Resolve and Determination—How We Get Out of This Together

By Christine Lagarde

(Versions in  عربي,  中文,  日本語 and Español)

This past weekend, 187 countries came together in Washington D.C. to focus on the economic crisis facing the world.

They were here for the 2011 Annual Meeting of the IMF and World Bank, at which finance ministers and central bank governors mix with businesspeople, civil society, labor leaders, and parliamentarians to discuss the critical issues we face.

Coming in to this Meeting, I had warned of a dangerous new phase now facing the global economy and had called for bold and collective action. Coming out of the Meeting, I feel strongly that the global community is beginning to respond.

Why? Three reasons: a shared sense of urgency, a shared diagnosis of the problems, and a shared sense that the steps needed in the period ahead are now coming into focus.

First, the sense of urgency

There was clear recognition of the gravity of our situation. The IMF’s latest forecasts, released during the Meeting, indicate that global growth is projected to slow to 4 percent this year and next. The advanced economies will manage only an anemic 1½‑2 percent. Clearly, the recovery of the global economy remains worryingly weak and uneven.

In addition, the risks are piling up—propelled by a negative feedback loop between weak growth, weak balance sheets—of governments, banks, and households—and weak political commitment to do what is required.

This, in turn, has fuelled a crisis of confidence that imposes not only economic but also social costs.

While the clouds may be darkest over Europe, there remains huge uncertainty in the United States. And what makes the situation all the more urgent is that it has implications for every country.

In our interconnected world, what happens in the advanced economies affects everyone—the Kenyan farmer, the Brazilian designer, the Chinese entrepreneur.

Second, the shared diagnosis

The first priority, of course, must be to break the vicious cycle of weak growth and weak balance sheets feeding negatively off each other. It was widely recognized at the meeting that the advanced economies are at the core of an effective resolution—especially the United States and Europe.

For the US, the main challenge is to adopt a credible strategy to reduce the fiscal deficit over the medium and long term, deal urgently with high unemployment, and relieve pressure on overly-indebted households.

For Europe, the main challenge is to deal with the inter-linked problems of sovereign and bank debt—and deal with them together. Those attending the Annual Meeting were particularly encouraged by the determination of Euro-area countries to “do whatever is necessary” to resolve the problems facing them.

While the advanced economies must step up to the plate, the emerging market economies and low-income countries also have their part to play.

Emerging market countries have a major role in helping to achieve the ultimate objective of rebalancing the global economy—with external surplus countries relying more on domestic demand and those with current account deficits taking action to ward off overheating.

Low-income countries need to rebuild the policy buffers that served them well during the crisis, and invest in growth and employment creation as well.

Third, the actions needed are coming into focus

Policymakers at the weekend called for “exceptional vigilance, coordination and readiness to take bold action.” This should span the following areas:

  • Fiscal policy must navigate the twin threats of undermining credibility or undercutting recovery. Advanced countries need fiscal consolidation as a matter of priority, but, for some, pushing too fast will harm growth and jobs. So the pace must neither be too hesitant nor too hasty. The approach must be country-specific.
  • Monetary policy should remain accommodative—given that inflation expectations are generally well-anchored in the advanced economies. And central banks should stand ready to dive back into unconventional waters as needed.
  • Financial sector reform is crucial. Bank balance sheets must be strong enough to continue to lend to fuel growth. We also still need stronger and more consistent financial regulation.
  • Structural reforms to boost competitiveness and growth beyond the immediate crisis are also important. And, in the process, we must pay attention to the social dimension. We need growth that supports jobs; we need growth that benefits the whole of society.

As I said during the Meeting, the critical factor cutting across all of these is implementation, implementation, implementation.

Support from the IMF

I also emphasized that the IMF will support our member countries as they take these actions.

I put forward an Action Plan focused on making our economic analysis and policy advice more effective, strengthening further our lending toolkit and the global financial safety net, and continuing to provide much-needed technical assistance and training.

Act now, act together

So looking back on the weekend, I believe that the shared sense of purpose that emerged is very important for the global economy.

That said, follow through—by all concerned—is now even more important. And that means taking action not in the years ahead, but in the weeks ahead.

We are all in this together—we can only get out of it together.

71 Responses

  1. The “simple” debt, as you say, is strangling the Eurozone. The cover ratio is arbitrary in a fiat money era. When dealing with a liabilities-based problem, failure to survey assets and deploy them in a solution is gross negigence. Bullion banks lease portions of the U.S. gold reserve for 1% interest and have created an annual 6-7 trillion gold note market in the process

    Macroeconomics without a solid foundation in accounting, is erroneous, leading to the debilitating and interminable wrangling between Keynesian and austerity measure adherents.

  2. Money is not a delision, and I want gain the Nobel prize-
    Purpose of Money is to exchange, and it is replacing barter-
    It gives me more flexibility and control on transactions

    To have money in my hands to buy a good is better than to wait for the good I want to get with my won good-

    The is nothing wrong with that. Is it?- So, as my money master, my friend bill used to say- What matter for people is not the money, but there abilities to manage money-
    This what is hurting people- they do not know how to manage money, so they want to drop the currency to a more inconvenient ways, which a world with barter – it is worst….
    So, at school from earliest age one should learn to manage money like handwriting and reading-
    Unfortunatly today, we are leaning to write on computer,….So, as time is changing new ways are coming on the market, new money services,…
    We should learn how to use them too-in order to make exchanges harmonious-

    Nobel prizes help to understand, but do not change,….only action is change…

    • There is also, a less funy matter, which also about development and money.

      More and more goods are easy to access today (the goal of the theory of markets and mass manufacturing is to sell cheap goods to all).

      More organizations are on the street either for profit, but mainly for not-profit. It is challenging. Why would you use a currency, if goods are free and more affordable? (Could it be the limit of capitalism and the end of monies?). Money becomes a community maker or breaker. Is it not?

      During the financial crisis, societies were unstable. But more countries are using their own currencies.
      While some converging ideas went thinking about a single currency. Otheres are multiplying or dreaming up new ways to use local currencies, exchange –including non financial transactions.

      What do you think? (One or more currencies?)

