The Free Market 13, no. 8 (August 1995)
We have the makings of a world central bank, thanks to the government officials from industrialized countries (the G-7) who met at Halifax, Nova Scotia, in June. U.S. Treasury Secretary Robert Rubin, as usual, got just what he wanted.
The officials didn’t call it a world central bank, a creepy term that would have invited public reprisal. But central banking is a good description of what this monster will do—as a prelude to the global economic distortion and world inflation it will cause.
Just as Jeffrey Herbener predicted in The Free Market, the International Monetary Fund got the prize: expanded powers to investigate the finances and bail out the debts of governments around the globe. The justification is that a super-IMF can arrange more Mexico-style bailouts, itself a crisis caused by a government deal called Nafta.
Why should we want to replicate the Mexican bailout? Because government officials see it as a great success. It rescued the peso, kept the present Mexican regime in power, kept egg off the faces of the Nafta shills, and stopped the crisis from “spreading.” The guy who masterminded it—Lawrence H. Summers—has since been promoted to the Treasury’s number two spot, when he should have been sent to peddle tesobonos in Tijuana.
Only in one way did this bailout “fail”—in the government’s eyes: it was too open and too much the subject of debate, within Congress and among the American people. That can be fixed in future bailouts by diffusing payments and responsibility through a world central bank, so no one can know whom to blame. A bonus for the politicians: U.S. funding for the IMF is off-budget, like so many other financial scams.
The timing of all this couldn’t be worse. The history of the IMF and similar world banking scams has been disastrous. The leftover bureaucracy of a failed monetary agreement, the IMF—whose employees pay no taxes on their very high incomes—has wasted more money and wrecked more economies than any other international agency.
But the IMF’s clients are happy. The multinational banks and corporations that seek to guarantee their profits through plunder rather than production like the IMF. So does the U.S., because it’s another means of rewarding special interests and exercising imperial control over foreign regimes.
The White House blustered that we need a new IMF, because “the U.S. cannot be the lender of last resort for the world.” Note the sleight of hand. Clinton implies that someone has to take on such a role. But why? When a government mucks up its economy, it should have to pay the price.
We’ve seen the perverse incentives that deposit insurance causes. Bankers are led to toss depositors’ money into high-yield/high-risk ventures they wouldn’t otherwise touch. With real insurance, the insurer suffers when it takes on a bad risk. With fake insurance like the FDIC, the Fed pays the bill (by printing more money) and every holder of dollars suffers the inflationary effect.
The G-7 now proposes to provide deposit insurance for the world—not just for banks but for governments too. Insuring a government against fiscal failure is like insuring Rodney King against drunk driving. We know in advance what the result will be.
For decades, the government-banking-corporate elite has been calling for a world central bank. Big bankers like the idea, because it secures their foreign loans and their holdings of foreign debt. Corporations like it because it guarantees their investments, and makes possible more subsidies and privileges. And profligate governments are salivating.
A world central bank is the logical completion of more than a century of monetary destruction, beginning with Lincoln’s greenbacks. Earlier, Jeffersonians had fought the Hamiltonian idea of a central bank to pad the pockets of industry and government at everyone else’s expense. But in the end, the Hamiltonians won the day with the establishment of the Federal Reserve, a cartel of banks which agreed to serve the government so long as the government served it.
The next stage was the destruction of the money unit itself. The dollar was once as good as gold, but FDR stole the people’s gold and then depreciated the dollar, to the benefit of government and special interests. Nixon sealed the fate of the dollar by putting an end to international convertibility. The result was the destruction of the American middle class via a subtle looting of earnings and savings.
The world central bank follows logically (”A Fed for the World,” the New York Times calls the IMF), but that doesn’t make those who did the deed less morally culpable. Let’s focus on two: the Times and the Wall Street Journal.
The Times gave the Halifax plan a loving endorsement, suggesting it is exactly what we need, and dismissing critics who point out that an international lender-of-last-resort would create a “moral hazard.” As part of its normal pro-government propaganda, the Times treats IMF employees as public spirited, and its economic models as the pinnacle of social science.
(The Times did mention the “alternative” plan offered by Harvard’s Jeffrey Sachs, who wants the IMF merely to restructure the domestic debt of foreign countries on the occasion of default, thereby reducing the need for open bailouts. But this is a distinction without practical difference.)
Now to the “opposition,” the Wall Street Journal editorial page, which always seems to let down the free market when the profits of the corporate and banking elites are at stake. The Journal has its complaints about the IMF: for example, its policies are too anti-deficit and pro-devaluation. So what are we to do about what the Journal modestly describes as an IMF “expansion”?
The IMF needs to do fewer bailouts and more “talking devaluation down” (sic). This is the “kind of worldview that someone in the Republican Congress should insist on for this [IMF] expansion.” That’s supposed to seem like tough talk. Take it apart, however, and it’s closer to an endorsement than a warning.
It will be some time before the IMF has all the powers the Fed has now. It won’t initially be able to monetize the debt it guarantees, i.e. purchase Mexican tesobonos with newly created money. Trouble is, the IMF has no currency, despite the SDR (Special Drawing Right). But the world monetary planners don’t give up easily, and a world currency is next on their list.
Instead, we need a gold standard, here and abroad. But the first step is unplugging the world money machine now being cranked up. Congress can do it by stopping all IMF appropriation. But so far, the Republican leadership is as pro-IMF as it was pro-Nafta, pro-Gatt, and pro-Mexican bailout. No one in D.C. speaks for the American people.
