

Terry Miller / April 03, 2009

News reports indicate that the G-20 pledged an additional $1.1 trillion in financing for the International Monetary Fund, the World Bank and other global institutions so that they can help countries cope with the global economic crisis. The details of the proposal are virtually non-existent, i.e. exactly who will be responsible for what portion of the pledge, what exactly the money is supposed to be used for, and when it will be delivered. It’s clear that much of the money was already in the pipeline in one form or another. Most of it appears to be in the form of loans, raising the specter of a possible new Third World debt crisis, and most of it is about increasing leverage in the international financial system, injecting exactly the same kind of risk back into the system that market forces are in the process of scrubbing out.

One thing is sure, however: It is a spectacularly bad and high risk idea to pour vast new sums through failed or failing institutions. And that is what the IMF and World Bank are. (more…)