The International Monetary Fund suggests the federal government encourage more rental and less home ownership. Image: Flickr / ella_marie / CC-BY

The International Monetary Fund is responsible for overseeing the global financial system. A review of the recent recession by the IMF has led to several recommendations for improving the stability of the global financial system. Top of the list is that the U.S. government should go all in or get out of mortgage finance.

Current U.S. mortgage lending involvement

The way the current mortgage market in the United States is structured, the government has a partial hand in most mortgages. Fannie Mae and Freddie Mac own almost 90 percent of the secondary loan market. These two companies are in government conservatorship and have long been government-backed. Combined, this means that the federal government has a significant hand in the country’s mortgage market.

International Monetary Fund’s view of mortgages

Upon reviewing the U.S. Mortgage market, the International Monetary Fund suggested multiple changes. First, the IMF suggests that the U.S. government either put the mortgages it owns fully on its balance sheets or gets out of the mortgage market entirely. Since the Great Depression, the U.S. government has instituted programs intended to encourage home ownership. Tax deductions for mortgage interest, government-supported mortgages and low interest rates all contribute to making recessions worse. The IMF study also highlighted that high loan-to-value ratios and debt-to-income ratios cause overly complex mortgage products that are unnecessarily risky.

Options for housing

In short, the International Monetary Fund believes that the United States government’s policy of encouraging home ownership is misplaced. In many European countries, mortgages are often variable rate and require higher down payments. These factors, combined, keep home ownership rates down and help limit the damage of heavy recessions. In the United States, the IMF believes that mortgage products should be simplified and well-built and affordable rental housing should be encouraged above home ownership.

Sources

Business Week
RTE News

The battle to return to a gold and silver standard for U.S. currency has waned, but it hasn't died. (Photo Credit: Public Domain/U.S. Mint/Wikipedia)

Producing paper dollar bills is a more expensive proposition than ever, reports AOL News. That’s why Senators Richard Shelby, Robert Casey and Tom Harkin are continuing a battle that in one form or another has been fought since U.S. President Andrew Jackson held office in the 1830s. On behalf of the U.S. Government Accountability Office (GAO), the Senators are calling on Congress, the Federal Reserve and the Treasury to pull $1 notes from circulation and replace them outright with $1 coins.

Paper dollars to coins could save $5.5 billion over 30 years

Long-term projections regarding the impact of replacing paper $1 bills with $1 coins indicate that the U.S. government could save $5.5 billion over 30 years by switching. Considering the difference in average lifespan between modern bills and coins – 3.3 years versus 30 years – less currency would need to be produced. GAO studies also indicate that coins are cheaper to produce than paper bills.

Over 30 years, taxpayers would save $184 million annually

The GAO has lobbied for the changeover for 20 years, but success has been moderate at best. The Presidential $1 Coin Act of 2005 was intended to serve as a major transition in monetary policy, and Federal Reserve banks carry an inventory of 1.1 billion $1 coins as of Dec. 2010, writes the GAO in a related report.

Only 4.2 million $1 coins are in public circulation, including the discontinued Eisenhower, Susan B. Anthony and Sacagawea $1 coins and the current Presidential and Native American series. American Numismatic Society Executive Director Ute Wartenberg attributes this relative dearth to the populace’s conservative view toward the use of coinage. Coins are heavier than bills, and many wallets are not sufficient to tote them.

Cut off the greenbacks, cut the cotton

The U.S. must completely withdraw of $1 bills from circulation, so that the public doesn’t have the option, suggests Wartenberg. British and Canadian governments went a similar route in the 1980s when lowest-denomination notes were replaced, and many other nations followed suit or had made the change before. Yet Southern U.S. legislators have resisted plans of replacing paper dollar bills with dollar coins for fear of weakening the cotton industry, which supplies the U.S. Bureau of Engraving and Printing.

The battle of specie versus greenbacks

The fight to return to “hard money” has precedence in U.S. political history, from the time of President Thomas Jefferson to the Lincoln administration and beyond. Jefferson considered paper dollars to be “the instrument of the swindler and the cheat,” according to Robert Remini’s account in “Andrew Jackson and the Bank War.” The underlying reason for Jackson’s vehement distaste was that paper money, while legal tender in the government’s eyes, could be converted into precious metal – gold, in particular.

