Lagarde Lectures Her Owner

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

Of all the ironical elements of the debt crisis none quite matches the lecture delivered by the managing director of the International Monetary Fund, Christine Lagarde, to the Fund’s largest owner.* Madame Lagarde went on “Meet the Press” to deliver the message that she and the Fund’s smaller owners want America to borrow more money. She was fresh from the meeting in Washington where leaders of the World Bank and the IMF, as it was put by the New York Times, “pleaded, warned and cajoled” the United States to raise its debt ceiling. If America is drunk on debt, Madame Lagarde is lecturing on the virtues of Calvados.

There was a time when the cajoling of the IMF would have been aimed at convincing countries to live within their means. That was back in the days when there was a raison d’etre for the IMF, which is one of the Bretton Woods institutions. The Bretton Woods system “dissolved,” to use the IMF’s own choice of words, between 1968 and 1973. It’s been hard to see a logic for the institution ever since, but never harder than in the current crisis when what the IMF ought to be doing, if it ought to be doing anything, is trying to get the heavily indebted countries to trans-control their spending.

David Gregory — we’re actually a fan of the Meet the Press maestro — touched on this only glancingly. Not that he’s alone. No doubt he was hearing little of this from his sources on the Hill or in the administration. It’s like the debt crisis is being managed by people who were born yesterday. There is no one on duty who was present at the creation, to use a phrase made famous in a different context, because there was, in the wake of the collapse of Bretton Woods, nothing created. Unless one calls a system of fiat money something that was created. That would be, though, oxymoronic, wouldn’t it? Like saying a vacuum was created. Or anarchy was created.

It’s all enough to put us in mind of a new kind of grand bargain. Instead of a budget deal, America could step up to monetary reform. It could stop all the pretense that there’ll be a default. What’s needed is recognition that the default already happened. It happened in 1971. It happened again in the past decade. The value of the dollar, once regulated by the Congress by law at a 35th of an ounce of gold, has see-sawed wildly, eventually plunging to below a 1,900th of an ounce of gold. It is, at the moment, lurking under a 1,250th of an ounce of gold. The troubles we’ve been going through, in other words, are not the forerunner of default. They are the consequences of default. When that becomes clear, the road ahead will become clear, and America will be spared the hectoring of the IMF that it created.


* America owns a larger quota in the IMF than Japan, Germany, and France combined.

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