      Georges RADJOU
      BIRD CEO

  3. My viewpoint:

    1- IMF, as you said it right,….because of the collaborative approach, still to me the german approach, may looks uncommon to you, but it is not uncommon for the rest of Europe (Northern Europe including Germany)
    The weakness of Europe, may also be its strength- Europe is not a federation like the USA, each EU community country has its own identity – Particularly, when it comes to debt.

    2- Do you remember at the beginning of the crisis, newspapers reported that German Chancelor said that if Greece wants to get out the debt, it should sell some islands-

    I do not find this uncommon at all, Loreal multinational owner, bought an island in the Seychelles -according to the news-

    Lots of USA fortunes 500 are bying islands in the world, it is a way to reduce debt, by selling assets- I do not know, if the EU treaties prevent a national member country to dispose of its own soil- Of course, not… It is better than a war ?

    3- In France, huge industries went to foreign countries (Saint Gobin, chemical,…) because of the global toss and corporate mergers and acquisitions wolrdwide, but mainly these sales attracted capitals- Would you find this policy uncommon too? Not me- It is quite moder and Europe is not detring these kind of business finance

  4. I repeat:

    Europe’s doubts about the Euro and about itself are leveraged by not understanding the damages caused by Basel.

    Not even the strongest monetary union can survive an attack by bank regulators that allow the banks to leverage their capital 60 times or more when lending to its individual sovereign members.

    Europe needs to understand that in order to regain the confidence that is so much needed.

    Cannot the IMF explain that to Europe?

    • Hello,

      Anyone would like to know some more about Basel, goto BIS

      http://www.bis.org/

      Very interesting and refreshing for non accounting and financial managers. it is easy to grasp with basic buisness knowledge (Masters, MBAs)-

      I think one or 2 years ago, I emailed them a query about the crisis-
      It is muted.
      Anyway, at the end of the day, with millions of MBAs in the World nobody was able to predict thefinacial crisis, in 2007-2008 –

      Myself, I was in Stockholm working in a new concept of gardening and growing vegetables during the winter (in Stockholm, chilling is not it? Don’t worry the plants grow under window -glass- house, I was a Chef there- and a technical consultant looking at ways to survive a Paskistan disaster with no food rations, but just surviving on the environment-

      In summary, I came too late, with my MBA in 2010-2011-
      Ah, ah, ah,….ah! Kruger get Nobel prize award in 2008 for his explanation of the financial crisis-
      I got my own too, but I have no Nobel prize. Ah,ah,ah…ah!

      So, we ar all in the dark….

      Regards

    • “Anyway, at the end of the day, with millions of MBAs in the World nobody was able to predict thefinacial crisis, in 2007-2008 – ”

      Yes, Dr. Marc Faber was … .

      • Oh that is because even though banks are one of the most fundamental pieces in finance, none of those millions of MBAs were ever taught about bank-regulations. You see for the fine professors there, such regulations are like just another assembly instruction for any IKEA bed, and therefore below their dignity.

      • Dear friend, Kurowski,

        Thank for calling me Dr. Marc Faber, but the idea is not from me I shared it with my favorite newspaper Financial Times, but when I read this message, I found it very relevant to the context of the economical moment-

        I add more, there were guys (economists that predicted the crisis too- and BIRD my organization was maybe one of them,with the retrospective- tell you, on October 2007, I left Stockholm for France, where I knew I could bounce back with my MBA studies.

        My opinion is the best advise to give is training is the antidote to crisis. -I do not know if you share it with me-

        I look forward to hearing from you.

        Georges RADJOU

      • Myself, I am very concerned about how deep can be a crisis- and the difference between the causes and the effects of crises- it can be confusing-
        Nothing is forecasted….One need to get the whole movie over time

    • I think its still not too late to gain a Nobel Price. You just have to choose the “right” side … .

      • Dear Arne Kruger,

        I understood your concern, But basel II or III is just Basel. Who is the new Basel Chief- a former head Swedisk bank- he is a former banker swearing, he could handle any future crises- because of the experience gained with the Swedish financial crisis-
        I trust him more than the theories for various reasons:

        1- my own experience of dealing with organizational crises. of course, one need basic undertanding, but not a Nobel prize

        2- my lecturers at master used to say theories help to understand the realities, but do not change them- only actions change realities- when the lecturer was saying this, he was refering to sciences.

        I took this for granted.

        I look forward to hearing from you.

        Yours sincerely,

        Georges RADJOU

      • Hehe, you will see where this will lead to, that I can guarantee you ^^.

  5. You people have no idea what’s going on.
    Money is a symbol of a delusion.
    Healthy air, water, soil and sunshine are the only source and sustenance of all life.
    A healthy biosphere is the only wealth there is.
    Until we have a global economy squarely based on that understanding, we continue on a path of self-destruction.
    The IMF, the World Bank, the WTO and friends arrange deckchairs while, in the night, the iceberg looms closer.
    Our only hope: the doomed passengers seem to be revolting and making for the wheelhouse.

    • Well, I am 360° in agreement. The quality of the air, the soil, the natural resources, all matter as you rightly said, these are too sustain – -and life sustenance ,…and money may be a delusion…and healthy wealth is the only biosphere,…but, are you sure that when all is dismantled, the organization would be better -and not worse? (I refered to your economy squarely based on that understanding,…..self-destruction”)
      What would you like to see instead?

      Honestly, I am not sure it would work- I am even far beyond this thinking -if you could give evidences, it is worth trying…I will follow you

      What you have illustrated is the story of the titanic…..”….in the night, the iceberg looms closer….”

      But, do not forget, that I have another version of the crash,…in the night of the first journey to New York…., these ship passengers wanted to see more for their first journey,…they asked the captain to change the route so they can see icebergs,… unfortunatly,…it happens one iceberg was leading to far south in the sea and meet the ship,…to late the capitain did not have time to change the ship route,….it was a huge boat,..with a fast deriving iceberg,….and as modern was the boat,….the forecast method and radars where not so sophisticate as today,…the inevitably happened,…icebergs when into the ship,….creating a ship wreckage,….the ship shrinked with fataliness

      I am agree with you, it is unfortunate for these loss of lives and properties

      Lessons I learned – we could learned (maybe?)-or question we could ask. Do we not asking too much from banks?-which jobs are to lend money, but also, to pay dividends for those that look after the money business.

