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Bailout Fatigue

May 17, 2011 • Demand, Supply, and Markets, Economic Debates, Economic History, Economic Thinkers, Financial Markets, Government, International Trade and Finance • 172 Views    No Comments

Yesterday, in a 94-0 vote, the U.S. Senate said it had bailout fatigue. No, they were not referring to Fannie Mae or General Motors. They meant Greece.

This is the connection:

By selling government securities, Greece had borrowed money to fund massive spending. When it appeared that Greece might not pay back the money they borrowed, they received bailout money.

Here the U.S. enters the picture. Approximately 2/3 of the Greek bailout money came from the European Union and 1/3 from the International Monetary Fund (IMF). As a leading member of the IMF, U.S. money is a part of the $40 billion that so far has been allocated to the Greek bailout

This takes me to 2 questions:

1. How much money is involved? This 2009 congressional research document indicates the outlay is very small although a larger loan guarantee to the IMF could be involved.

2. If one purpose of the IMF is to preserve financial stability, wouldn’t nations with troubled finances most need their help? 

The Economic Lesson

At the Bretton Woods (New Hampshire) Conference, in 1944, as World War II was ending, the IMF was proposed. The next year, it was established. With 29 original members, the IMF’s basic goal was worldwide financial stability and cooperation. During 1947, France was the first country to borrow from the IMF. (John Maynard Keynes attended the Bretton Woods Conference.)

An Economic Question: Explain why you support or oppose the Senate vote.

 

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