Casey on DSK, the IMF, and the World Bank
by Louis James, Editor, International
on Insider Trading
Howdy Doug; had a good week? We can talk, but I should warn you
that my Internet connection has been very flaky today.
Are you still in Bamako?
No, I’m back from Mali. It’s my good old all-American high-speed
Internet that keeps disappearing. Anyway, what’s on your mind today?
Well, one thing is my upcoming trip to Tel Aviv, Cairo, Beirut,
and Dubai from June 9-22. If we have any readers in those cities
who’d like to get together, it would be great to hear from them.
I’m sorry I couldn’t join you in West Africa.
We both travel
almost as much as officials from the IMF. In light of that, I guess
we should follow up on the Dominique Strauss-Kahn (DSK) scandal.
It’s still vaguely on people’s minds – not quite yet flushed down
the memory hole and replaced with something else torn from the pages
of the National Enquirer. Maybe the Greek central banker
who’s just been arrested for the same thing will serve…
You don’t sound very enthusiastic.
Well, following the depredations of IMF bureaucrats, whether in
the bedroom or the boardroom, is depressing. Only a sociopath could
become head of the IMF anyway, so why should anyone be surprised
by such a man’s sociopathic behavior?
[Laughs] I should have known.
We could talk about the IMF, though, and its ugly stepsister, the
World Bank. There’s a pair of lofty institutions that need a little
deflating. Abolition, actually, but let’s start with lancing the
boils. Do you know much about the IMF?
Not really. I’ve never paid much attention to it. It’s just another
of these transnational bureaucracies stuck in the quicksand of money
thrown at problems money can’t solve. On the fringes of my awareness,
I’ve noticed that it positions itself as being a benevolent group
of bright economists who can help benighted “developing” nations
solve their economic problems. But it’s not really sound economics
they teach, it’s First-World bureaucracy – rules and regulations
– they spread to Third-World countries already tied up in red tape,
enticing them with cash bribes.
[Chuckles] Well said. That’s pretty much the way I see it. It was
set up in the waning days of WWII, to impose order on currencies,
trade policies, debt structures, and the general financial and economic
affairs of poor and troubled countries. That’s its official mission.
In reality, it’s a vehicle made necessary only by the fact that
all of its members have fiat currencies.
Okay, we can debunk the IMF. It certainly deserves it. But is there
really nothing instructive about the demise of DSK? He hasn’t been
found guilty of anything yet, but it looks like he’s toast, regardless
of the outcome of his trial.
I don’t know about instructive, but I certainly found the arrest
of DSK gratifying. I don’t want to say that I experience schadenfreude
every time I see a high government official ensnared in his
own wrongdoings… Let’s just say that my sense of justice triumphant
gives me a good laugh at such times.
Is it justice we’re seeing carried out?
You can rarely be sure about these things. If he did violate that
poor woman, then it might be. But the IMF is such a powerful and
corrupt organization, it’s just as plausible to me that the whole
thing is a setup, perhaps a coup d’état within the IMF, hidden right
out in the open. Perhaps some group wanted to get rid of him and
set it all up for that purpose. One conspiracy theory being floated
– apparently by the Russian Federal Security Service – is that DSK
had evidence that most of the gold in Ft. Knox was gone and was
about to spill the beans. If that were the case, I would think that
an unfortunate fatal accident would have been a much better guarantee
of whether he violated that chambermaid or not, he impresses me
as being the type of criminal personality who’s capable of absolutely
anything. But, that said, people should be presumed innocent until
proven guilty – even people like DSK, or, for that matter, bin
Laden. Whether or not he’s guilty of this crime, he’s absolutely
responsible for an immense amount of damage to the world economy.
So, good riddance.
I’ve long thought things might be better if the presumption of innocence
were reversed for public officials. Anyone who presumes to rule,
anyone who takes up the power of legalized theft and homicide –
taxation and war – should be purer than the driven snow. They should
be held to the highest possible ethical standards. And if there’s
ever any reason to believe they might be abusing their power, they
should be stripped of it immediately until they can show they can
But that would take most of the fun and profit out of being a high
government official. Therefore it will never happen.
Of course. And a person of the highest ethical standards would never
participate in the inherently coercive mechanisms of the nation-state
as we know it today. Anyway, I guess it’s a good thing this goon
seems likely to be locked up for a long time.
I sympathize with the emotion, although his incarceration won’t
change anything. Congressmen, mayors, and all sorts of government
officials are often prosecuted and jailed. But it’s just window
dressing, there just to give the state an appearance of propriety.
The organization itself is corrupt and destructive, and inevitably
draws corrupt and destructive people to itself. It has to be pulled
out by its roots.
is just another typical, arrogant, power-brokering scumbag. He’ll
be replaced by another scumbag who’s just as bad or maybe even worse.
They’re like sharks' teeth; they’ll keep growing, and being replaced,
until you kill the shark. So, again, we should talk about the IMF
and the World Bank themselves, not whatever clowns happen to inhabit
their penthouse offices at any given time.
Okay, lay the case out for us.
Have you noticed that while everyone’s heard about these organizations,
no one really seems to know what they do? Even you, generally a
pretty well-informed person, don’t have a precise idea of what they
do on a day-to-day basis.
You’ve got me there. What do they do?
They are basically creatures of the United Nations. They’re part
of the UN and are the equivalent, in the financial and economics
world, of the WHO (World Health Organization), the ILO (International
Labor Organization), or the WTO (World Trade Organization), and
about a dozen other UN agencies, each in its own bailiwick. But
they’re much more powerful, because they have large endowments.
Member countries contribute money – from the U.S. having contributed
the most on down to little nothing-nowhere countries that barely
have two cents to rub together. The countries have voting rights
in proportion to their contributions, so these organizations are
pretty much extensions of U.S. foreign policy, and that of other
developed countries. Of course, that’s going to change as the Big
Boys declare bankruptcy in the years to come.
The UN itself
is nothing but a posh club for lucky and well-connected government
bureaucrats who get to hang out, palaver, and play big shot all
day on their expense accounts. If anything productive gets done,
it’s at 10, or 100, times the cost it would be in the free market.
The IMF’s web
site says it’s “an organization of 187 countries, working to foster
global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable economic
growth, and reduce poverty around the world.” In practice, that
means the money pooled by the IMF is used to assist member countries
to manage their economies and their currencies. It’s a sort of cross
between an investment bank and a consulting firm.
That doesn’t sound too evil, on its face.
No, but it’s an economic consulting firm run by a bunch of communists,
socialists, and fascists. Only an idiot would ever welcome their
advice. The advice they give seems to be useful at times, but only
by accident, such as when they tell governments to cut deficit spending.
Their economists are all very conventional political hacks, anxious
to try out their nostrums on desperate little backwaters. In the
‘50s, ‘60s, and ‘70s that amounted to having them set up huge bureaucracies
to “manage” their economies.
Since the ‘80s,
the privatization of state enterprises has been fashionable – and
that’s a good thing. But the reason the IMF liked it had little
to do with sound economic thinking, so much as the realization it
would result in more tax revenue for the state. Plus, the enterprises
were always given to well-connected friends, which made it easy
for kleptocrats to steal not just millions, but billions.
They also spend
a lot of time telling governments how to “manage” their intrinsically
worthless paper currencies – raise interest rates, or cut interest
rates, or implement other monetarist
Such as have worked so well for Ben Bernanke?
As well as Gideon Gono, Chairman of the Zimbabwe central bank. Again,
to be clear, sometimes their advice makes business sense. It almost
has to from time to time, just because of the law of large numbers.
But improving the economy isn’t the goal, so much as propping up
and strengthening the existing government and the general status
It’s as if
they never looked at what happened with Hong Kong since WWII. The
place was a barren rock, with no capital assets except a good harbor,
and was populated by poor, ignorant Chinese refugees. Hong Kong
now has a per-capita wealth about that of the U.S. – and it achieved
that with zero advice or help from the IMF. It did it exclusively
through having an almost unregulated free market and very low taxes.
Why do you suppose the IMF was set up?
Well, let’s think about it. A bunch of governments got together
to do what? Decrease their power over the economies they parasitize?
Not hardly. It’s about using economic policy to keep the gravy train
going, which is all most politicians anywhere care about. The primary
directive – the imperative – for all individuals and organizations
is to grow and become more powerful to the greatest degree possible.
