IMF Announces New "Precautionary and Liquidity Line"; Fed Discusses More Stimulus; Both Much Ado Over Nothing; Expect Continued Bull Market in Meaningless Headlines

The market spurted higher mid-morning over new and improved credit lines by the IMF, and another never-ending discussion by the Fed about increasing liquidity.

Bloomberg reports IMF Revamps Credit Lines to Lure Nations
The Washington-based IMF today said the new instrument, the Precautionary and Liquidity Line, can be tapped by countries with strong economies currently facing short-term liquidity needs. Countries with potential needs can also apply, as they did in the past under the Precautionary Credit Line that the new instrument replaces.

“The reform enhances the Fund’s ability to provide financing for crisis prevention and resolution,” IMF Managing Director Christine Lagarde said in an e-mailed statement. “This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness.”

The changes, which enable countries that pre-qualify to request IMF funds without having to make as many policy changes as with traditional loans, come as Europe’s crisis threatens to spread to Spain and France. The IMF is co-financing bailouts in Greece, Portugal and Ireland and is preparing to send a team to Italy for an unprecedented audit of the country’s efforts to cut its debt.

The Standard and Poor’s 500 Index pared losses after the report.
Not Big News

Via email, Bank of America / Merrill Lynch says "This is Not Big News"

  • The IMF has announced some easier access to their limited supply of funds (as below). Despite the eye catching headlines, BofAML do not think that this is particularly new news, nor that financially impactful, unfortunately except possibly for smaller countries and even that is unclear.
  • Thanos (ex-IMF): Thinks the IMF's PLL is in no way a game changer by itself. The PLL could be used in east Europe. It could also be used in Italy and Spain, but more for its conditionality than for its limited firepower compared to funding needs. And in any case, an SBA or even an EFF would be better for Italy and Spain, as such arrangements have more conditions linked to reforms.
  • Laurence Boone (Head of Euro Econ): Thinks this does not necessarily mean more money. It means easier access to IMF money. In 2008/09 euro national central banks lent about $75bn to the IMF, a repeat of this lending is something they may or may not be able to repeat this time.
  • Ardash (BofAML APAC): Points out the PLL was flagged during the G20 summit and mentioned in its communique - officials have already suggested it would be more appropriate for financing needs of smaller countries, rather than the big fish (Italy and Spain).. even 10x quota is simply not enough, let alone judging whether they are committed to "sound policies".

Expect Continued Bull Market in Meaningless Headlines

Note the market continues to move on meaningless headlines. Also note the duration of each move higher keeps getting shorter. That means we can expect a huge bull market in meaningless headlines as EU officials, Eurozone officials, and the IMF keep searching for things to say to placate the markets.

"Lure" the Perfect Word

By the way, Bloomberg's headline title is near-perfect. The phrase "lure nations" is appropriate. "To their economic death" needs to be added.

This is what I think of the IMF as noted in To Ireland With Love.

IMF's Trojan Horse Gift to Ireland

I believe we have all heard the story and know how it ends.

Mike "Mish" Shedlock
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