      If, we ask to much from banks,….and we tend to forget that money too,….like the air, the soil,…..is a scarce resource- money is a trust between the society members, if this trust is broken, as you said the money becomes a delusion-

      My question is, “how would you bring back this trust, on which society is based and the money too”?

      Today too, we have cases of countries being bankrupt too, because customers -Anglo irish bank is the model as the Finacial time told the story asking all the times more from their banks, and bank managers are helping, but there is a limit to bank generosity-which their own failure- well I may be agre with you on the fact that some ways to leave banks creating crises, to clean afterwards the mess can be also, a way to resolve crises- these are crisis solving- one of them is bursting the bubbles, or government intevention afterwards , when the mess has happend

      In these 2 extreme scenario cases, who would you blame, governments or banks– as I felt in your comment that you take the side to blame banks

      “The IMF, the World Bank, the WTO and friends arrange deckchairs while, in the night, the iceberg looms closer.”

      But, still do think that both banks and governments are under our control with more civilian participation (CSO) because these are a economical and social l legitimacies for growth. So, there is an expected improvement.
      Better organizational leverage can be a solution.

  6. […] world economy has entered a dangerous new phase and, as the IMF’s Managing Director stated recently, “what makes the situation all the more urgent is that it has implications for every […]

  7. The realistic way to deal with this issue is to allow each country to pay their debt when they can! To actually force debt repayments quickly would force certain countries to go bankrupt and not pay their debt.

    When austerity measures are put into place, all must comply, not just the majority! As we see most nations still do not tax their wealthy elites fairly, also the banking sector of each nation should be restructured as to never let this type of financial crisis happen again.

    • Yes George, Taxing the country elites would help to reduce the burden of debts, but maybie there would be less jobs at the IMF.
      Ah, Ah, Ah…Ah!
      Perhaps, it is a good idea, to cater the debt according to country needs as no country is the same-
      What about this new fund European Facility Safety Fund (EFSF)?

  8. ISSUES WITH BONDS

    It is me GS. (this post is for managers as non financial managers)-On the reasons for using bonds….

    I felt there are less clouds over the exit for the Eurozone debt solving- Is not it?….

    I have put a link to complete one of my last post and the question of source of business financing like EuroBonds- I found myself, this solution not being satisfying enough for what I said, because of challenging sources with the sharholders and the risk return.
    Please, visit it http://www.fool.co.uk/news/investing/2011/10/10/4-things-bond-investors-should-look-for.aspx?source=ufwflwlnk0000001 To get details right of more causes of financing failures with bonds.

  9. […] by christine Posted: October 10, 2011 by fgrdjr in economia, world midia 0 Resolve and Determination—How We Get Out of This Together Posted on September 27, 2011 by […]

  10. […] reuniones recientes entre líderes mundiales, Christine Lagarde nos resume cosas comentadas y, dentro de eso, nos describe los tres elementos generales donde ella dice que […]

  11. “How we get out of this together … For Europe, the main challenge is to deal with the inter-linked problems of sovereign and bank debt—and deal with them together.”

    Why do you not ask your bank regulators in the Basel Committee? They, by allowing the banks to lend to all European sovereigns with only 1.6 percent in equity or less, which means banks could leverage their equity 62.5 times to 1 and more, are those most guilty of having inter-linked the problems of sovereign and banks. If you do not like their answer or suggestions, you should do well reconsidering if in fact these regulators should be allowed to proceed with their Basel III.

    • If financial leverage can buy the debt. Also, debt be a source of finance for organization -these debts do not have to be too burdensome to anhile expectation of the leverage effect of debt financing.

      Also, remember the financial crisis- when biggest insurance companies/banks/mortgage businesses headquartered in the USA, bought the organization debts -individuels, firms, households,…

      They just discovered later that there were toxic assets….It is when the world financial crisis started- I think Basel III took measures to avoid it.

      French President Sarkozy met Mrs. Lagarde (Head of IMF) andMrs Angela Merkel (head of Germany). It is good that there are responsible people writing the financial history for the common good of Europe,..

      It is an ongoing process,….

  12. […] reuniones recientes entre líderes mundiales, Christine Lagarde nos resume cosas comentadas y, dentro de eso, nos describe los tres elementos generales donde ella dice que […]

  13. European Crisis – a possible solution

    I was never a big fan for issuing Eurobonds but to be honest I believe that is the only way to prevent a complete collapse of the markets. In order to dampen the costs for the North I would propose a system in which nations have to pay a premium when they do not meet certain criteria into a pool. Out of this pool nations which meet certain criteria would receive these premiums. The EU has just come up with the different criteria — that would be all. It should be done in a way that it is cheaper for Italy/Spain to finance themselves through Eurobonds instead of going directly to the market. Of course, the Germans would pay a bit more (i.e. Eurbond yield minus received premium) but they should not forget that their cheap financing today is partly due to the crisis in other European countries.

  14. How we get out of this together? The first thing we must realize is that there is no way out of the crisis that does not entail considerable risk-taking in many ways.

    Personally, as I have repeated over and over again, I would love to see the capital requirements for banks come down drastically when they lend to small businesses and entrepreneurs and who, because they are perceived as “risky”, never really pose a systemic danger to the banks.

    Excuse me because I have posted it before but again here´s a video that explains a small part of the craziness of our bank regulations, in an apolitical red and blue! http://bit.ly/mQIHoi

    • Yes Of course! You are right. Also, one need to think about these due diligence before the occurences of a crise- Security and reserves matter more fo large banking system than a small unit-However preventive maintenance is paramount

  15. I feel the IMF boss is right, and the German approach is quite uncommon. It is our hope that all nations align and deal decisively with the crisis. No blaming, but by collectively acting on it, we all win together.

  16. Dear Dr. S A Visotsky,

    are you joking ? Listen, we in Germany have a different mind set about these thing – its called ordoliberalism. The only thing the western countries can do is spend and debase currency. Then they blame the ones that keep their house in order for not “complying”. Again, to me you dont deserve a Doctorate, if you gained it in economic and social science. The solution to the problem is the free market in which those that have knowledge and guts to change the world for a better can do so. You have mentioned us for problems in the last century. You dont understand the burden of government debt. Politicians always talk about the faith and trust in the system – that is what is needed they tell us. My view is that we have to get rid of them to gain back faith and trust again.

