Sunday, April 21, 2013

Pulling the Plug

The International Monetary Fund (IMF) 2013 Spring Meeting wrapped up this weekend with some staggering insights into just how devoid of creativity the world's economic and defacto thought leadership has remained.  

Financial Committee Chair, Singapore's Finance Minister Tharman Shanmugaratnam, summarized the 'growth and jobs' agenda with the following statement:  "There was also a strong and common recognition that achieving growth and jobs cannot rest on one policy alone. There is no single bullet that will get us to normal growth and some normality with regard to jobs."  IMF Managing Director Christine Lagarde clarified the Chair's statement with the hard-hitting: "Every policymaker is keen to develop jobs and to respond to the demands of the young population in particular;" adding that, "Anything that works to create jobs is on the table."

In the coming months, the IMF's focus will look to "Advanced Economies" to provide "accommodative monetary policy" to strengthen the financial sector - particularly bank balance sheets.  "Emerging Markets and Developing Countries" will need to be "recalibrated and build buffers and guard against financial vulnerability."  "Low Income Countries" will need to manage their "robust growth".  Hold on one second!  The world's elite financial minds just wanted to make sure that the "Low Income Countries" manage "robust growth." 

Let's take a moment and reflect on a few of the assumptions underpinning the august IMF.  From 1944 until the U.S. gold default that collapsed the fixed exchange rate manipulation authorized in the Bretton Woods Agreements (carefully branded to avoid any designation of the dollar as unstable or the U.S. as a credit risk), the 1970's saw IMF intervention on two primary fronts.  On the first, the maintenance of the illusion of the dollar's critical role in denominating international trade - a concession of a defeated Continental Europe and Imperial Japan.  Second, the preservation of the one exchange that the dollar ruled:  the trade of oil.  Some of us can recall that neither of these worked too well:  massive international 'developing debt' collapses attended by despotic puppet government abuses rife with human rights carnage set up and sponsored by the "Advanced" lot.  Who can forget the heady days of oil crises checkering the 1970s? 

So here's a question.  Precisely what period of time do any of the Finance Ministers in 188 member countries point to as the standard for "recovery", "resilience" or economic "health"?  If the IMF was the General Manager of a Football Club, they'd be hauled off the pitch and fired.  If the owners (aka the "Advanced Countries") of the IMF were owners of a Football Club, the franchise would be sold.  Ironically, the folks who love football and would love to buy the franchise are the very economies that are those pesky "robust growth" ones! 

As the Chairman of a company that is in a growth transition, I've been fortunate to meet with countless professionals across the capital markets.  With few exceptions, I am perplexed to see the cognitive sclerosis evidenced by individuals who were credentialed during this past economic cycle.  The irrational self-entitlement afforded to modest performance - the error of thinking that presiding over market inertia is equivalent to savvy leadership and strategic management - is epidemic.  I've seen well meaning people who think that their individual contribution to a venture involving hundreds is worth 10-50% of the resulting productive enterprise!  Seriously?  The malignant irrationality attending something as modest as the business I steward is merely the microcosm of the carelessness evidenced in the IMF's Spring fling.

Being in the room when a deal was negotiated does not make you competent to find, design and execute the deal on your own.  Being in graduate school in business or economics during the Clinton Administration does not mean that you understand anything about an economy or how it works.  God forbid, being an economist within the marketing arm of a country desperately trying to preserve an illusion of hegemony may get you VIP access to a few clubs on the Continent but it in no way qualifies you to understand youth, productive engagement, or system level size optimization.  If it did, you wouldn't hear the MIT, Chicago, and Harvard monotony of "jobs" and "growth" as the mantra for the world.

Many of the countries that are experiencing economic engagement and expansion at present have made considerable strides in expanding education; limiting near-slave labor conditions which supported G-20 profitability conveniently out of the eye-sight of an ignorant consuming public; and, coming up with post-colonial models for domestic natural resource stewardship.  Ironically these things don't stabilize bank balance sheets in the near term but they sure reduce long term political risk which… well… would stabilize balance sheets! 

On October 18, 2008, I posted by first Inverted Alchemy entry:  "Bailout Solutions Use the Wrong Economic Model".  On January 30, 2009 "The Defibrillator is on the WRONG patient" was another observation that the economists charged with 'fixing' the symptoms that surfaced in 2008 were evidencing their incompetence by applying the wrong intervention on the wrong anatomy.  This week's IMF mania not only reinforces these half decade old observations but suggests a more critical intervention.

The "Advanced Economies" (formerly known as militant interventionalists, colonialists, imperialists, and otherwise entitled) have been brain dead for a long time.  Nothing wrong with the rest of the organism called the global community - just a brain that barely responds to reflexes and surely evidences no higher function or creativity.  Like the entitled executives who ran the businesses that were the machine sustaining the illusion of the past 25 years who think they are equity holders of a future that they did nothing to steward into being, the IMF can be an organ donor.  Take the pieces that work and use them with gratitude to build an institution that addresses: wealth distribution; productive engagement; and the harnessing of the ingenuity of youth to rehabilitate that which has atrophied and synthesize what needs to be new.  Take out the tube!  Unplug the ventilator!  Let nature take its course.  Let's run into tomorrow without entitlement but with commitment to be a productive svelte athlete.

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Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave