It is easy to get distracted by other important events in the last week by the enormity of the information that has been released in the so-called – The Panama Papers – which document around 40 years of secretive banking deals, tax dodging, criminal money laundering and political corruption. The information shows that “major banks are big drivers behind the creation of hard-to-trace companies” in tax havens and once again demonstrates the urgency of root-and-branch banking reform to wipe out their ‘non-banking’ businesses. The revelations from that leak (‘hack’) will continue for some time given the size of the data. But the world keeps turning and the IMF keeps informing us, either through their own voluntary statements or through information that they clearly don’t want us to know about, which gets leaked, just what a rotten institution it has become. Read on and feel sad.
IMF thinks about doing a job on Europe
On February 11, 2011, the IMF’s independent evaluation unit – Independent Evaluation Office (IEO) – released a report – IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 2004-07 – which presented a scathing attack on the Washington-based institution.
It concluded that the Fund was poorly managed, was full of like-minded ideologues and employed poorly conceived models.
In a previous report the IEO had demonstrated how inaccurate the IMF modelling has been.
But the IMF is an organisation that goes into the poorest nations and bullies them into harsh policy agendas which the IEO has now found to be based on poor theory and inadequate model implementation.
That makes the IMF more than an incompetent and biased organisation. In my view it makes them culpable. Who is going to pay?
The world is still enduring the crisis that came to realisation in 2008, but was spawned many years before that as the neo-liberal financial and labour market deregulation set up the conditions that would explode sometime later.
As the private debt was building up and the shonky (and criminal) bankers were increasingly defying responsible and ethical business practice, the IMF was part of the cheer squad – urging, no, bullying governments to deregulate further and undermine the working conditions further and to reduce the scope and quality of public services.
They had already inflicted this madness on defenceless less developed countries – pushing huge levels of debt onto them and slashing public services. It is hard to find any evidence that the IMF involvement has improved the lot of the citizens other than that of the top-end-of-town.
It is easy to find evidence of IMF disasters around the world over the last 40 years. First stop in your search might be the experience of Mali in the 1980s under IMF and World Bank structural adjustment programs where poverty and hardship was deliberately exacerbated by privatisation, cuts to government employment and wages, and decimination of its public education system.
IMF austerity was at the forefront of years of political instability and eventually, once the IMF had the ‘man’ in place who would do their bidding without asking questions, it was declared a model nation by the Washington organisation.
Foreign investment returned to boost the cotton industry but most of the returns courtesy of the IMF privatisation policies go to foreigners (who presumably then seek out firms in Panama to hide their cash for them) and living standards remain low for the locals.
More than 50 per cent of people in Mali are poor. There is gross violations of human rights and a trend over the last decades has been for people to abandon their children in the poverty-entrenched cities because they cannot care for them.
All down to the IMF and the corrupt cronies that have been supported.
The example of Mali is not isolated. It is the norm when the IMF is involved.
The 2011 IMF Evaluation Report:
… finds that the IMF provided few clear warnings about the risks and vulnerabilities associated with the impending crisis before its outbreak. The banner message was one of continued optimism … The belief that financial markets were fundamentally sound and that large financial institutions could weather any likely problem lessened the sense of urgency to address risks or to worry about possible severe adverse outcomes. Surveillance also paid insufficient attention to risks of contagion or spillovers from a crisis in advanced economies.
In fact, the IMF ignored the advanced economies altogether in their “Vulnerability Exercise” which they undertook after the 1997 Asian Crisis.
So the message is clear – the IMF were proponents of the “Great Moderation” which was the dominant narrative during the 1990s and later. Mainstream macroeconomists – like John Taylor, Robert Barro, Robert Lucas, Ben Bernanke and all the rest of them all preached that the business cycle was contained if not dead and the only interesting questions were how far governments could go in deregulating their labour and product markets and creating free markets.
It was a arrogance that you would not believe unless you worked, as I do, in the profession. It was a gloating, pack-mentality. Like dogs, the mainstream profession hunted in packs and at conferences aggressively suppressed alternative views. I could share many examples where a speaker who did not share the Washington-Harvard-Chicago consensus was set upon during question time with the sole aim of humiliating them.
