"With this trip, I think the Secretary will bring the message that time is running out and this is the last chance the Europeans have to fix the situation before we have a full- blown systemic crisis," said Domenico Lombardi, a former International Monetary Fund board member who is now a scholar at the Brookings Institution in Washington.
"I think the U.S. tone will be much more firm - it has changed from being more interlocutory to more authoritative," Lombardi added.One last try from Geithner now. Perhaps he will re-iterate the recent suggestion by President Obama simply for the Central Bank to buy government securities in a time of crisis such as we are witnessing.
Any type of Eurozone solution that includes "managed defaults" of sovereign debt would include pre-arranged European fiscal actions to allow the European institutions to continue to operate. However, if such "defaults" resulted in large and potentially solvency disrupting losses to US institutions, the fiscal actions required to remedy those losses for US institutions would not be so easily forthcoming, given the US political environment with respect to "bailing out the banks again". Geithner is probably over there primarily to defend US institutions against this outcome; an "MF Global" redux across all TBTFs.
6 comments:
the europeans are the last people geithner needs to convince.
he needs to first educate all the financial illiterates within the US government so that the US can pursue a modern monetary policy that at least captures the benefits of a fiat currency system instead of undermining them.
much as i like mosler and his policy measures, they won't get anywhere unless he first educates enough people first. it is truly a sign of utter clueless-ness when congress invites a hack stockbroker to testify on the economy. that's like asking a janitor for his advice on fixing a nuclear plant.
if they don't fix this, nothing will happen and the US will cede global economic leadership to someone else in the next decade or two.
maybe it's time to bring erik prince back and give him a new mission: erase ignorance in the US.
Of course they are being hoisted by their own petard.
The intransigent insistence the deficit must be reduced at all costs is backfiring.
I for one have no sympathy when the gun blows up in their faces.
It'd be unprecedented for the Fed to make a big currency play without the Secretary's sign-off (interfering with the President's foreign policy would certainly give him legal cause to fire Fed governors), so Geithner was on board for the recent ECB currency swap. Someone has to be a lender of last resort, but that somebody doesn't have to be the Fed.
Frankly the best thing Geithner can do is engage in a little force majeure. Tell the ECB that any US assistance from today on is conditional on the ECB acting as as lender of last resort, they're cut off (they can call Ben Bernanke for more detailed instructions).
That's the best way, since neither side has to give in or lose face. They can blame the American hyperpower (as the French call us) inflicting its will on them. That thought always seems to unify Europe. :o)
Frankly the best thing Geithner can do is engage in a little force majeure. Tell the ECB that any US assistance from today on is conditional on the ECB acting as as lender of last resort, they're cut off (they can call Ben Bernanke for more detailed instructions).
That could very well be the message that Geithner is delivering after consultation with Ben and the other powers that be.
As Warren and others have pointed out that relying on the Fed as global lender of last resort becomes inflationary for the US beyond a certain point since it results in dollar devaluation, and we may be approaching that point in US estimation.
WSJ is reporting that Geithner said the Fed will not provide the IMF with balances to lend to the ECB....
“The IMF exists in some ways for this purpose, to help members meet financial needs,” he said. However, he coupled this statement with the claim that reports that the U.S. Federal Reserve may contribute to a special IMF fund to aid the EU are “not accurate.”
http://www.forbes.com/sites/heatherstruck/2011/12/06/geithner-to-eu-imf-will-play-a-role-but-without-u-s-aid/
Resp
"WSJ is reporting that Geithner said the Fed will not provide the IMF with balances to lend to the ECB..."
Right, the Secretary call the shots on foreign exchange issues...
Consistent with the obligations of the Government in the International Monetary Fund on orderly exchange arrangements and a stable system of exchange rates, the Secretary or an agency designated by the Secretary, with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities the Secretary considers necessary.
http://www.law.cornell.edu/uscode/usc_sec_31_00005302----000-.html
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