And these people all believe in the state. The IMF was set up mainly
to ensure the success of fiat currencies – which were the only kind
in existence after WWII. It’s been successful in that regard, since
people are still using intrinsically worthless scraps of government
paper to do business and represent their wealth. But the whole system
is on its last legs. It’s going to collapse, along with the IMF.
also says the IMF “promotes international monetary cooperation and
exchange rate stability, facilitates the balanced growth of international
trade, and provides resources to help members in balance of payments
difficulties or to assist with poverty reduction.”
noble-sounding and very politically correct inclusion of “poverty
reduction.” Direct poverty reduction schemes are socialist plans
of forced wealth redistribution – the opposite of allowing economies
to grow strong and healthy so that their rising tides lift all ships,
even the poorest ones.
But the gobbledygook
about exchange rate stability and balance of payment difficulties
would be completely superfluous if countries were still using gold
for money. Exchange rates would simply be a function of how much
or little any country debased its currency in terms of gold, and
balance of payments would be settled in gold, as they were until
a currency was a government-issued stand-in for a certain amount
of gold. A dollar was just a word for one-twentieth of an ounce
of gold. A franc, a deutschmark, a lira, a peso – all were just
names for a certain amount of gold. That’s what they were: government
warehouse receipts redeemable for certain amounts of precious metals.
People have forgotten that. And for several generations now, people
have been treating receipts for stored goods as if they were, themselves,
the goods. This is a prime example of Wile E. Coyote economics,
before people realize the system has run off the edge of a cliff.
The result will be a worldwide
All a country
has to do to maintain stable exchange rates, and a workable balance
of trade, is to not debase its currency. You don’t need a bunch
of bureaucrats with cockamamie monetary schemes. That’s one reason
why gold is such a good money. It imposes fiscal discipline on countries.
Repudiation of gold was just a desperate move by broke governments
to try to escape fiscal discipline. It was an encouragement of binge
If the global
financial system were a real free market, currencies would not be
forced into circulation by government fiat, we’d be back on gold
in no time, and the IMF’s whole raison d’ętre would disappear.
I can hear it coming: the IMF serves no useful purpose?
None whatsoever. We don’t need it – never did. It’s a destructive
waste of money that distracts people from what they really need
to do, which is to get back to basics: use sound money; produce
more than they consume; save the difference; and invest it.
Just to play devil’s advocate, we do have Robert Mugabes and similar
kleptocrats running amok in the world. If the IMF bribes these crooks
into being less destructive to their economies, couldn’t that be
viewed as a net positive?
Sure. It’d be nice if there were some sort of superhero Justice
League that went about forcing dictators to steal less and let the
people be more free and prosperous–
[Chuckles] But in the real world, there is no Batman or Superman
who always does the right thing. And that’s certainly not who populates
the IMF’s boardroom. The bureaucrats of the IMF have the psychology
of postal employees, only they’ve spent years at school learning
incorrect and useless economic notions. And they’re arrogant enough
to believe the world should do as they dictate.
Look, if some
idiot running a country gets the place into a real economic jam
and appeals to the IMF for help, what does the IMF do? The answer
varies, depending on who’s involved at any given time. Sometimes
they’ll tell the country to cut taxes, sometimes to raise taxes.
They often tell countries to devalue their currency, which is only
necessary when the government controls the exchange rate and has
been denying reality. Of course, if they tell countries to devalue
currencies without telling them to adopt a sound money policy, all
it does is lop off a few zeros until the next time the government
adds more via the printing press. Real, sound money isn’t even in
tell countries to default on debts, which is usually the right thing
to do, because it makes it impossible for spendthrift governments
to borrow more money for a time – and default punishes the fools
who lent the spendthrift government money in the first place. Default
is bad, but it’s really nothing more than an honest admission of
failure. But default isn’t in the IMF’s vocabulary either, and admitting
the failure of the whole system isn’t even in their realm of imagination.
from the IMF is like getting sex advice from a nun.
[Chuckles] Painting lessons from a blind man.
Financial advice from Bernie Madoff. Or, perhaps, from one of those
8 Ball" toys…
[Laughs] A Magic 8 Ball full of random messages written by a bunch
of statists and collectivists who don’t know the first thing about
healthy economies and strive only to maintain the status quo – which
is, in fact, unsustainable.
Worse, to implement
this bad advice, the IMF gives the governments money that has to
be repaid by the poor working stiffs, through their taxes.
