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Saturday, December 24, 2011

The World Is Running Out Of Money

The World Is Running Out Of MoneyGovernment is the great fiction, through which everybody endeavors to live at the expense of everybody else. Frederic Bastiat, French economist (1801-1850).

The French socialist IMF chief Christine Lagarde warned Tuesday that the world economy is at a "very dangerous juncture," speaking of the potential impact on poorer nations during her first visit to Africa as head of the fund. Breitbart News reports:

The International Monetary Fund managing director spoke of a crisis of confidence with high unemployment and slowing global growth.

"Currently the world economy stands at a very dangerous juncture," Lagarde told a roundtable on Africa's economic future in the Nigerian city of Lagos.

She said the IMF's revised global growth forecast expected in January looked to be lower than the previous one in September, which was four percent, already down from June's outlook.

"And what's more, there are downside risks on the horizon that are really threatening the recovery process that had started" after the 2008-09 global financial crisis, she said.

The IMF has said Europe's worsening economy and financial market turmoil meant it will revise downwards its predictions for global growth contained in its World Economic Outlook report published three months ago.

Early this month, the UN cut its 2012 world growth forecast to 2.6 percent from 3.6 percent, warning that the global economy is "teetering on the brink of a major downturn".

Lagarde said on Monday during meetings with Nigerian officials that the European debt crisis posed a risk for "all economies of the world".

The Eurozone debt crisis eased slightly Tuesday with an agreement on extra funds for the IMF, strong data from Germany and a good bond sale in Spain which boosted stocks and the euro.

The IMF also said Tuesday that bailed-out Ireland was on track to complete its budget turnaround after the fund completed a fourth review.

But the broader deal on funds for the IMF -- aimed at allowing the crisis lender to come to the aid of European nations caught up in the debt crisis -- fell short of targets, with Britain again out of line with its EU neighbours.

Lagarde did not comment directly on the new pledges of funds from European nations for the IMF, nor did she respond to a question on Britain's stance on the issue.

She said during the roundtable in Lagos that European leaders "have made some very strong decisions" but added later that "it's going to boil down to implementation".

Lagarde spoke of the impact on trade and finance, among other areas, that could cause trouble across the globe, and called on wealthy nations to enact policies that would send clear positive signals to investors and consumers.

"Those problems seem a world away but they are not a world away because what we see very clearly is channels of contagion between those advanced economies and the rest of the world," she told the audience in Nigeria.

She earlier held talks with Nigerian President Goodluck Jonathan after meeting Finance Minister Ngozi Okonjo-Iweala, a respected former World Bank managing director who also participated in Tuesday's roundtable.

Nigeria has long been held back by corruption and mismanagement despite its vast oil wealth.

Most of its population lives on less than $2 per day and electricity blackouts occur daily, while the country's mainly Muslim north has been hit by scores of deadly attacks attributed to Islamist group Boko Haram.

The government is seeking to enact reforms, including a deeply controversial measure which would lead to an increase in petrol prices, to allow the country to invest more in its badly neglected infrastructure.”

For years the IMF and other international financial organizations such as the World Bank and International Development Bank have been pouring trillions of other people money into failed or corrupt economies with no positive results. The majority of this money ends up in the pockets of corrupt leaders or is used for debt restructuring.

After the end of the Second World War the International Bank for Reconstruction and Development (IBRD – commonly known as the World Bank) was formed. After the 1944 Bretton Woods conference the IBRD was created to provide loans for the reconstruction of worn-torn Europe. The purpose of this bank was to provide loans (mainly from the United States) to rebuild the infrastructure of Europe. The operative word here is “loans” as the money was expected to be paid back by the recipient nations over a period of time as their economies got back on track.

The IBRD provides loans to governments, and public enterprises, always with a government (or "sovereign") guarantee of repayment subject to general conditions. The funds for this lending come primarily from the issuing of World Bank bonds on the global capital markets—typically $12–15 billion per year. These bonds are rated AAA (the highest possible) because they are backed by member states' share capital, as well as by borrowers' sovereign guarantees. Because of the IBRD's credit rating, it is able to borrow at relatively low interest rates. As most developing countries have considerably lower credit ratings, the IBRD can lend to countries at interest rates that are usually quite attractive to them, even after adding a small margin (about 1%) to cover administrative overheads.

This is still the stated mission of the IBRD as it loans for infrastructure such as roads, bridges, water treatment plants and power generation plants in the developing nations and third world. As an example the loan is for a bridge. This loan will be paid back from an increase in the taxes imposed on drivers and tolls on the bridge. They system has worked well in the past.

Another part of the World Bank is the International Development Association (IDA). The IDA was created in 1960 and is responsible for providing long-term, interest-free loans to the world's 80 poorest countries, 39 of which are in Africa. IDA provides grants and credits with repayment periods of 35 to 40 years. Since its inception, IDA credits and grants have totaled $161 billion, averaging $7–$9 billion a year in recent years and directing the largest share, about 50%, to Africa. While the IBRD raises most of its funds on the world's financial markets, IDA is funded largely by contributions from the governments of the richer member countries. Additional funds come from IBRD income and repayment of IDA credits.

IDA loans address primary education, basic health services, clean water supply and sanitation, environmental safeguards, business-climate improvements, infrastructure and institutional reforms. These projects are intended to pave the way toward economic growth, job creation, higher incomes and better living conditions. IDA’s goal is to reduce inequalities both across and within countries by allowing more people to participate in the mainstream economy, reducing poverty and promoting more equal access to the opportunities created by economic growth. IDA also provides grants to countries at risk of debt distress.

The bulk of these IDA grants are given for social issues and infrastructure and institutional reforms. An institutional reform is actually buttressing a state run economy that has run out of money to pay its government work force and social programs. This is what is happening in Greece where the EU is pumping money into a failed socialist economy that is totally broke.

The IDA is just one of several taxpayer funded institutions. Keep in mind that the contributions by the member states come ultimately from the taxpayers of that state. You have the Asian Bank, African Bank, International Development Bank (which focus on Latin America), and the IMF. These organizations have poured trillions into the coffers of nations run by corrupt leaders who have engaged either in reckless spending or lining their pockets.

These organizations have accomplished very little, if anything, with their social focused give away programs. They are all run by high paid bureaucrats who are dedicated to Keynesian economics. They believe using money from wealthier nations can be used to make poor nations rich. Over 60 years of this policy has brought nothing to these third world nations except more poverty, a dependence on wealthy nations to support them, and in many cases civil strife as the politicians and generals vie for the control of the money.

I have spent time in a third world county, Sri Lanka, working with on a World Bank IDA project. This $30 million dollar project was an environmental project to clean up Colombo. While cleaning up Colombo is a noble idea it does not help the people of Sri Lanka improve their lives. Victoria Secret has done more for the people of Sri Lanka by moving most of their clothing manufacturing business there and providing jobs.

As the world’s economy grinds down we are running out of money for these failed give away programs. It’s time we rethink how to help third world and developing nations grow their economies under a sustainable free market capitalistic system and the secure ownership of private property.

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