Sometimes the gang didn’t even wait until the paper was finished before launching their screeching attacks. I have personal experience of being on the reciving end of this treatment several times in my career. Their churlish mindless manner was a directly correlated with how mindless their theoretical and applied understanding of the monetary system was.
What reason did the Evaluation Report give for the IMF incompetence?:
The IMF’s ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and inadequate analytical approaches. Weak internal governance, lack of incentives to work across units and raise contrarian views, and a review process that did not “connect the dots” or ensure follow-up also played an important role, while political constraints may have also had some impact.
The IMF is an ideological church of the mainstream macroeconomics.
In Chapter 5, the Evaluation Report turns to “toward more effective IMF surveillance” and concludes that the IMF:
… needs to (i) create an environment that encourages candor and considers dissenting views; (ii) modify incentives to “speak truth to power;” (iii) better integrate macroeconomic and financial sector issues; (iv) overcome the silo mentality and insular culture; and (v) deliver a clear, consistent message on the global outlook and risks.
The Evaluation Report criticises the “governance” of the IMF at the senior levels for creating what I would term to be a yes-sir-how-high-do-you-want-me-to-jump culture.
When often the correct response is to ask why the hell should I jump, IMF staff have no “incentives … to deliver candid assessments” to their managers who operate “silos and ‘fiefdoms’”.
The IMF has had a flawed policy of recruitment into the more senior positions. It hires economists from mainstream backgrounds with doctorates – so you can be sure they have a very narrow (and flawed) conception of the way the macroeconomy works. Most of them will be very capable in a technical sense, which is important.
It is clear the IMF could have only seen the crisis coming if it had have diversified its staffing.
In this regard, I found the response of the Evaluation Report to be unsound. They recommended that the IMF should:
– Actively seek alternative or dissenting views by involving eminent outside analysts on a regular basis in Board and/or Management discussions …
– Change the insular culture of the IMF through broadening the professional diversity of the staff, in particular by hiring more financial sector experts, analysts with financial markets experience, and economists with policy-making backgrounds.
First, who would the IMF consider to be eminent outside analysts? They will end up going to Harvard or wherever and hiring more mainstream hacks as well-paid advisors. No solution to be found there.
The point is that the mainstream macroeconomists in the academy, the central banks and the treasuries all failed to understand the unsustainable dynamics that their neo-liberal policy frameworks were generating. They were all part of the club whose memberships extended beyond the front door of 700 19th Street, N.W., Washington, D.C. 20431.
Second, the majority of the financial sector experts and economists with policy-making backgrounds are all tarred with the same brush. This is not solution at all.
These recommendations will just introduce another layer of well-paid orthodox consultants and will do very little to diversify the views of the organisation or dis-abuse the top management of their willful ignorance when it comes to the way the macroeconomic system works.
The solution is to disband the organisation and governments should immediated defund it to precipitate that dissolution. A new institution is needed to help poor nations overcome balance of payments problems and to divert funds from rich nations to poor nations but it would look nothing like the structure of the IMF.
Over the last few years the IMF has become a schizoid organisation. It continues to pump out nonsensical economic analysis and propose Draconian policy plans for struggling nations but at the same time, perhaps recognising its incredibly poor forecasting record and its failure to deliver a message of any kind that reflects the facts, some contrary papers have emerged.
As an example, please read my blog from Monday – Fiscal policy is a potent instrument for productivity growth.
But if you think the underlying culture of the organisation has changed very much then you would probably be wrong.
On April 2, 2016, our friends from WikiLeaks released a new document – 19 March 2016 IMF Teleconference on Greece – which should convince you that the IMF hasn’t made much progress in changing its bullying and destructive culture.
The accompanying media release – IMF Internal Meeting Predicts Greek ‘Disaster’, Threatens to Leave Troika – details how the “Transcript of an Audio Recording of an internal IMF meeting” held on March 19, 2016 plotted to create a new solvency disaster in Greece to get its way with its other Troika members, particularly the puppet master in the Eurozone, the German government (Merkel).
Two IMF officials who are “managing the Greek debt crisis” are recorded in the conversation.
