Alan Greenspan and Robert Rubin have a bold plan for managing global financial affairs: Put themselves in charge. These two powerful Insiders are perfectly positioned to do just that. As chairman of the Federal Reserve and Secretary of the Treasury, respectively, these two control the money that controls much of the world. Small wonder they were able to call the shots for the "reform" of the international Monetary Fund (IMF) at the June summit of the Group of Seven industrial nations in Halifax. Their "bold proposal," authored by Rubin, supposedly is meant to increase help for "insolvent nations," "see them through insolvency," and "prevent another Mexican-style crisis," just as if this were a proper constitutional function of our government. But stripped of its flimsy altruistic camouflage, their proposal is seen to have quite different objectives.
"Critical" Move
Why do Greenspan and Rubin think the IMF needs to be "reformed"? First of all, because it needs much more money. Second, this money must be much more available. As things now exist, the IMF simply can't come up with enough money fast enough to stem the "inevitable" financial crises of the future. To remedy this unfortunate deficiency, the international financial system must be remodeled according to Rubin's plan. This move, Rubin says, "is critical for the future of the world and the future of this country."
How does the IMF function at present? In a time of crisis, it turns out to be far from the smoothly operating mechanism Greenspan and Rubin would like to have. For people in a hurry to bring about the new world socialist order, this is intolerable. It is only now that we are beginning to appreciate how furious the Insiders were when Congress refused to approve President Clinton's $40 billion bailout request for Mexico. When Mr. Clinton was forced to cut the sum in half, obtain the $20 billion from the Treasury's obscure Exchange Stabilization Fund (which technically required no congressional approval), and turn to the central banks of the major industrial countries for another $10 billion, it was obvious that this kind of frustration could never be allowed to happen again. Although Michel Camdessus, director of the IMF, had promptly offered a $7.8 billion loan, this totaled only $37.8 billion. Camdessus was asked to do more.
But Camdessus did not have money immediately available. The IMF is financed by lines of credit, which are merely promises to pay by the governments of the IMF's nearly 200 member countries. Getting this money into the pipeline takes time. Nevertheless, Camdessus pledged an additional $10 billion in loans.
When IMF board members, who had expected to approve $7.8 billion, were confronted with the plan for $17.8 billion, the Europeans rebelled, claiming that the crisis was a North American problem. Delegates from Germany, Britain, Denmark, Switzerland, and the Netherlands angrily abstained from voting. But Camdessus, who actually had assured the U.S. of the additional $10 billion before the board met, announced that the plan was approved. The Germans were livid. According to the June 9th Wall Street Journal, Otto Lambsdorff, a former German economics minister and European chairman of the Trilateral Commission, accused "some at the IMF" of "welcoming the Mexican situation. They could say, 'See, we need money.'"
Camdessus then tried to please them all by announcing that he would try to raise the $10 billion from central banks in Brazil, Singapore, and elsewhere in the non-European world. But Rubin flatly rejected this, claiming that these banks would make only short-term loans, when Mexico needed loans running several years. In a public rebuke, he announced that he expected the IMF to fork over the full $10 billion, if it proves to be needed, solely in medium-term money.
Insiders in Charge
Clearly, the IMF needs to be revamped. People as important as Robert Rubin should be able to snap their fingers and get action. Otherwise, how could the giant Wall Street investors and banks ever be sure they could collect their billions in an emergency? For as all the world knows, the bailout was arranged less for the sake of Mexico than for the New York multinational banks and investment houses, which had over $24 billion at stake in Mexican short-term bonds payable in dollars that Mexico did not have. No wonder the Europeans balked!
Rubin's strong-arming of Camdessus reminds us that such appointees, no matter how elevated, owe their survival to the Insiders who raise them up. In Camdessus' case, it was the Americans who cast the deciding votes in his favor. He is now simply paying the price. By showing his clout so openly, Rubin revealed that the American Insiders, with by far the most wealth behind them, are indubitably in charge.