Once Lincoln attained the presidency (1861-1865), greenbacks became official thanks to the Legal Tender Act of 1862. A system of nationally chartered banks that report to a main central bank arose, and the U.S. was quickly flooded with paper money.

Sources

“Andrew Jackson and the Bank War”

AOL News

“Lincoln, Gold and Greenbacks”

“Reassessing the Presidency: The Rise of the Executive State and Decline of Freedom”

U.S. Government Accountability Office

Fixing volatility in the International Monetary Fund

The Irish parliament must vote on the austerity measures proposed by the government, led by Prime Minister Brian Cowen, left. Image from Wikimedia Commons.

The Irish vote on the country’s austerity measures is being closely watched. The Republic of Ireland is receiving a bundle of bailout loans, similar to Greece, and austerity measures have to be implemented. The aim is to free up several billion euros.

Irish vote on cuts of billions of euros

The Irish budget vote is being closely watched, as the parliament of Ireland has taken on the grim task of voting on further austerity measures, according to the New York Times. Irish austerity measures have to be introduced for the Republic of Ireland to receive a direly needed financial aid package, though that isn’t an official condition. If the budget cuts are sufficient to meet standards, Ireland stands to receive an aid package of about 85 billion euros. The goal of the austerity measures is to cut 6 billion euros from next year’s budget, part of an overall goal of cutting 15 billion euros over 2011 to 2013. Having to cut government spending is not popular with the voting public, but doing nothing is often worse.

Successive years of austerity cuts

The ongoing Irish vote is the third year of austerity measures being introduced in the Emerald Isle, according to The Telegraph. To top it all off, Prime Minister Brian Cowen will have to call for a new election as soon as the budget is passed. Of the 85 billion euros to be cut, 67.5 billion is from the European Union and the International Monetary Fund. The Irish government has withdrawn 17.5 billion euros from its own pension fund, similar to the Social Security trust fund for the United States. Most of the cuts will be slashing the pay of public sector workers. The Prime Minister will be taking a pay cut of about 14,000 euros per year.

Austerity measures unpopular

Austerity measures rarely make a government popular with the people, and the huge bailouts the Irish government made, similar to those in the United States and elsewhere, created a lot of public resentment toward the government.

Sources

New York Times

The Telegraph

The IMF headquarters building is in Washington D.C. Image: Flickr/pingnews

The International Monetary Fund has announced that it will try to boost its lending power to $1 trillion this November. The Group of 20 summit in South Korea will discuss this request. By increasing its ability to give emergency cash advance money to countries in trouble, the IMF hopes to improve their response to financial crisis.

Lending capacity of the IMF

The IMF currently has a lending capacity of about $750 billion. This money is most often lent in the form of advance loans to countries that are struggling. The money is usually used to help stabilize shaky financial systems, purchase infrastructure and undertake reforms. IMF loans are usually given to third and second world countries. Though they are technically able to take the money, many first-world countries are not taking the fast cash loan in order to avoid appearance of instability.

Increasing ability to lend

The IMF is governed and funded by a large consortium of countries. Many of these countries will be in attendance at the G-20 summit in South Korea in November. If the IMF is granted an additional $250 billion in lending power, these countries will be on the hook. While the IMF does not have a bank account with $750 billion sitting in it, the countries that make up the IMF are responsible for providing the money.

Limitations on IMF money

When the IMF provides a cash loan, it comes with several strings attached. Countries must undertake a number of reforms if they do take a loan from the IMF. The reforms are the basis of much controversy. Some claim that the fast loans given by the IMF end up doing more harm than good. If the IMF does increase lending capacity to $1 trillion, it will be able to provide more loans. The jury is out, though, on if this is a good thing for the world economy.

A report from the International Monetary Fund said the U.S. government deficit will bring serious economic consequences unless spending is cut more and taxes are raised higher. Flickr photo.

The United States is in no position to lecture other countries about their financial condition, especially after an evaluation from the International Monetary Fund (IMF). Most of the report tells anyone following the news what they already know: there’s an economic recovery in progress, but high unemployment is dragging down consumer spending. However, the IMF report also disagrees with the Obama administration’s outlook on the economy, and recommends some harsh deficit reduction measures to return the U.S. to financial health. Most of them will most likely never fly, politically.