    And remember, in a circumstance as we have it today, nobody gains anything … . We all loose out because the currency falters. Think about that.

    • Mr. Krueger;
      With all due respect, Sir

      It is a common reaction, for persons like yourself, maybe not as fluent in Internatioal Policy procedures to attack those who are involved in policy making. I can assure you Sir, that I am indeed deserving of my academic degrees, and have served in multiple positions, under multiple administrations, effective in my professional duties. Hence, my being involved in the creation of policy.

      When those attacks become personal, as in your case, you tend to lose sight of the objective. This is not personal, it is business. Please try to be reasonable, I do understand your frustration, but inform yourself of the issue at hand.

      I am currently in Germany, and am well aware of what is, and is not taking place here, and I do understand the burden of Government Debt far better than you, myself being directly involved in Debt Management and Monetary Policies, for a number of years.

      Unqualified individuals, completely devoid of any Financial or Economic training and/or experience (Messers Schauble & Rosler) are trying to justify their positions to a public that is largely uneducated in such matters, and follow whomever they tend to like more, regardless of plan or direction. It is clear you harbor ill will towards the US and it’s Monetary Policy, clearly seen in your comments above, and you being German, I find that odd. Is that taught in German curriculum, western policy is wrong? Didn’t the US save Germany from themselves, economically speaking, at least 3 times in the last century? You did study European History I hope, before makiing comments about “western countries who only spend and debase currency”, it’s suggests maybe you read that comment somewhere else, as it is in direct contradiction to the facts. Here it is again:

      As far as Germany keeping it’s “house in order”, they will have to answer for their newly discovered “hidden Government Debt” of 5 trillion Euros reported last week, in addition to the 2.088 Trillion previously listed by EUROSTAT. It clearly shows fiscal irresponsibility, as they (Germany) lead the EU in Government Debt, while still berating others in the periphery. Now with a tab of over 7 Trillion Euros, Germany’s total debt will be double that figure. If that house is “in order”, I hope the latest 1 and 5 year CDS-implied EDF metrics of Germany are wrong, because right now they spell default.

      The point of the article is about working together to resolve the issues at hand. Attending Policy Meetings is a good way to start understanding what is going on and why.

      Above you said, “The solution to the problem is the free market in which those that have knowledge and guts to change the world for a better can do so.” That is effectively, you and I, Sir. Let’s work together and get this solved for the greater good.

      • I mean, listen, you have to understand my point. The German taxpayer can not come to the rescue for everything. I fully understand global implications, dont get me wrong, but its just too much. We have been betrayed over and over again by fraudulent accounting standards and dishonest politicians. That you have to accept for once. If somebody is intellectually or economically superior over somebody else, fine. But he should use that power honestly and not try to game others. That is what has happened in the EU ( and not only there of course ). The war that I have once mentioned here will come because the policies do not aim to reduce deficits. And if you have accounts that blow out to either side, tensions rise automatically ( its not my saying, its just history ). The IMF and other governmental officials cant do anything about that because they ( you ) are not the market participants. Where do you think would the German Mark stand if we did not have the Euro ? Its a race to the bottom, a destruction of capital. This is not the way to build an economy. Its all political nonsense. Wake up and accept reality.

      • As I read in today’s newspaper, banks are going to pay and also borrow for capital making because of the EU quantitative easing by the ECB.
        Also, the IMF managing director will be on the road to meet French president Sarkozy and next Angela Merkel. So everything looks fine.

      • 1- Indicators – to me – are peace, security, wellbeing, development through the country growth.
        2- Sources of risks: country debts.
        3- Problem (1) with European community. 2 europes in one. 18 countries are using the euro currency (10 are not using it)- But, still they are in the Maastricht-1997-
        4- Impact: democracy and christianity birthplace is Greece -before in Asia, now in Europ
        5- Another problem (2): European Community is a currency union, not a political organization. In principle, freedom for country members should be increased by removing barriers across EU borders. As, the Union is a false one- there is no real gain- It is what we have got today- a cahotic european industry with the wealthy Europe in the North and poor Europe in the South. (I think, this is because of the origin of the Europe after world war 2 (there was neutral europe -scandinavia – and occupied or warmonger europe).
        6-Today, the division is still existing with the euro.
        7- Problem 3: Europe is a head of state organization and not a people democracy with representations. So, why would you Germany invest its money for Greece without a return and a say in political and power terms.
        Recommendations:
        8- Bail out of poor countries with the European fund, privatization if/when possible, keep the interest rates low (central European bank quantitative easing)
        9- IMF and World bank financing flows
        10- Japan carry trade

      • Mr. Krueger,

        That was the point of my statement, so I see we are in agreement, in the fact that Germany is world famous for their questionable accounting practices, and unqualified politicians, still beleiving that a Socialist State is the answer. Germany has to step up and vote. 42% of the population turning out to vote won’t be the answer. People were excited that the “Pirate Party” won 8% in a recent vote. Problem is, it’s a group of left wing students with no “Forderungskatolog”, only asking for free pizzas (get serious), free internet (won’t happen), freedom of information (definitely won’t happen), and free education (should happen as German signed and ratified the UN ICESCR, which states higher education shall be free of charge), I actually did Pro Bono work for a group of German students in the last strike in 2009.

        Point is, the system is broken, I agree. But to effect change, one must get involved. I agree also the German taxpayers should not have to shoulder the debt incurred by it’s Government, and am pleased at the new legislation holding banks and their shareholders responsible for the sins and failures of those same banks.

        That’s why with a fractional reserve system, a bank run is a major risk, which Germany continues to ignore. Deutsche Bank is the house bank for most of the larger German Industrials.They have lost half of their share price and half of their Market Cap since July 2011.

        Deutsche Bank are currently leveraged at 32:1, so a 3% drop in the asset values on their books wipes them out with an avalanche bankruptcy, that is the danger the media refuses to report.