If the IMF is unsatisfactory in an emergency, how does it function in ordinary circumstances? Actually, the process of involving the IMF in an ordinary bailout is roundabout and time consuming. This is undoubtedly because the true purposes of the IMF had to be concealed at its founding at Bretton Woods, New Hampshire in 1944. The brainchild of John Maynard Keynes, one of the world's most prominent socialists, and Marxist Harry Dexter White, who was at once a U.S. Treasury official and a Soviet agent, the IMF was billed as a great stabilizer of international exchange rates. These fixed exchange rates, we were told, would facilitate trade and bring about unprecedented world prosperity.
In reality, the hidden agenda of the IMF's creators called for the building of world socialism. This was to be accomplished through the elimination of gold and its restricting discipline from world finance and the eventual creation of a world currency based on nothing. A world bank would then be able to inflate at will (producing a uniform worldwide rate of inflation) and control the world's nations (stripped of their own currencies) through the control of money and credit.
But the IMF's socialist architects were cautious. Keynes himself admitted that their ultimate ends could be made acceptable only through the process of gradual evolution. Today, 51 years later, the IMF is not yet a true world central bank with unlimited issue because it cannot create its own currency. It still has to depend on the central banks of its member nations to provide "credits," a great source of impatience for Robert Rubin. But these banks, all with fiat currencies, can create only as much money as they can politically get away with. Rubin's proposal, demanding much more money for bailouts on the principle that the New York creditor banks are "too big to fail," would quietly move away from any restraints on IMF funding.
Meanwhile, the IMF's so-called "original" purpose of maintaining fixed exchange rates has been long forgotten. The IMF has presided over more than 200 currency devaluations, and exchange rates have been floating since 1971. In that year Richard Nixon fulfilled the Insiders' objective of getting rid of the last vestige of gold in the world's monetary system, moving the U.S. into a purely fiat currency simply by abolishing the redemption of foreigners' paper dollars for U.S. gold.
Perpetual Interest
But the IMF is busy with a newer mission. It is helping countries to spend more than they earn and is providing a gravy train of interest payments to creditor banks. As G. Edward Griffin observes in his book The Creature From Jekyll Island, "It is important to remember that banks do not really want to have their loans repaid, as their profit is made from interest on a loan, not repayment of a loan .... One of the reasons banks prefer to lend to governments is that they do not expect those loans ever to be repaid .... The objective is perpetual interest."
How do banks arrange to collect perpetual interest? As described by Griffin, the process that brings this about is complicated. On a commercial bank loan to an underdeveloped country that is close to defaulting, it involves a number of steps. First comes a rollover of the loan (the borrower pays the interest, but nothing on the principal). Soon the borrower can't pay even the interest. Then comes a new loan to pay the interest on both the original loan plus the additional loan. But the borrower needs money for his own purposes, so it is necessary for him to have a larger new loan so that there will be money left over after paying the interest on the three loans. The situation now becomes so desperate that there is a rescheduling -- lower interest (foreseen by an original exorbitant interest rate) and a longer repayment period. Finally, when the borrower perceives that he will never get out of debt, the (American) bank and the foreign government turn to Congress with their sad story of how children will starve, the U.S. financial system will topple, and our unfavorable balance of trade will soar. Then the whole mess is lifted off the bank's back and shifted to the taxpayers as money begins to flow to the bankrupt nation through various foreign aid channels, especially the IMF. The "saved" borrower then resumes interest payments to the bank on many more times the amount of money he borrowed in the first place. Thus, our tax dollars are "laundered" through Third World countries to the New York banking industry, with most taxpayers being none the wiser.
More Efficient Laundering
We can see how this involved process, with its tiny element of uncertainty, would be altogether unacceptable to the Insiders. They are obviously fed up with it. Robert Rubin has therefore set in motion a proposal to the G-7 nations (who mainly bankroll the IMF) that would scrap all the maneuvering and go right to the point. What Rubin wants to do is create an official IMF global bankruptcy court. As we have already noted, he says its purpose is to help nations "work through insolvency."
