Trader Talk

More Vague Rumors—but IMF Roadshow Is Real

It's a Friday...back to the vague rumors to account for the euro drop/dollar rally:

1) Israel bombing Iran, story from a sole Australian source

Bob Windrem of NBC News says: "U.S. officials say they have no information regarding any such explosion at a military facility. Moreover, the same U.S. officials say they have no confirmation of an explosion reported EARLIER this week at a facility in Isfahan, which was portrayed by the Israeli media as an explosion at a critical nuclear facility."

2) Spain getting downgraded, which seems to be nothing but a

trading desk rumor


3) Republicans in Congress objecting to any further U.S. help for Europe

What does all this amount to? A LOT OF NOISE. It's just as likely there was profit taking in euro positions as anything else.

More relevant: the IMF roadshow is on. Christine LaGarde, head of the IMF, has been touring Latin America drumming up support for additional IMF funding.

She was in Mexico a day or so ago. She's in Brazil today. The Brazilian Finance Minister said he was willing to make additional contributions.

Lagarde herself said today that the ECB may also need to play a more engaged role.

Will any of this matter? Can developing countries contribute enough to make a difference? They might, if a "grand bargain" can be reached: closer fiscal oversight of national budgets, in exchange for more ECB/IMF involvement.

That is where the game gets difficult: what happens if a number of countries — who might have to put such an agreement to a referendum — don't agree to oversight? That's why the treaty changes proposed by Merkel and Sarkozy next week may contain an opt-out clause for those who don't want to go along. You're in or you're out.

And the U.S.? My bet is that there will certainly not be additional money forthcoming, but the IMF already has several billion euros of money not committed. Republicans may indeed try to block any of that spending — the U.S. is the main contributor to the IMF, but remember many conservatives are against the very existance of the IMF in general. Obama will certainly veto any such efforts.

For those who argue that you cannot deal with too much debt by making more loans, none of this will matter. They will insist that the day of reckoning has been merely kicked down the road.

They may be right, but with the Huns at the gates, the Europeans are certainly not going to go down without firing some very big cannons that have not yet been utilized.

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