        Even a small bank run could cause this. If enough angry citizens get motivated, it could happen. The German Government still swears they need no re-capitalization, and all the banks are fine. They are not fine. Read the latest Regional Economic Outlook report from the IMF, available here on this website. Notice Germany’s exposure to Spain & Italy, who in turn hold Greek Debt, it’s endemic. The German people refuse to beleive their Government is misleading them, time for a “vote of no confidence” before they sign anymore paperwork leading Germany down that staircase of bankruptcy.

      • Hehe, that is funny that you name “us” for “our” accounting practices…. First of all, the problem lies in the structure of the present world financial system in which central bankers have become the enemy of the people with their policies to pursue so called “financial stability” ( which is nothing but a state run pricing system ). That almost ensures that there is no room to breath. Secondly, its this perverse structure that allowed public and not private entities to leverage to the moon. Yes, and then we have the saying in the world that its the banks that caused the crisis. I mean, get real. Who is responsible for overseeing all of this stuff ? Im saying the private ones had no other choice but to go with the evil – they were forced to load up on rotten mortgages and now the government garbage. In the end, as always in financial history, it will be the currency that will fail ( and has already failed ) at last. But before that we will have war. Lets see where this journey into kukuland will take us globally.

        Speaking of Germany in the end; yes I admit there are also huge problems. Look for the Landesbanken.

      • I think, the anger is understandable, when someone has loss money, becuse of the bank -which is rare, but it has happened, and will happen again, customers find themselves naked. it is when and where, the State intervention is paramount as protector of the nation.

        Example, US Financial crisis 2007-2010, and the $1000 Obama Bailout funds- and wishing this not happen again- because banks are commercial entities and they should not relied on,nGovernment subsidies-

        Now, there are also, cases where customers may cheated banks too- and hidding behind there natural naiveness- fior example not reading small prints of bank contract,….
        A case that happened in ireland may not reproduce in Iceland -thanks to IMF and Poul that told me the story-
        Now, my story is about Anglo Irish bank, the Financial Times reproted that the bank owner was never refusing money to his/her customers, and when the crisis came- the bank could not be supplied by money from the Irish government -Too much money was given to customer let the Irish Anglo bank to go bankrupt and the Irish Government too.

        I think, why this story would not happen in Iceland is because money supplied was from UK banks and Government.

        Tell me Poul is this correct?

      • And if you talk about “getting” involved. I personally dont want to become a political puppet. There are already too many of them around. If there is a problem, just get over it. But in our case today, when it is up to people who have nothing to do with other people´s business, the whole thing gets corrupted. And so Im sorry to say, but I dont have a solution either. We just have to swallow the pill and let it implode. Then we can sort out ourselves again. I would rather live 1 or 2 years below the standard of living ( however that is being measured ) and then see the light at the end of the tunnel. But if central planners mess around with other people´s future there will be no light, just darkness and confusion.

      • 360 % agree!
        Better get less today for getting more tomorrow.

        I am afraid, but today it is less likely that people walk in this way.
        In my generation people was still fighting to earn a living from the spirit of entrepreneurships,a nd earning a leaving before Europe came.

        But, now today, Europe is drifting in your hands…One can control it, it is too uncertain, still the European mangement control e.g. People, Eu Organizations and Systems put in place are designing new road maps.

        Anyway, we have no choice- love it or leave it- The Europe of citizens as defined by Rosseau, Victor Hgo,….Schuman, Monnet does look that! Europe of citizens.

        I felt sometimes, it is more harmful, but there is no way backwards.

      • Currency always fails in Germany, yes. We haven’t seen that in the UK or the US. We have however, seen that 3 times now in Germany in the last 100 years, the US bailing Germany out. Germany’s failure to follow IFRS reporting standards, is yes exclusive to Germany, as they are the only country in the Top 10 Economies that refuse to report honestly, also the only major country to be suspended from the World Bank in the last 20 years. No private bank was forced to buy smelly MBS when they did, that was inexperience in market investment, also a well known fact.

        Please, lets not argue over facts, attend one of my lectures on European Financial History for an in-depth explanation. You should not take this as personal as you do. You are not responsible for the irresponsible way that Germany operates, the EU is to blame for allowing it to continue. This is not about you and I, rather about Germany learning that “European domination” is a non-starter, and after 3 failed attempts, they should give up this plan if they want others to take them seriously.

        Deutsche Bank sold a mountain of bad paper to IKB Bank, then called the BaFin, and reported them (IKB Bank) for having bad paper. These financial tactics are common for Germany. Josef Ackermann, now arguing against recapitalization because they ( Deutsche Bank) don’t have the money to do it.

        ANY CEO who runs a bank with assets of 1.8 Trillion Euros, and can’t come up with 9% Tier 1 Capital, or show shareholders a target profit of a mere 10 Billion Euros, should be romoved from his office with immediate effect, as a result of an emergency shareholders meeting, full stop. Such an amateur display of incompetence is an insult to others in the industry who are being crticized for the actions of a few rogues like Mr. Ackermann.

        Remember, they (Deutsche Bank) are the strongest and most successful German Bank, if that’s the best Germany can do, the future looks grim for the EU.

      • Dear Dr,

        I understood your grievance, but I am not sharing it.

        You are right there was a time were Germany currency was to be hatred -very bad-, a long time ago at the beginning of the 20th,
        Root causes around the 2 world wars were about the high inflation rate and unstability of the german mark-

        But, today, economies are more tools to manage industries, banking systems have changed, the world is different-

        Regards

        Georges RADJOU (MBA)
        bird ceo

      • Huh ? The U.S. and UK didnt default ? Hmm, I wonder why they went off the gold standard … . But that is not the point here, right. More doom to come, economic and social reset to be on the agenda. Global monetary system in danger of default (technically already).

      • You are right, also default swaps from anks were a fallacy. Banks are used to take monies from anybody, why they should refuse funds given to them by the gouvenments- It would be against their nature to refuse the bail out monies-
        Anyway remebers few facts;
        + business assessment during the crisis was still very high in the USA (2.16 in average according to the Financial Times)
        + Firms and banks refunded very quickly the money borrowed, proof that thre was not so bankrupt
        + For the general bail out, President Obama said this should never happen again, US governments and the citizens should not hand subsidies to banks.
        So, as citizens do we really know what are happening in the country?

