Greece Writes a Check To The IMF -- Drawn on the IMF
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2015-05-12 08:51 by Karl Denninger
in International , 239 references Ignore this thread
Greece Writes a Check To The IMF -- Drawn on the IMF

This is amusing.

Greece had a 750 million Euro payment due to the IMF today.  They "made" it by writing a check to the IMF funded by "SDR" funds held at..... the IMF!

Participating nations deposit money in the IMF's SDR fund to be aggregated so the IMF can make loans.  What Greece effectively did was "take back" their IMF SDR deposit in order to pay the IMF.

If you take from this that they took $20 out of one pocket and put it in the other, and by doing so claimed to have "paid" the $20, you're right.  Yes, we're into the realm of the insane my friends....

This sort of crap is the same thing that governments do all the time when they spend in deficit and give the money out in social programs; they "claim" that the funds "help" the people but the act of diluting the currency through deficit spending takes the very same value back out at the very same time!  In other words while specific people might be helped the net economic impact is at best zero and due to inefficiency is factually negative.

In Greece's case it's much worse because the half a billion Euros they moved around has to be replenished within 30 days.  They have no means to do it, and no expected income to do it with, unless Europe gives them the last 7.5 billion Euros in their "bailout package."  But even then the problem just gets moved, because they have bond redemptions they must fund and they'll still be sucking on a dry hose.

The bottom line remains the same: Deficit spending must stop, now, in order for Greece's budget to stabilize.  In fact they must either default on the debt or run a big enough surplus to service and retire it; the latter appears to be flatly impossible, so that makes default the only rational act.  But irrespective of default or not the deficit spending must stop right here, right now.

This is no different than what we face in the United States, with one exception: Our back is not yet up against the wall as is the case for the government of Greece but it will be if we don't cut the crap here, exactly as it is there.