The Foreclosure Crisis Poses Questions about the Role of IMF

A small hole in the bucket can drain the pail. The humble foreclosure of the house of poor borrower who could not pay mortgage dues soon led to a snow balling of action leading to reaction until today the foreclosure crisis is posing questions about the role of IMF to prevent further rerun of the same epidemic.

The foreclosure crisis led to the global crisis and the latter led to a conference on global crisis in Boston. In Harvard some of the best brains huddled together to find a panacea. There were proposals being thrown back and forth. On two points however there was unanimity – without recovery in USA global recovery will not be possible and the first to recover would be China. The discussions ultimately focused on the IMF.

There are now broad hints and in fact open talk about a world currency other than the dollar. This idea of the SDR and the role of IMF need to be explained. The IMF is best remembered for its part in the recent Asian crisis. But not all were happy with its moves and sarcastically IMF came to be nicknamed “I Am Fired” because the measures suggested were tough. In the beginning it created trouble – deflation and suffering. The Asian countries could not repay debts by printing money whereas the West could do so.

Till now the IMF has not taken on the role of providing either finance or advice to the powerful countries like USA, UK and the European Union. This time it is here that the banking losses have been the most severe.

To understand all this a little bit of homework will be required. The IMF as well as the World Bank came into existence in 1945 vide the decisions of the Bretton Woods Conference. A historical debate had at that time taken place between Harry White of the USA Treasury and Lord John Maynard Keynes – the latter being the most famous economist of his times. Keynes suggested the setting up of a global central bank as well as a global development fund. Finally the view of USA prevailed. The issue of money creation was too important and could hardly be given to a global agency. This right was kept in the hands of the supreme powers – the dominant one being USA after the close of World War II.

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