In my last column, I addressed the question of a European Union Bailout involving the United States tax payers’ money. Since that article, Timothy Geithner announced that there will be no United States funds provided for a bailout of the E.U. Is this true and can we stick to his determination?
In a Fox News article http://www.foxnews.com/politics/2011/12/10/gop-lawmakers-push-to-keep-us-funds-out-euro-bailouts/, the U.S. Congress is apparently attempting to block the International Monetary Fund (the United States is the largest contributor to this fund, responsible for 17% of the moneys spent) from spending any United States funds on a European Bailout. "It's time to stop the bailouts and start restoring fiscal discipline to our own economy," Sen. Jim DeMint, R-S.C., said in a statement, as he and 25 other senators introduced an IMF bill Friday.
There are a number of problems to be considered in such an issue as bailing out the E.U. First, the United States is obviously concerned about the use of U. S. funds in this bailout. However, it is not clear whether this is a sudden genuine interest in controlling irresponsible spending on the part of the U. S. and perhaps on the part of the entire world, an interest in making the voters believe they are interested in regulating spending or is it part of a different agenda? Another complexity related to the bailout issues is our very membership in the International Monetary Fund. “Upon joining, each member of the IMF is assigned a quota, based broadly on its relative size in the world economy.” http://www.imf.org/external/about/members.htm Therefore, it is not clear whether we have any choice in the matter. The consequences of being involved with International memberships like the United Nations, International Monetary Fund and other international organizations is that the country is somewhat locked into a commitment; the consequences of which we may not be able to control.
The U.S. involvement with the IMF also works differently than U.S. support of organizations like the United Nations. Rather than appropriate money on an annual basis, the U.S. has what amounts to a bank account with the monetary fund. While paying the U.S. interest, the IMF can then use that money on deposit to finance lending elsewhere.
But Republicans are trying to claw back U.S. money that already has been obligated -- particularly a $108 billion line of credit the U.S. approved in 2009. http://www.foxnews.com/politics/2011/12/10/gop-lawmakers-push-to-keep-us-funds-out-euro-bailouts/
As one can see, this money has already been committed to the fund for use as a loan to the international community as the IMF sees fit and they apparently are very interested in helping bail out the E.U. The question becomes, then, can we actually stop the use of money already provided and can we retrieve money already provided? This seems unlikely even if we were to withdraw from the IMF (which we are not likely to do). The bills introduced in the Senate opt to attempt to retract the line of credit that the U. S. now provides to the IMF and to require the countries in trouble to improve their debt to GDP ratio before receiving any help from us. There is also talk of forcing these countries to pay a higher interest rate in order to be able to receive assistance. Of course, this smacks of the high reparation rates required of Germany after WWI. They were never able to even pay the interest on their loans. Higher interest rates have not proven to be historically successful in dilemmas of this nature.
Incidentally, it is already too late in some respects, as large portions of our money have already gone to supporting Greece’s economy which is the most troubled at the present time. Unfortunately, Portugal, Ireland, Spain and Italy sit on the brink of collapse as well. With this many countries nearing financial collapse, we will have to seriously evaluate how we will react to this international crisis and what will be the consequences if these countries do collapse.
Consequently, although we are hearing authoritative and adamant claims that we will not be involved in bailing out the E.U., the reality is that we have already done so, and regardless of the claims by our leaders, we may very well be involved as the crisis spreads.
If anyone is paying attention, we have seen all of this before. As noted in last week’s column, these conditions existed after WWI and were part of a global economic depression. Clearly, in my mind, we face another global economic depression. The monetary crisis is not just at home and it remains to be seen whether we will be able to ward off economic collapse.
The good news is that we have survived worldwide economic collapse before. The bad news is that it meant significant cost to the average person living through that time.
John Wayne Tucker