Like all scoundrels at present, the upcoming referendum on EU Membership in Britain was used in a negative way. I am astounded at extent to which one disaster after another will follow if Britain does what it should do and exits the European Union.
I have even read stories that the Premier Soccer league will fall into disrepute and Spain’s first division competition will take over all the players.
Anyway, the IMF officials were not loath to buy into the ‘Brexit disaster’ scenario.
The context was a meeting in Athens to discuss the next tranche of bailout assistance – although calling it a bailout is stretching any credible meaning of that word. The Greek people are being punished by the Troika not saved!
By way of background, the reports coming out of Athens in March 2016 were that there was increasing tension between the IMF and its Troika partners over what new economic tyranny they would all push on Greece.
For example, the Financial Times report (March 18, 2016) – Bailout monitors threaten to abandon Greece talks – says that:
The threat to shut down talks until after next week’s Easter holidays came amid increasing acrimony between Greek leaders and the IMF, which is insisting on more concrete budget savings in order to sign off on the first quarterly review of the new bailout …
The EU and the IMF have been at odds for months over how much Athens must do to complete the first review, with the European Commission arguing that new fiscal measures agreed with the Greek government are sufficient to meet the programme’s targets and the IMF saying the reforms are not credible …
The failure to agree a deal in Athens this week not only delays the move to debt relief, but also raises anew whether the IMF will participate in Greece’s third bailout. The fund has pushed hard for more thorough reforms because it believes Greece’s economy will not fully recover without a significant overhaul, and Greek officials believe the IMF is looking to exit the programme entirely.
Some IMF officials have discussed dropping out of the programme internally, but Berlin has made clear it cannot continue loaning Athens money without the IMF on board. German authorities have lost confidence in the EU’s ability to monitor the programme rigorously …
The teleconference occurred the day after this Financial Times report was published.
It was discussing when the bailout talks that were stalled might resume. One IMF official said that any date would be premature given that “when we might not have an agreement inside the Troika on how to proceed”.
They said the “Europeans” were pressuring the IMF to reach an agreement but that given the rift between the parties it was hard to see how the IMF could get the Europeans to shift ground.
One official said:
I think that it is more important to reinforce the message about the agreement on the 2.5%, because that is not permeating and it is not sinking very well with the Commission. If they stick to this agreement, I think that coming on the 2nd of April will be fine. But, on our side, going back on this date will really be a disaster.
The other responded that the Europeans would have “to accept our targets for the debt relief” and they proceeded to talk about discussing some percentages that might be entertained.
One then said that the IMF will not finance the bailout if the other Troika partners are “not on track to meet the criteria”:
They essentially need to agree to make OUR targets the baseline … Instead of waiting for them… I am not going accept a package of small measures. I am not.
Bullyboy speaking there!
One other then said that the austerity had to be maintained:
… it is very simple it is the pension reform, income tax credit, VAT and the wage bill and there are some excises, one or two… that’s it.
And then another official (the Director of the IMF’s European Department) said:
I think about it differently. What is going to bring it all to a decision point? In the past there has been only one time when the decision has been made and then that was when they were about to run out of money seriously and to default. Right?
The Head of IMF Representative Mission to Greece replied:
And then the Director says:
And possibly this is what is going to happen again. In that case, it drags on until July, and clearly the Europeans are not going to have any discussions for a month before the Brexits and so, at some stage they will want to take a break and then they want to start again after the European referendum.
After discussing how they will coerce Angela Merkel:
Look, you Mrs. Merkel you face a question, you have to think about what is more costly: to go ahead without the IMF, would the Bundestag say ‘The IMF is not on board’? or to pick the debt relief that we think that Greece needs in order to keep us on board?
They discuss dates to introduce these threats.
The Head of Mission says that mid-April is a good time to escalate matters to which the Director replied:
But that is not an event. That is not going to cause them to… That discussion can go on for a long time. And they are just leading them down the road… why are they leading them down the road? Because they are not close to the event, whatever it is.
And the Head responded:
I agree that we need an event, but I don’t know what that will be. But I think Dijsselbloem is trying not to generate an event …
The Director replied:
Yeah, but you know, that discussion of the measures and the discussion of the debt can go on forever … But there is nothing in there that otherwise is going to force a compromise. Right? It is going to go on forever.