So, yes, the
IMF serves no useful purpose at all. It generally achieves the opposite
of its intended goals because no one running it has the slightest
idea what is really necessary. The institution is run by pretentious
socialist college professors. And worse.
about “worse,” that would be the World Bank. It works hand in glove
with the IMF, but its direct mission is to reduce poverty in the
world, as opposed to facilitate the acceptance of fiat currencies.
How hiring its 10,000 highly paid bureaucrats – very few of whom
have any entrepreneurial experience – to flit around the world,
flying first class and staying at posh hotels, will help reduce
poverty is beyond me.
Well, we’ve already said that fighting
poverty directly doesn’t work. It’s not just that government
handouts give a man a fish instead of teaching him to fish, but
that even when they try to teach fishing, they end up doing it in
the desert. That’s because wealth is created by business, and a
business decision that has any other basis than business (maximizing
profit) is a bad business decision. And that’s what we see – busybodies
who imagine they are businesspeople making bad business decisions.
Just so. The World Bank is famous for ridiculous projects, like
building giant steel mills in the middle of nowhere in Africa, thousands
of miles from any ports or coal or other necessary items, because
their experts decide that Africa needs more steel. Those experts
have no business sense, and even if some have technical knowledge,
they’re still bureaucrats. And it’s not their money. Since profitability
isn’t the driver, they have no way of gauging success – so they
almost always fail. Their approach is similar to that of the old
These IMF and
World Bank types are basically the same kind of people who go to
work for the DMV, but they get to flounce around the world in $1,000
[Chuckles] Well, didn’t they provide the money for Duvalier Ville,
you saw in the middle of nowhere in Haiti?
That’s right, they did! As far as I’ve seen, everything they’ve
touched has turned to garbage. I’m sure that as soon as the locals
know that IMF money is going into a project, they start thinking
about how they can inflate costs, pad invoices, fix contracts for
friends and relatives – everything and anything to divert money
into their own pockets. It’s just like any other government contract.
From the very
beginning, the World Bank has financed all manner of uneconomic
projects in Third World countries – usually pie-in-the-sky, totally
impractical projects in places where only a fool would predict success.
They lend the local government money for the project. Most of the
money vanishes in waste, graft, inflated contracts, and high living.
Then the government has to extract taxes from its impoverished subjects
to pay the World Bank loans. It’s actually criminal, the waste and
destruction of capital in places that can least afford it. But it
suits large multinational corporations, who benefit mightily from
pretty much the way John Perkins describes it in his book Confessions
of an Economic Hit Man, except his solutions as to how
to solve the problem are just as statist/collectivist as the problems
he quite accurately describes.
Both the IMF
and the World Bank should be immediately and summarily abolished.
Any investments that are made, anywhere, should be made by entrepreneurs,
who use their own capital. That’s the best insurance one can get
that the capital will grow. Everyone benefits, even if only indirectly,
as the amount of wealth in the world grows. And everyone loses –
especially the poor people – when capital is destroyed. And capital
destruction is what the World Bank is all about – exactly the opposite
of their self-serving propaganda.
from the waste and corruption, the U.S. is certainly one country
that has no business in funding either the IMF or the World Bank,
in that the government is playing with money it’s borrowing from
I’d vote for their abolition – but it’s not going to happen anytime
soon. We’re stuck with them for the foreseeable future. Are there
As long as these organizations exist, they will continue creating
distortions speculators can take advantage of. You could, if you
were fast enough, travel the world and invest in businesses that
would benefit from World Bank investments in those locations.
Get in the way of a windfall…
Exactly. If they are going to throw money out of helicopters, you
might as well stand under them with a big net.
Okay, but most people are not that footloose nor well funded. Is
there a way for more typical investors to play this?
Sure: They can set up accounts to invest in companies listed in
the local stock exchanges of places where the IMF and World Bank
plan to waste a lot of money. Then research and buy shares in companies
that have big nets waiting for the helicopters full of money to
Just another straw in the wind. The continued existence of organizations
like these show just how irredeemable the current world economic
order is. And that brings us back to things we’ve said many times
in these conversations: rig for stormy weather.
consolidate, create, speculate – and diversify your political
Roger that. Well, this wasn’t the conversation I was thinking we’d
have, but it was interesting.
I hope so. We’ll talk again soon.
Looking forward to it.
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