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The IMF’s Fairy Tale Princess

Posted By on March 28, 2012

IMF chief Christine Lagarde

IMF chief Christine Lagarde

(This is the second of three posts about the new female head of the IMF, which the business press is promoting as a “rock star of the economic world,” and how we are being deceived about the real cause of the debt crisis in Europe)

LaGarde isn’t without her critics. Former IMF chief economist Simon Johnson refers to her appointment as “the fox guarding the henhouse.” Johnson, like former World Bank economist Joseph Stiglitz, has been highly critical of the extreme concentration of financial power and it threat it poses to the global economy. This is the subject of Johnson’s recent book, Thirteen Bankers.

His criticism of Lagarde centers mainly around her proposal to solve the Eurozone crisis by issuing additional loans to the debt-ridden “peripheral” countries (Greece, Spain, Italy, Portugal and Belgium). He maintains all these countries are looking at a default scenario, no matter how much money she throws at them. He accuses her of allowing EU leaders to use the IMF to conceal from their voters major flaws in the Eurozone structure. As senior fellow at a Washington DC think tank (Peterson Institute for International Economics), he also complains about the unfairness of expecting US taxpayers to bail out the IMF for the sake of European politicians (and Greeks “who don’t like to pay taxes”). In Johnson’s view instead of spending other peoples’ money on struggling Eurozone economies, the EU leadership needs to make some a hard choice – either to integrate their fiscal systems in a way that allows fiscal transfers to poorer, less competitive countries or to create two tiers of Eurozone participation, in which only tier 1 members can borrow from the European Central Bank (see Fox in the Hen House and The Problem with Christine Lagarde).

Lagarde Gets the Cold Shoulder

Thus far Johnson’s arguments have resonated with most non-European IMF member countries. Despite Lagarde’s aggressive lobbying to add $500 billion to the IMF rescue fund at the recent G20 meeting in Mexico City, she came away empty handed. Most finance ministers agreed with the response U.S. Treasury Secretary Timothy Geithner gave her: the European Central Bank must make a much larger financial commitment before asking other G20 countries for money.

Fairy Tale Economics

The problem with mainstream media coverage, which continues to center around Lagarde and her “rock star” persona is that it’s a fairy tale – complete with a fairy princess – that never addresses the fundamental structural problems that caused the world economic collapse. The corporate media never tells the back story – that fossil fuel scarcity has effectively ended global economic growth, rendering our debt-based monetary system totally inoperable. Richard Heinberg convincingly makes the case that Peak Oil is responsible for the global economic collapse in his 2011 The End of Growth, as do Richard Douthwaite David Korowicz, Chris Vernon and Tom Konrad in Fleeing Vesuvius (see Will Peak Oil Spell the End of Capitalism?).

Instead the mainstream media promotes cruel myths about lazy Greek workers and a Greek middle class that refuses to pay taxes, obscuring the reality that much of the Greek debt is likely “odious; and fraudulently incurred.

To be continued.


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