They also noted that their initial entry into the negotiations was flawed:
… we went into this negotiation with the wrong strategy … We didn’t negotiate with the Commission and then put to the Greeks something much worse, we put to the Greeks the minimum that we were willing to consider and now the Greeks are saying “Well we are not negotiating”.
King hit proposed, a bash in the head would do!
The event that brought Greece to heal was detailed above – the June 2015 ECB decision to starve the Greek banks of liquidity – in total violation of its charter to maintain financial stability within its jurisdiction.
How many Greek people lost income over that blackmail? How many took their own lives? How many plunged into mental illness?
The Greek finance minister wanted the bailout negotiations to be tied in with the massive humanitarian crisis in the northern Greek town of Idomeni where many thousands of refugees are stuck with nowhere to go.
These IMF officials were clearly plotting to inflict another “event” on the nation that is on the front line of the refugee crisis.
But it is not Greece that matters to them but their relative power viz-a-viz the European Commission, the ECB and the German government.
They want all parties to be brought to heal and they articulate a preparedness to drive a particular nation (Greece) to the brink of insolvency and all that means for the already struggling population, just to get their way.
Sounds close to how a sociopath would act.
Tie that in with the disdain that The Panama Files reveal on behalf of political leaders throughout the world for their citizens and we are moving closer to major social instability.
My view is that cleansing the minds of all of us of this neo-liberal nightmare and getting rid of the sociopaths from any positions of power is not going to come peacefully.
And then what comes after that …
And further – central banks can never go broke!
We can dispense with the idea that central banks can ever go broke once and for all courtesy of a footnote on page 14 of a recently released ECB Occasional Paper (169) – Profit distribution and loss coverage rules for central banks – published yesterday (April 5, 2016).
We read that:
Central banks are protected from insolvency due to their ability to create money and can therefore operate with negative equity.
Even Bloomberg wrote today – The ECB Explains Why Central Banks Can’t Go Bankrupt in a Footnote – (April 6, 2016):
Central banks cannot run out of money because they are the ones that create the money. And you cannot run out of something you can create yourself.
While it is unlikely that this paper will forever extinguish confusion over central bank capital, it does at least include a handy cut-out-and-keep footnote to be used whenever someone warns about the risks of a central bank making a loss.
Please read my blogs for more discussion on this point:
Any journalist that ever writes that central banks will run out of money or face problems of negative equity should be sacked and sued for lying.
The next statement we will see someone write sooner or later is – Currency-issuing national governments can never run out of money.
Compare that to the statements made this week by the Australian Treasurer who was explaining how the Federal Government was proposing to stop funding public education and just concentrate on funding private schools (Source):
You can’t promise, you can’t promise money that’s not there … the Gillard government … was spending money she just didn’t have.
Not only should that politician resign in disgrace but the journalist should resign for not knowing to ask him the obvious question – yet still pretending to have the expertise in these matters to ask any questions.
I will write more about Spain in the coming week but the latest news is that the national government is thoroughly in breach of Eurozone fiscal rules and is growing strongly as a result.
The article in El Pais (March 31, 2016) – Public deficit for 2015 comes in at 5.2%, exceeding gloomiest forecasts – tells us that:
Spain’s 2015 public deficit came in at 5.2% of gross domestic product (GDP) … The €56.6 billion shortfall means that Spain has exceeded its target of 4.2% of GDP agreed with the European Commission by around €10 billion …
Still, 2015 was also a year in which economic growth surpassed all forecasts and tax revenues jumped significantly.
The article doesn’t draw out the obvious causality – higher fiscal deficits courtesy of higher social spending in the regions, higher expenditure on health services, and some large scale public infrastructure projects have driven the higher growth.
Why call the rise in the deficit above the fiscal rules as “exceeding gloomiest forecasts” just goes to show the bias in the reporting.
Q: When is a good thing gloomy?
A: When you are a neo-liberal sociopath in the Brussels political elite who looks out only for the top-end-of-town.
