The latest decimation of die hard short positions by the stock market took place on Friday, and the lower University of Michigan Consumer Sentiment reading of 57.5, still at one of the lowest points in 30 years, propelled shares higher. Certainly retail sales delivered some hope, but the market started to pull back as the dollar appreciated. Puzzling indeed, from an economics stand point, but this is a currency and politically driven stock market, and that’s where the old logic has a hard time fitting in.
But the other significant news pertained to the IMF’s proposal to expand its coffers, and increase the cash stockpile which is much needed to keep the destitute European members alive. The G20 said so, according to Reuters.
The International Monetary Fund may need a capital injection of about $350 billion to give it more firepower to fight economic crises, an emerging market G20 source said on Friday.
The chart below was originally published on November 2010 to put the debt issue in perspective, and to show how the IMF's quota system is meaningless because members are "allowed" to borrow up to 3 times their contribution quotas. I've stopped counting because it no longer serves a purpose, although the chart still illustrates the IMF's call for added contributions, and that last bar is longer by now.
Well, between the European Financial Stability Fund and all the other funds yet to be named, the money pit keeps getting larger. And to complicate the proposed additional “firepower,” the U.S. Treasury announced that the American red ink continues to paint the town… well, red.
To get a good idea of how the U.S. Federal Budget balance is doing, one must compare the current month to the month one year ago. The October report showed a deficit of $64.6 billion, while in October 2010 the number was negative $34.5 billion. Thus far, our debt is growing at almost twice the speed without a resolution in sight.
Thus, it’s not surprising that the U.S. rejected the IMF proposal to double the fund, as reported by Reuters. But it’s not just the Americans objecting, and please note the other countries in the excerpt below.
U.S. Treasury Secretary Timothy Geithner and his Canadian and Australian counterparts poured cold water on the idea. The IMF's dominant shareholders, including the United States, Japan, Germany and China, are content that the fund's $380 billion worth of resources is enough.
There’s plenty of talk about potential rescuers, especially those with large currency reserves, but when it comes to actually dispensing the dough, everyone’s wallet is well hidden. Yet, the pressure is on, and the G20 "demanded" a solution in a week, according to Reuters, although the penalties for failing to do so were unclear.
In unusually direct language, finance ministers and central bankers of the Group of 20 major economies said they expected an October 23 European Union summit to "decisively address the current challenges through a comprehensive plan".
And when was the last time that so many countries were talking about so much money in one room at the same time? Food for thought! Lastly and as a sidebar, I share the IMF's own unemployment projections up to 2016, and the chart was generated through Google's (GOOG) public data website.
[Click to enlarge]
I certainly like what I see, although I'm having an extremely difficult time believing that the future looks so bright, and that "Newly Industrialized Asian economies" are virtually unaffected.