Monday, June 28, 2010


The International Monetary Fund does not help the people of countries which have financial problems, but instead helps those to whom those countries owe money.

I've read enough about the IMF to realize that it's too complicated for me to understand without a lot more study than I'm willing to devote to it, but I believe I've had a valid insight.

My impression had been that the IMF "helped" countries which had fallen into financial trouble because they had spent much more than they could squeeze from their citizens in taxes. The IMF stepped in, imposed spending disciplines on the politicians in exchange for IMF loans to the country, and thereby in some way benefitted the people of the country.

Wrong. The IMF is not helping the country, but instead is helping those from whom the country has borrowed money. . . by demanding measures which actually hurt the people of the country.

The scenario:

1. Politicians in so-called "democracies" buy votes from the people by giving pleasing benefits which might include roads, parks, housing, medical care, retirement, education, unemployment benefits, even money paid to parents for having a child.

2. The people are happy to have more "free" benefits and reward the most lavish politicians by voting for them.

3. In order to finance their largesse, the politicians borrow more and more money from outside the country by selling bonds (IOU's) to foreigners -- banks, large institutions, etc.

4. Eventually the borrowing country owes more to foreigners than it can ever pay back, and faces national bankruptcy -- the dreaded "default."

5. Enter the IMF, willing to lend the debtor country enough money to stave off default, but at the expense of drastically cutting the benefits which the politicians of that country have given their voters. "Cutting the deficit."

Does this help the citizens of the country? No. It helps those who have loaned money to the country. The IMF loans, together with the cutting of government spending, assist the country to stay afloat sufficiently to repay debts. Meanwhile, the people of the country suffer as the IMF forces the country's economy to shrink, especially during a period of international recession such as we are experiencing.

So, as usual, what is masked as help for "the people" is actually help for the international banks and other big investors. Basically, IMF money is funneled through the debtor country to the lenders.