Last week held bad news regarding a disastrous auction of U.S. Treasury notes and bills--our government couldn't sell all the debt needed to fund spending and had to buy the debt back with money from the Treasury (newly "printed" money). The result was a very rapid escalation of the interest rate on government debt--it was slightly over 4% this morning, up from 3.59% in early February.

Today Alan Greenspan said that averting a situation where the U.S. struggles to finance unprecedented budget deficits "is more urgent than at any time in our history," in testimony Thursday before the U.S. Senate Committee on Homeland Security and Governmental Affairs. Greenspan painted a grim picture of a U.S. government facing difficulty financing the deficit, saying that high debt servicing costs would add to the deficit, creating a vicious cycle leading to yet higher debt servicing costs and higher deficits. He testified that high long-term interest rates wouldn't only push up mortgages rates, but also weigh on stock prices and crowd out business investment. "I would be very fearful of the ability of the business sector to borrow and invest," Greenspan said.

Then the article in today's Wall Street Journal entitled, "Greek Bond Yields Soar to 7.1%". The article states that rates on Greek bonds have escalated quickly as the result of "market concerns over domestic capital flight and the country's inability to fund its budget deficit without aid from the International Monetary Fund." The article goes on to explain that "...the high rate of interest Greece has had to pay on its recent bond issues supports concerns that investors could be hard to attract to future debt issues to fund big budget gaps."

Greek banks are facing a wave of cash deposit redemptions by the country's most wealthy citizens and corporations. At the same time, the value of the Euro is plummeting. It lost 1.5% against the Yen in only one day last week, a huge move in the foreign exchange markets. The dramatic weakness in the Euro will make it much more expensive for Greece (and all the other EU countries) to pay for their imports. But it will also make foreign-produced goods cheaper to buy in the U.S. It might be a "race to the bottom" between the US$ and the Euro, with the issuers of both currencies battling to protect employment and economic activity in their home countries.

The money provided to Greece by other members of the European Union is not enough to finance Greece's deficits and the Greek government has contacted the International Monetary Fund (IMF). The IMF has told the Greek government that they will only be a lender of last resort and that there will be significant cost-cutting requirements placed on the country if the IMF is ever called upon to provide funding. The IMF will have a team of people in Greece for the next few weeks studying their budget in preparation for telling the Greek government where and when it will have to cut spending.

Folks, I've mentioned this here before. You are NOT going to hear this kind of news from any of our elected political leaders. They're too busy arguing about their respective political ideologies and positioning themselves for re-election in the fall. Not trying to be a "glass half empty" kind of guy, I'm suggesting to all of you to pay attention to what's happening in the sovereign financial markets. The developments are very likely what's going to be happening to the U.S....and us! It's only a matter of time.

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."

- Marcus Tullius Cicero -
55 BC

Help me educate myself here Villages Kahuna. Who funds the IMF?

Originally Posted by bkcunningham1

Help me educate myself here Villages Kahuna. Who funds the IMF?

The International Monetary Fund (IMF) is the international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rate and the balance of payments. It is an organization formed with a stated objective of stabilizing international exchange rates and facilitating development. It also offers highly leveraged loans, mainly to poorer countries. Its headquarters are in Washington, D.C., United States.

Funding of the IMF is comprised of commitments from 188 countries. The United States now supplies $27 billion of funds to the IMF, by far the largest commitment, more than double that of the next country, Japan. At an annual cost to the taxpayer of $1.9 billion--an expenditure conspicuous by its absence in the Federal budget and a hidden element in our deficit and debt--that amounts to a little more than 17% of the total funding of the IMF.

Just as a matter of comparison, our funding of the IMF is just about equal to the total foreign aid given by the U.S. each year.

Major decisions by the IMF require an 85% supermajority of it's member countries, based on voting rights proportional to each country's funding of the IMF. The United States has always been the only country able to block a supermajority on its own. Obviously, the U.S. uses the leverage of it's effective control of the IMF to strengthen it's position in foreign affairs.

China has been trying for years to increase it's contributions to the IMF in order to increase its voting control and expand it's influence in international finance and world affairs. In September 2005, the IMF's member countries agreed to the first round of quota increases for four countries, including China. But even now, China's voting influence in the IMF is still the smaller than any of the G7 countries (Canada, France, Germany, Italy, Japan, United Kingdom, and the United States), thereby limiting its influence. China has thus far been excluded from membership in the G7.

Originally Posted by Donna2

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."

- Marcus Tullius Cicero -
55 BC

Geez, it was less than one hundred years after Cicero, the famous Roman philosopher, statesman, lawyer and political theorist made that statement until Nero, the last Roman emperor, played away on his fiddle while Rome burned.

...and Tim Geithner is America's representative on the IMF board?

this information last week. Can't have the Obama happy train running over inevitable truths now can we.
As I have said before there is not a financial understanding in the current administration. There just is not.

btk

Originally Posted by bkcunningham1

...and Tim Geithner is America's representative on the IMF board?

Yes. Geithner and Beranke.

Originally Posted by billethkid

...As I have said before there is not a financial understanding in the current administration. There just is not...btk

Gotta disagree, Billie. This administration, just like almost all before them, has a great depth of economic and financial knowledge and experience. The problem isn't with those with financial responsibilities in Washington who got there by being appointed. The problem lies with those that are there as the result of being elected.

The appointees work for the "electees" and they have distinctly different sets of knowledge and experience. The appointees are there for only a short period of time, and they know that. But the electees have the opportunity to hold those sweet, rewarding and powerful jobs for a long, long while...just so long as they don't do anything stupid. Stupid like cutting the gravy-train of spending that buys them the votes for re-election after re-election. Or even worse, saying out loud what is a mathematical certainty--the budget cannot be balanced with spending reductions alone. It's going to take tax increases, as well.

Nope, I'm convinced that the people in the key financial positions in Washington know exactly what the problem is and what it will take to fix it. They probably even have an opinon on whether it can be fixed at all. It's just that the electees who appointed them are telling them every day to keep their yaps shut. Particularly now, with only 7-8 month to go until another election.

As you so accurately noted, Geithner said a lot of words last week without saying anything. Just like Greenspan and Paulson and Rubin did for all those years, as did their predecessors before them. They know that if they ever said in public what they really know, that their bosses might not get re-elected. And we all know what's most important, don't we?

So what is the European Union's relationship with the IMF? Germany in particular. I thought Germany was negotiating or playing political games or whatever over whether or not they would "bail-out" Greece to defend the stability of the Euro.

http://blogs.alternet.org/speakeasy/...e-tax-in-2009/ for those who like to defend our giant companies..maybe if they payed just a little,no it's easier to blame the little guy.

financial people would allow the kinds of rolling the dice our representatives participate in, using your comment, being knowledgeable.
It is obviously that the politics far out weigh doing the right thing financially.
And of course because of my background I fully expect them to do their jobs...which is unrealistic also.

btk