      • Someday someone in Europe is going to ask a bank regulator: “Excuse me, Mr. Regulator, I have been hearing rumors that when European banks were loading up on Greek debt, you of the Basel Committee required these to hold only 1.6 percent of equity against that deb t… meaning that you allowed the banks to leverage their equity a mind-boggling 62 times to 1. Please tell me, as a tax-payer, and as such an ultimate picker-upper of any European bank mess, that this wasn’t so.”

        That’s when Europe is going to begin to understand that not even the strongest monetary union would have had a chance to survive bank regulators like the current crop.

      • Dear Mr Kurowski,

        I like you comment about Basel for Greece and other EU countries.
        It is about operational risk–the pipes as Mrs Lagarde rightly said.
        But, I think a requirement of Basel III is a 10% of bank capital as a due diligence for banks to avoid a new crisis. (It used to be 5% before)

        Yours sinceraly,

        Georges RADJOU

      • @Georges Radjou “I think a requirement of Basel III is a 10% of bank capital as a due diligence for banks to avoid a new crisis. (It used to be 5% before)”

        My friend, unfortunately what you think is not as important as what it is. Basel II set an 8 percent basic capital requirement for banks, with capital quite generously defined, and the risk-weight for lending to sovereigns rated as Greece was 20% which then translates into an effective capital requirement of only 1.6 percent… which then translates into an allowed bank leverage of 62.5 to one.

      • Dear Mr. Kurowski,

        I am agreeing with you, it is not what I think, but improving bank capital is better than doing nothing. Like an air bag against car accidents.

        Also, the issue with Greece has nothing to do with the leverage ratio — this is too technical. It will not work. There is a need for a contingency theory — not only mechanical as I felt you suggested in your comment. But correct me.

        The issue is a political one with Germany — and I am agreeing with you again– it could be 20% for Greece, but if Germany does not get political compensation for money lended — how do we go from there to helping Greece, whatever the Basel requirement for minimalistic capital assumption?

        I don’t know if you read recently the news, but it was also the case with Slovakia.

      • @Radjou “and I am agreeing with you again– it could be 20% for Greece”

        Mr. Radjou. Please take your time and read before answering. I am not suggesting a 20% capital requirement for Greece. I was just explaining that at the moment Greece was building up its debt, because of its credit ratings, the regulators in Basel II assigned to Greece a RISK-WEIGHT of 20%, which meant that since the basic capital requirement of Basel II was 8%, the banks only had to hold 1.6 percent in capital when lending to Greece…( 8% times 20% is 1.6%)… allowing therefore the banks to leverage their equity a mindboggling 62.5 times when lending to Greece (100%/1.6%)

      • Subject: real world of economy versus economical percentage

        Dear Mr Kurowski,

        Thank you for your comment, and the percentage and the math. Perhaps, I was unclear. Allow me one more email, please to ground my reasoning in the article of bloomsberger business week -end of Sept. beginning of October 2011-,

        I found the analysis excellent -sorry, I have no name to give for the author article.
        What the author told -an I am 360% agree with him- I do not need to made the math and the calculation of percentage. Do I?- because it is a living history for most communities today in Europe, there is bad feeling with crisis…, So, whatever the percentage again…It could be 50%, and even higher would be nice if I follow the author.

        Percentage for both of us is not an issue, what is an issue is the crisis and the cost of a crisis?

        In summary,

        “It is worth for banks to accumulate capital (and I see this in the cry of Mr lagarde for it-, It will always be cheaper than economies running into a wall of crisis”
        .
        Therefore my analogy with the car driver running without a proper -the percentage- airbag to avoid a fatal car crash accident.

        Now, for the Modigliani Miller math formula to know the leverage, it would be confroted to the real world of economy and not academia -to my viewpoint.
        (Also, if I was unclear, please, re-visit my previous post to you about the debt ratio and the burden of debts- what is valid for a firm is also true for Greek bonds. Is not it ?

        I look forward to hearing from you;

        Your sincerely,

        Georges RADJOU,

      • Hi GS RADJOU,

        The problem with increasing capital ratios is that it does no good at all. First of all, when you have increased debt to whatever ratio, its there for a reason. Secondly, the only way to get rid off it is to either pay it back honestly or admit that you are broke. Both things are not happening. Instead you use the printing machine to debase currency and therefor get other people to pay for your your expenses (or you go to war to hide the truth ). That is what is wrong with the system. How can anyone expect honest accounting if we have this in place? Its a joke and everybody on this planet knows that. So what “they” can do is obviously increase “capital” ( which is not capital, capital by definition is real stuff and not paper on a balance sheet ) and then let it appear to have made it stronger. But the financial flows are the same, so we run into the exact same problems just later on. If somebody has come to the end of the road, everybody recognizes it. If he tries to game them, it will not do any good.

      • Dear Krueger

        I am 360 degrees agree with you. Greece is endebted and it is broken, as you said.

        But, I could give you names of multinationals that became richer because of debt management. There is a powerfull leverage of these firms using debts as a source of finance-

        So, it is not the debt, which is harmfull for organizations, but how much debt the organisation can manage.
        Remark, my friend Bill the money master said also, the same thing about asset management -it is not how capital a firm has, but how much capital a firm can manage- It is a different skill.

        Now, all the issues today with the Euro zone, and to keep the peace, it is to find the right glue to fix all the Euro pieces, together.

        Europe based on the Euro currency integration, is an economical integration and not political, and not mechanical finance like a thermometer, but contingency management (finance, social, political, technical,….)- It is the reason while the setting should be right to have the right solving.
        Well we will see on Wenesday.

        Regards

        Georges RADJOU

      • Hi Georges,

        Yes, that is a joke in itself. Management of debt … . Sure you can do that. But what does it create? At some point it just goes boom into the air. But I agree, another problem is the combination of big business and big government. That sucks out capital for small and medium sized business and destroys their competiteveness through the pricing mechanism – I understand that. But we all know that those ( conglomerates ) are not the drivers of innovation. I mean we have seen these things over and over again. Somehow its part of history that it repeats itself. But if one has a brain, why make the same mistakes again? The situation will get worse day by day because yes, we may have a restructuring on the private side but not on the public. The balance sheet will keep expanding to hold the status quo. That is not sustainable. There will be a big reset – socially, economically and politically. And we should forgive all things that have been gone wrong – otherwise the future surely looks grim. I’m against any intervention within the pricing mechanism (whether that is through interest rates, money supply, or regulatory and legislative actions ). Let it get sorted out by the market.