IMF report praises stimulus package, pans deficit reduction efforts

Until now, the United States and China refused to let the IMF go beyond the general economic survey performed annually on all its members. But the U.S. has allowed the IMF to get more specific under the fund’s Financial Sector Assessment Program. The Associated Press reports that the IMF said the U.S. economic recovery “has proved stronger than we had earlier expected” and gave credit to the stimulus package, calling it a “powerful and effective policy response” on the part of the government. But was less positive about the outlook for the U.S. government deficit going forward.

Cut Social Security, tax gas, end home mortgage interest deduction

Concerning the U.S. government deficit, the IMF said that in the aftermath of the stimulus package, the Obama administration will have to raise taxes to get the U.S. deficit down to a manageable level. The Washington Post reports that IMF recommendations included cutting Social Security, ending the deduction for interest on home mortgages and taxing gasoline.

IMF says U.S. is too optimistic about deficit

The IMF report also said the Obama administration was overestimating U.S. economic growth and needed to trim the U.S. government deficit by hundreds of billions of additional dollars if its announced budget targets are to be met. Automated trader.com reports that those budget targets include halving the deficit by 2013 and stabilizing public debt at 70 percent of gross domestic product by 2015. However, the IMF projects that current policies will push the debt level up to 95 percent of GDP by 2020 and over 135 percent by 2030.

Obama administration disagrees with IMF report

The IMF assessment of the U.S. government deficit outlook is disputed by the Obama administration. In the Associated press article, a U.S. official said that the IMF had used forecasts for economic growth and interest rates that were too pessimistic compared to the consensus of most private forecasters, with the impact of inflating the U.S. government’s deficit problem over the next decade.

IMF deficit reduction recommendations political suicide

The IMF’s recommendations for the U.S. resemble those it made for European countries. The Post article said those recommendations are politically impossible. For example, allowing homeowners to deduct their mortgage interest payments from their income taxes has become an inalienable right to Americans. The IMF panned the deduction, saying it was part of a homeownership system that was “costly, inefficient and complex,” did not increase ownership rates compared with similar countries without the same tax incentives, and mostly benefited “the better-off.”

An American who wants to know where the bailout money is going.

Ben Bernanke’s testimony before Congress continued today, punctuated by a very entertaining exchange between Bernanke and Rep. Ron Paul (R-Texas).  Check out video footage below, then peruse the suggested evidentiary sources offered by commenters here. Decide for yourself whether Greece should be allowed to borrow money from the Federal Reserve.

For the record, Bernanke denies all of Mr. Paul’s allegation, labeling them “bizarre.”

Is it so bizarre, though?

Is the Federal Reserve going to perform a Greece bailout? Have they done the same with foreign nations in the past? As to Greece, it remains to be seen, despite what Ben Bernanke testimony indicates. The writing may already be on the wall. Here’s the exchange between Ben Bernanke and Ron Paul:

Written in “Texas Straight Talk”

In a recent weekly column at House.gov, Ron Paul wrote about Greece’s economic crisis (See: http://www.house.gov/htbin/blog_inc?BLOG,tx14_paul,blog,999,All,Item%20not%20found,ID=100216_3645,TEMPLATE=postingdetail.shtml). The government is defaulting on their public debt, as their treasury cupboards are nearly bare. The debt level, claims Paul, is “about 120 percent of their gross domestic product,” so the public sector soaks up “what amounts to 40 percent of GDP.” This has European investors running scared, needless to say. However, the European Central Bank seems calm.

Why is that? Outsiders aren’t sure. Is it possible that the Federal Reserve is going to perform a Greece bailout? We don’t know, says Paul, partly because the Federal Reserve’s distribution of bailout dollars hasn’t been as transparent as promised, but also because if they were aiding a foreign central bank, by law they don’t have to disclose that fact and it is exempt from audit. Considering that Greece isn’t the only European country in trouble – and that many of those countries in trouble have some sort of tie to Goldman Sachs – we wonder whether these countries will also be deemed “too big to fail” by the U.S. banking cartel. And who will be on the hook if such is the case? It would be American taxpayers, at a time when the real unemployment rate is still staggeringly high.