Although we are being told that Rubin's plan is "radically different," this is only partially so. Rubin's proposal is merely a refinement of the present process, but a particularly arrogant one. He wants to deliver our tax dollars directly to the New York banks and investment houses. Under his plan, bankrupt nations would no longer make payments (from IMF loans) to banks. Instead, the IMF would "oversee new borrowings" from private banks (which banks?) and "arrange a plan" (what plan?) to pay them off directly. In other words, the IMF would phase out its own loans to defaulting countries and thus end the inefficient "laundering."
Greenspan has compared this government guarantee of debt servicing with a private filing for bankruptcy protection. He must think we were all born yesterday. The only thing these procedures would have in common is that being protected from creditors increases irresponsible behavior. Yet Greenspan recently told the Senate Banking Committee, "I think it would be better if we had a mechanism which enabled a restructuring, such as a private institution might be able to handle." We are left to figure out for ourselves where the money is coming from with which the IMF will "restructure." In the face of this blatant rip-off, the June 13th Wall Street Journal had the audacity to tell its readers that the U.S. is "attracted to Rubin's plan" in the hope that "private markets -- not governments -- would come up with rescue packages." Moreover, declared the Journal, Rubin's plan squares with the U.S. idea that the IMF "must move away from government and draw much closer to private markets."
We are told that at the Halifax G-7 summit, the nations agreed to back "further study," which "sends a strong signal" that the leaders were "intrigued by the idea" and want their ministries to "flesh it out." It could not be otherwise, since those who attend these G-7 meetings are almost invariably members of the Trilateral Commission, which has taken it upon itself to manage the world's monetary affairs.
Although Milton Friedman has preached for years that there is no such thing as a "free lunch," the bankers seem to be the only creatures in captivity who have beaten the rap. Not only do their loans to "economically troubled" nations eventually land on the backs of taxpayers, but the money they lend is created out of thin air through that marvelous device called "fractional reserve banking." The stream of interest they are collecting is being paid on money that doesn't even exist, except in computers. Since the system is set up to produce higher profits on risky loans that default, that is the kind of loans that are made. This goes far to explain why the world's most astute bankers have loaned billions to Third World countries with basket-case economies.
Sovereignty Surrender
Such a perverse structure would be greatly augmented by an official, automatic international bankruptcy court that would expose taxpayers to never-ending bailouts and never-ending funding of the banking industry. But we taxpayers are not the only ones coming out behind the eight ball; so are the borrowing nations, which have already been sucked into the trap of IMF-administered "austerity programs." It is a matter of record that these programs have done far more harm than good. The Wall Street Journal and other financial commentators frequently belabor the IMF for coming up with the wrong economic solutions. Thus, we are subtly led to accept the premise of IMF intervention and to hope that it will come up with the right solutions. All the while the IMF is carrying out an "end run around national sovereignty, eroding it piece by piece," as called for by Richard Gardner (CFR/TC) in his 1974 Foreign Affairs article "The Hard Road to World Order."
IMF power and control over borrowing nations will, of course, be enhanced under Rubin's plan, for recipients will be forced to surrender additional sovereign rights. For instance, noted the June 13th Wall Street Journal, the IMF could choose which debt gets paid first, "sometimes putting foreign creditors ahead of domestic ones." This, admitted the Journal, could "invite nationalist reaction." Alas, are we going to be dispatching UN peacekeepers as a result of such IMF-inspired struggles?
Although loss of sovereignty means the end of nationhood, this is not the only affliction borrowing nations would suffer. In addition, they would be (or already are) doomed to perpetual impoverishment. Numerous studies have revealed the disastrous effect of aid on borrowing nations. Far from raising countries up, aid keeps them down. As with the welfare mess in this country, being on the dole debilitates human beings anywhere. Ambition, incentive, and self-respect disappear. In spite of the hundreds of billions of dollars in Western aid handed out all over the earth since the end of World War II, not a single instance can be cited of any country that has been raised up by it. This, after all, has been the intent. The real objectives are obvious: to redistribute the wealth of the West and lower our own standard of living preparatory to world merger, and to control emerging national leaders (usually despotic) who become pawns in the game once they are hooked on high-living and wealth embezzled from aid funds.