      • Hello, Arne Krueger,

        1- I know it makes you smile-But, it what are leaders are making today.
        I meant also, each period and space, as it own ways to manage assets or debts, I
        As you said in the firm balance sheet, there are quite lots that one can make.
        I meant for a financial manager, it want be too difficult to get the best of the asset side or the owner equity side, as long the both are balanced and total is nil.
        Finance, as not change so much, except today, we use computers and technologies.

        I know this would make you smile too you are not forced to see the balance sheet as the taxman…It is being innovative with the capital structure of the firm

        I2- Again, I am afraid, I am sharing the disgust of multinational and their spirits of innovation- They all have tor have had , all this spirit of innovation, it is why they have grown up, be profitable and became multinationals. Not all business can be a multinational. it is a souffrance and a risk too.

        Thinks about coke, MacDo, Virgin, these comapny boss started nearly naked, and carry their ideas like Jesus christ carrying his cross to be the leader in their field….

        What do you think about Jesus Christ and money -innovation-

        Alright, I talk to you later, in a next post Krueger.

        Regard.

        Georges RADJOU.

  17. I think it is difficult , but unavoidable because of the EU pact. Also, I think the EU can still incorporate more countries–what is the northern Baltic country that joined the EU zone during the crisis? –Latvia. It could be good strategy to reduce the debt pressure between 2 options 1- a federation 2- the EU split.
    IMF managing director C. Lagarde tactics and strategies are good. She is like a financial surgeon willing to reduce the pressure, leaks of financial flows from donors countries to those needed the most. And maybe, as she said, one will need to hurt sometimes to get good future results. I think this is a fantastic message that should create motivation and energize growth if we all pull in the same direction.

  18. I think the banking supremacy of the U.S. currency was very mighty abroad and the bail out was helping America –including strongly the rest of the world. Europe’s banking system was less affected, but European governements had to help also either abroad -through the G20- or through the EU with bail outs, subsidies, nationalisation of Northern Rock banks in the UK under PM Gordon Brown, also restructuring financial banking operations ie Basel III, in France, there have been also fusion and acquisitions across borders of same susidiaries – I believe between Fance and the Lowlands and also some internal country fusions -Casden bank-
    Now, if the financial was gentler at the beginning in EU, it is looking like today a huge advancing financial tsunami with countries in the red or bankrupt –Iceland, Ireland, Greece,….
    And more to come with the Arab SPRING revolutions countries that need emergency and urgency funds before we come still fighting to get out of it.

  19. Dear Madame Lagarde, why does the Eurozone continue to borrow money when it possesses an 11,000 ton gold reserve?

    A reduction of the gold cover ratio of Euros, from 15% to 10% would produce 1/3 more “debt free” Euros, separate and apart from those in general circulation, with which to amortize or re-purchase a good portion of the Eurozone Sovereign debt; with a lot left over for public investment, tax reduction, and human capital investment. In the case of re-purchase of debt, for a public account, debt interest payments become disposable income; perhaps 2 trillion Euros per decade, depending on interest rates.

    For a peer review of this formulation consult”Chapter 10 the rentenmark miracle” http://www.econ.puc-rio.br/gfranco/Ch10.PDF also found in Obama Memo# 8. The late author, “forensic” economist Robert Rene Kuczynski, is peerless in his examination of the monetary art and science; an annual prize bears his name in Germany.

    All the best,

    S.

    • I think one reason maybe is the fact that banks love monies.

    • Gold Reserves are generally not used to pay debt, or to sponsor states that have no hope or possibility or ever servicing that debt. IMF / BIS / WBG / Central Banks need that gold not only as collateral for maintaining stable international currency values, due to fluctuating exchange rates in today’s markets, which yo-yo regularly. It is also held for future, or at this point, the probable simultaneous reflation of all currencies, regards another world financial crisis of massive proportion, such as was seen during the Great Depression. As a safety valve so to speak, it would never be used for satisfying simple debt.

      • The “simple” debt, as you say, is strangling the Eurozone. The cover ratio is arbitrary in a fiat money era. When dealing with a liabilities-based problem, failure to survey assets and deploy them in a solution, is gross negigence. Bullion banks lease portions of the U.S. gold reserve for 1% interest and have created an annual 6-7 trillion gold note market in the process

        Macroeconomics without a solid foundation in accounting, is erroneous, leading to the debilitating and interminable wrangling between Keynesian and austerity measure adherents.

        Simple debt indeed,

      • Yes, I follow you! Bullion is not for debt….

      • Still, there is a case when Hugo Chavez -leader of Venezuela- wanted to rapatriate all his Bullions from the English stockroom in London, because of the debts. Is it?

      • Not simple debt doing the strangling here, rather Germany. Every time we bring it up, they storm out of another meeting. They were the first ones to jump on the Greek Debt investment in March 2010, fact. They encouraged others to do the same, fact. Their plan was to wash their bad debt from 2008.09 through the Greek Crisis, letting their banks take a 50% haircut to explain debt levels. Last week Deutsche Bank CEO, Ackermann, said Duetsch bank had 250 Mil Euros exposure to Greek Debt, full stop. Friday, Deutsche Bank claimed to have 4.9 Bil Euros in Greek Debt, you see as soon as the 50% writedown was approved, Deutsche Bank decided to wash their balance sheet, that is what is strangling the taxpayers right now, they will pay for deutsche Bank’s debt, not the bank, they never pay.

      • Thanks for comment Dr., this is truly saying that banks love money.

  20. Madame Chairman,

    I agree with you and support you.