Upcoming Spanish Speaking Tour and Book Presentations – May 5-13, 2016
Here are the details of my upcoming Spanish speaking tour which will coincide with the release of the Spanish translation of my my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published in English May 2015).
You can save the flyer below to keep the details handy if you are interested. All events are open to the public who are encouraged to attend.
1. Madrid, May 5, 2016 – 19:00 at the Club de Amigos de la Unesco, Calle Atocha 20, 28012.
- William Mitchell, author
- Alberto Garzón, Diputado de IU
- Eduardo Garzón, economist
- Stuart Medina, economist and member of Asociación por el Pleno Empleo y la Estabilidad de Precios
2. Badajoz, May 6, 2016 at 12:00 at the Aula Magna de la Facultad de Economía.
- William Mitchell, author
- Francisco Manuel Parejo Moruno, Profesor de Historia de Pensamiento Económico
- Esteban Cruz Hidalgo, economist and member of APEEP
3. Barcelona, May 9, 2016 at 12:00 at Sala de Graus de la Facultat d ́Economia i Empresa de la Universitat de Barcelona, Av. Diagonal 690, 08034 Barcelona.
- William Mitchell, author
- Antoni Soy, profesor de economía aplicada de la Universidad de Barcelona
4. Barcelona, May 9, 2016 at 19:00 at Auditori del Collegi d ́Economistes de Catalunya, Pl. Gal·la Placídia 32, 08006 Barcelona
- William Mitchell, author
- Antoni Soy, profesor de economía aplicada de la Universidad de Barcelona
5. Valencia, May 11, 2016 at 19:00 at La Nau de Valencia.
- William Mitchell, author
- Jorge Amar, economist, President of APEEP
- Raúl de Arriba, Profesor en la Facultad de Economía de Valencia
FINALLY – Introductory Modern Monetary Theory (MMT) Textbook
A KINDLE VERSION IS COMING IN THE NEXT WEEK
We have now published the first version of our MMT textbook – Modern Monetary Theory and Practice: an Introductory Text (March 10, 2016).
The long-awaited book is authored by myself, Randy Wray and Martin Watts.
It is available for purchase at:
1. Amazon.com (60 US dollars)
2. Amazon.co.uk (£42.00)
3. Amazon Europe Portal (€58.85)
4. Create Space Portal (60 US dollars)
By way of explanation, this edition contains 15 Chapters and is designed as an introductory textbook for university-level macroeconomics students.
It is based on the principles of Modern Monetary Theory (MMT) and includes the following detailed chapters:
Chapter 1: Introduction
Chapter 2: How to Think and Do Macroeconomics
Chapter 3: A Brief Overview of the Economic History and the Rise of Capitalism
Chapter 4: The System of National Income and Product Accounts
Chapter 5: Sectoral Accounting and the Flow of Funds
Chapter 6: Introduction to Sovereign Currency: The Government and its Money
Chapter 7: The Real Expenditure Model
Chapter 8: Introduction to Aggregate Supply
Chapter 9: Labour Market Concepts and Measurement
Chapter 10: Money and Banking
Chapter 11: Unemployment and Inflation
Chapter 12: Full Employment Policy
Chapter 13: Introduction to Monetary and Fiscal Policy Operations
Chapter 14: Fiscal Policy in Sovereign nations
Chapter 15: Monetary Policy in Sovereign Nations
It is intended as an introductory course in macroeconomics and the narrative is accessible to students of all backgrounds. All mathematical and advanced material appears in separate Appendices.
Note: We are soon to finalise a sister edition, which will cover both the introductory and intermediate years of university-level macroeconomics (first and second years of study).
The sister edition will contain an additional 10 Chapters and include a lot more advanced material as well as the same material presented in this Introductory text.
We expect the expanded version to be available around June or July 2016.
So when considering whether you want to purchase this book you might want to consider how much knowledge you desire. The current book, released today, covers a very detailed introductory macroeconomics course based on MMT.
It will provide a very thorough grounding for anyone who desires a comprehensive introduction to the field of study.
The next expanded edition will introduce advanced topics and more detailed analysis of the topics already presented in the introductory book.
That is enough for today!
(c) Copyright 2016 William Mitchell. All Rights Reserved.