As already noted, the IMF is not yet a world bank, but Rubin's plan would move it close to this Insider goal. With the IMF positioned as an "indispensable" mechanism of global finance, deciding who gets what among both banks and nations, it would be a short step to sell the idea of "fleshing it out" with its own international currency. Keynes termed this currency unit "Bancor," but whatever it is called, it would be a fiat money created out of thin air, like our own. The Insiders would have their new world order in place. Last year, Camdessus (head of the central bank in France before moving to the IMF) pushed hard to get IMF members to add $50 billion to IMF funds. The U.S., Germany, Britain, and other lenders, ruthless guardians of their own power, viewed the push as personal empire-building and scotched the move. But Camdessus slyly retaliated by publicly remarking that he was "only" trying to turn IMF Special Drawing Rights (promises to pay by central banks) into the world's central currency as envisioned in the IMF charter.
A Modest Proposal
It was recognized at the Halifax G-7 summit that "given the magnitude of the change, it may take years to set up a bankruptcy process." Naturally, something would have to be done immediately to deal with financial crises that might arise meanwhile. So the G-7 nations adopted a "modest proposal" to set up an Emergency Financing Mechanism. This would allow Camdessus to call quickly on a credit line already established and called, appropriately enough, the General Agreement to Borrow.
To ensure that there would be enough money available to head off a Mexican-style meltdown, the nations agreed to double the credit line under the General Agreement to Borrow from $29 billion to $58 billion. This money will come from the taxpayers of 11 big industrial countries and Saudi Arabia, but we can be sure that U.S. taxpayers will fork over the largest percentage.
The U.S. share of the additional $29 billion for the General Agreement to Borrow would easily be more than $1 billion, even though "newly rich" Asian nations will be "invited" to join. The U.S. currently is committed to providing $6.4 billion of the original $29 billion, or more than 21 percent. Congress must approve any new U.S. commitment. Will the deficit-conscious, budget-balancing Republican Congress fork over the additional billion plus? You can bet on it. This is high priority stuff. According to Bill Clinton, this is just a "risk free" loan. The bigger the loan, the better. Administration officials recently blasted the IMF's policy toward Russia as "plodding and stingy." Consequently, the IMF is now expanding its $4 billion standby agreement with Russia to $6 billion. This money will be created out of thin air by the Federal Reserve and taxpayers will be fleeced indirectly by inflation and interest on the national debt.
As an additional level of control and a safety net for big investors, the G-7 nations approved a plan (probably part of Rubin's proposal) to require IMF members to publish financial data that would alert "financial markets" to emerging problems and give them a chance to react (get out) before a crisis erupts. The IMF would issue a list of nations that meet its disclosure standards. Nations that fail to meet the standards would be excluded from the list and, Rubin warned, find it "exceedingly difficult to raise money on the global market." He added that it would be "a suicidal move" for nations to publish bogus figures (leave that to Washington) because financial houses would detect phony figures and "cut off funds."
Although this would be the best thing that could happen to underdeveloped nations, as proven by Chile, Bolivia, and Peru when their economies skyrocketed after having been booted out of the "international monetary community," we can rest assured that the nations of the world will bend the knee and submit data -- any data. No matter how Rubin threatens, this data will have little to do with reality, as no government's figures do. Rubin would love to have reliable figures for the protection of investors, but needless to say, there will be no weeding out of poor risks for loans.
Global Feeding Frenzy
What Rubin, Greenspan, and the G-7 nations are doing is opening up a global feeding frenzy. It is elementary that when a product is offered free of charge, demand is limitless. Rubin's international bankruptcy court is nothing less than a worldwide welfare scheme. The non-productive, socialist nations (many of them actually Communist dictatorships) of Africa, the former Soviet Union, Eastern Europe, South America, and the Caribbean must be licking their chops, dazzled by this extraordinarily happy turn of events. The mega-banks are even happier. As Camdessus himself put it, "This is about power and money." Clear enough.
The only unexplained aspect of this grossly unconstitutional rip-off is: Why are we taxpayers allowing ourselves to be picked clean by these vultures?