    The only way out of the situation is to quit playing the blame game, and start attacking the problem. EU States need to quit thinking “nationally” and start thinking more “European”, that’s whyt this has become now. The CDS-implied EDF Metrics for the core banks are devastating, especially for Germany and France, the would be “saviours” of this crisis, that in and of itself is a joke. My point is, Germany needs to start shouldering their part of the responsibility in this crisis, instaed of crticizing it from the side lines, saying bonds are not an answer, and then issuing covered bonds to the point of instability. If Germany wants to be seen as a leader in Europe, then lead by example, do what’s best for Europe, not for Germany, humble yourselves, people.

    With Germany’s EU Leading 7 Trillion Euros in Government Debt alone, dwarfing that of Italy at 1.868 Trillion Government Debt, someone needs to step in and stop Germany from bullying it’s neighbors. Paul Krugman wrote about this crisis in January 2011. It was that transparent to us in the Markets at the time. People are still saying it’s over exaggerated, like Germany’s Shauble, a Jurist not an Economist. Everyone has a political opinion about it, and it’s a monetary problem, they just want to turn it into a political problem. If Germany doesn’t want the plan, let them go. Done. This is not about them, they just want it to be. That’s why Mr. Stark left, no attention.

    Either the world revolves around Germany, or they are not interested, full stop. It’s about Europe, not Germany. This self centered, ego centric mentality leads one to dark places, as we have seen twice in the 20th century, sadly no lessons have been learned in Germany. As far as Mr. Schauble’s comments about President Obama criticism over the Crisis Management, Europe has been saved several times by the US, unless Mr. Schauble’s studies did not include Europen History from 1900 to Present. We don’t expect an apology from Germany, just compliance would suffice.

    Acting decisively is the key here, a deadline of Oct 1., non compliance should result in suspension, the states signed the membership, read the articles the member states are required to follow, and the consequences for those who freely choose to violate. Be consequent and punish the offenders. Crack that “leadership whip”, this is that dare to be great moment. With enough brillant minds available, surely there is a solution, and I hope the need for a permanent “Crisis Management Team” is seen as being imperative for the future success of whatever plan is put into action.

  21. The first few lines of the enclosed are as follows: “The past weekend 187 countries came together in Washington D.C.”; now my question is as follows: Out of 187 countries how many were more interested in lining their own pockets? For far too long now, these banks have been getting their own way, and I might add, without questions being asked,. I Think its time for the I.M.F/E.C.B and the E.U got off their butts and start an investigation into these banks. Banks have already been given billions of euros of tax-payers’ money
    yet here we are in 2011 and STILL the banks are in the same mess as 2008/9.
    Please don’t get me wrong–we all know PART of the money was used to repay the international markets, part of it went to pay Fat-Cat bonuses; part of it went to pay their shareholders. Yet no-one has bother to ask the banks where is the remainder of the money is.

    • P.J. Carrol, your accusations are too broad. You switch quickly from “187 Countries” to “these Banks”. How does a country line it’s pockets, when a bank, receives financial advantage? That would be a win for the bank, not the country, or? Let’s make a distinction between a country and a bank for starters, shall we?

      When accusing a party of a crime, one must be specific, so I’ll ask you again:

      1) Who exactly is lining who’s pockets, and with what?

      2) Which banks have been getting their own way, and what is it they are getting exactly?

      3) Which countries are acting, or have acted, as facilitator for which banks?

      4) What remainder of what money should exist? Be specific here also, lots of money was made available for many different purposes, the EU Bailout 2008/9 was proportionately larger than the US TARP plan. In August 2011, Bloomberg reported, ” almost half of the Fed’s Top 30 borrowers, measured by peak balances, were European firms.”

      If a crime has been committed, it most certainly would not be investigated by the IMF. If a crime has been committed in the EU, as you have mentioned the “ECB / EU and billions of euros in taxpayers money”, that would be another jurisdiction, for which INTERPOL is responsible, not the IMF. Accusing a bank of wrong doing that you cannot prove in a court of law, can be seen as Libel, which is also punishable. Until you have evidence, it’s pure supposition on your part. Not arguing the validity of your point, only suggesting you proceed with caution where the law is concerned.

  22. A bold but simple solution trade out of situation. The only assets of the Planet soil water vegetation atmosphere all else all by commodities. UNCCD states the 60% of the planet damaged basically bankrupt. Now if IMF accepted the additional role as receiver of EARTH INC and set about (1) lowering mass CO2 into appropriate vegetation into say Africa and PRC deserts to grow soil food fodder as nature did before Man(2) training Farmers Herders sustainable soil food fodder management the mass income for IMF supporting members (a) CO2 offsets under UNFCCC carbon trading (b) serious reduction in the current perpetual AID programme. The flow-on serious reduction in poverty, wars, and build up of environmental refugees.

    Its not warm fluffy stuff but a FDR perpetual solution. Depending nations with sustained income can pay back debt and stand tall in world arena
    Albert Einstein Man must change direction if he plans to survive
    FDR We have such little time to do so much
    Think it through its workable
    Robert Vincin see Google and my Work past 6 years in PRC reversing hostile deserts

  23. Companies with liquidity problems can protect their assets (bankruptcy laws provisional protection) while in Eurozone Member States can count with “no bail out clause”.

    • 1- One shall be optimistic. The richess of nations is being positive, first – keping the trust and leadership.
      Fragmenting Europe-as it was before- would create a vicious cycle of poverty (more debts)-
      Now, how to gear up faster and better, depends of us, as much on others (The team is stronger if the individuals are good-preventive diplomacy)-
      For example, before the European integration- Europe was a grouping of countries with different regulations. If a country like China wanted to sell, it has to adapt its goods to all European National markets-which was difficult for China-
      Today, with the European Community, penetrating the EU countries is much easier for foreign markets- because of less resistance-

      2-I think the basic equation of finance is one should not spend more than one can earn and keep the financial pipes flowing. Money is flowing banks, but mainly from the growth and economical activies and transformation made from our mother nature (environmental assets)- Now, it would help to think, what kind of growth we would like to see in the future.

      I think, there are more ways than just changing the country growth measure to growth in non growth economies-
      European country growth is not enough (1-2%, Asian growth is good-6-8%, Average world growth is 4%) We have only one Earth planet to donate to the future generations, what will be our legacy if we fail to get these compromise- as the World Bank R. Zoellick expressed in the Annual meeting 2011

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