Creating fiat currency and shoveling it around with impunity

Our government buys into the idea of fiat currency. It’s creating money for whatever purpose they like; it’s a check the bank doesn’t have the actual capital to cash. America’s government and the Federal Reserve are obviously happy to keep such a system in place, with no thought of the debt burden it will place of future generations.  Ron Paul suggests that Americans deserve to know if they are “going to be left holding the bag” as the Federal Reserve throws around money they don’t actually have – it’s imaginary!

Evidence log for your consideration

1)      Federal Reserve money supported Saddam Hussein and the Iraq military

2)      Federal Reserve money was involved in Watergate

3)      Here’s the Senate Watergate Report for more on Watergate. Also here.

Bernanke testimony does not inspire confidence

This is exactly why Ron Paul would like laws to be changed so that we can audit the Federal Reserve. Fast cash from our pockets to other nations cannot continue when our nation bears this burden of its own. We need to know what’s happening. That’s the kind of transparency American taxpayers deserve.

(Photo Credit: http://www.flickr.com/photos/twistedlens/ / CC BY 2.0)

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Consumers look to personal loans to help with finances during this recession. Will gains made at the G-8 conference trickle down and help their finances? (Photo: wikipedia.org)

Consumers are still looking to personal loans for financial aid as the world recovers from the recession.  Later this week, the G-8 nations are gathering to discuss the economic recovery.  Despite anticipating change, they warn that it is too soon to announce the end of the global crisis as many countries are still stabilizing from the recession. The full impact of the economic crisis has yet to be felt by some economies and the G-8 nations want to give the world time before they start generating short-term solutions.

“Operating Well Below Potential”

US Treasury Secretary Timothy Geithner stated, “These early signs of improvement are encouraging, but the global economy is still operating well below potential and we still face acute challenges… Economic and financial recovery will be stronger and more sustainable if we make clear today how we get back to fiscal sustainability when the storm has passed.”  Additional numbers are suggesting that there will be many economic challenges to overcome before the world returns to any state of normalcy.  The World Bank is projecting the global economy to shrink by three percent this year, which is much worse than their previous projections of only 1.75 percent.

In addition, a two-day summit that included the US, Japan, Germany, France, Britain, Italy, Canada, Russia and the European Union concluded that the “situation remains uncertain and significant risks remain to economic and financial stability.” They also confirmed their decision to provide additional stimulus as needed upon reassessment of the global economy.

Help Us, International Monetary Fund

The summit leaders asked the International Monetary Fund to help the assessment process, giving viable exit strategies from world-wide stimulus plans. They believe that tax cuts and decreased interest rates are keys to encouraging “sustainable recovery over the long term.” Though this sounds like a good solution, some countries aren’t as supportive. In particular, Germany has been an opponent of continued usage of tax cuts and lowered interest rates, warning that it could cause higher inflation and increase the deficits even more.

Despite opposition, there are some accepted precepts of the G-8 meetings.  They confirm that to get the global economy back on track new rules must be created. These rules need to focus on transparency in the global marketplace and finance. This transparency is crucial to producing trust throughout the world population.

What This Means for Americans

In the short-term, this means that more tax cuts may be on the way for Americans. In addition, lower interest rates will be available.  This is all good news to a nation that has relied heavily on personal loans, credit cards and business loans to finance lifestyles as the recession hit hard.  One supporter of the G-8 summits is Dallas, Texas resident Crone Adkisson. Adkisson stated, “I’m delighted that the entire world is gathering to find some answers to our problems. I know the recession isn’t completely over, but I want to be prepared financially to handle things when it is.”

The World’s Plan

The U.S. is asking foreign banking regulators to create methods of quickly resolving failures of cross-border financial firms. They also want to address poverty in third-world countries and how to best handle climate changes. With a full agenda, the G-8 leaders agree that the meetings probably “won’t find agreements, but we will need to have political compromises.”

U.S. Consumers’ Future

Polls are showing that U.S. citizens are encouraged by the meetings, hoping that the full brunt of the recession will soon be revealed.   Many families have relied on personal loans, family aid and government grants to help them through the economy for far too long.  They want to be met with an economy that is reinvigorated and is providing adequate jobs, moderate interest rates and affordable mortgages once again.

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