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  1. Wealth
February 18, 2009

Strauss-Kahn's suspicions

By Spear's

One man overviews the whole world, and his view is disturbing in the extreme.

While Obama and Geithner, Sarkozy and Mme Lagarde, Frau Merkel and Steinbrück, and Brown and Darling fiddle and twist the nobs on their economic recovery sets for Bank Bail-out Mk. III, get their heads under the bonnet for Auto-support Mk. II and stick their moist index fingers in the wind for Fiscal Stimulus Mk. X, one man overviews the whole world and is detached from seeing the economic plague from a single country’s perspective, and his view is disturbing in the extreme.

Dominique Strauss-Kahn, the IMF’s Managing-Director, is paid to watch the world’s liquidity and he’s been doing just that. Talking to the central bankers of South-East Asia in Kuala Lumpur in the first week-end of February, he noted that the recession in the G20 developed countries was now affecting the whole world.

He foresaw calls for financial support from Africa, Asia, Central Europe, Latin America and elsewhere: as the IMF has already supported East Europe, the Baltic States and Iceland, quite where “elsewhere” might be is intriguing – Britain, perhaps? Well, it’s in his book as the biggest basket case of the G7 clutch…

He singled out Poland as an interesting case in point: unlike Hungary, for example, Poland has been a model of financial rectitude, but the global recession has so infected its economy that he expects it to be his next case, alongside a precautionary loan of $800 million just granted for lowly El Salvador.

And then the next two countries announce their bank stimulus/stabilisation packages, namely Norway and Kuwait. What? Norway and Kuwait! Yes, two of the richest oil-based countries in the world: Norway, which has reserves of $1.0 million per head, has announced 100 billion kroner/$14.5 billion of lending support and bank stabilisation.

Kuwait followed with a similar $5.15 billion package, following the collapse of its go-go homespun merchant bank Global House Financial, led by Kuwait’s Businesswoman of the Year, where failure in December to repay a $200 million facility triggered cross-default clauses on $3 billion of debt.

Strauss-Kahn said the first priority was to fix the banking systems in the G7 economies first, for without that, nothing can work anywhere else. His view is that the “worst cannot be ruled out. There’s a lot of downside risk.”

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The “worst” can only mean that the world is on the cusp of slipping from global recession into a Global Depression, presumably, which is where this medium believes we are now heading, whatever the G7 Fixers belatedly do to re-bolster their banking systems. (See my previous blog ‘Global depression time’.)

The measure of Strauss-Kahn’s anxiety is simple: the IMF has $200 billion available and has so far dispensed $47.9 billion, mostly in Eastern Europe, which leaves $152.1 billion in the kitty, which looks as though it should be comfortable enough.

But comfortable Mr. Strauss-Kahn is decidedly not, as he says, “I can’t promise that in six to eight months from now [that is in Quarters 3-4] we will have enough resources.”

The dire side of this prediction is presumably based on the assumption of Global Depression, or as this medium believes will turn out to be Global Super-stagflation, which is the same thing but in slightly sharper focus.

Nor does anyone think he is being alarmist for the sake of topping up the IMF’s funds. Gordon Brown, who should know more than most about the real crisis we are in, and Mme Christine Lagarde, France’s well-respected Finance Minister – no laggard she – have endorsed and supported the IMF’s discrete fundraising efforts.

And Japan, which knows all about the horrors of debt deflation, has agreed to pony up the next $100 billion. We remain deeply sceptical, however, as piling yet more debt on a debt-induced crisis merely prolongs the evil day when that Super-stagflation rules the world, as the only mechanism that has the power to dissolve the debts when the ability to repay has largely ceased to exist.

The world’s on a knife-edge, and tipping; the race is on in earnest, but it may well be too late already. If it proves to be too late, then there will only be one conclusion: that the bankers’ greed crashed the world economy beyond repair, leaving it a total write-off. And that’s probably what the IMF is now preparing for.

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