Here's the news moving the market, and I do find it interesting that the first positive divergence of the day started just before the news came out-"Front Running" and probably by Congressional Staffers.
- IMF APPROVES CREDIT LINE PROGRAM CHANGES TO PROVIDE LIQUIDITY
- IMF CREDIT LINE CREATES NEW SOURCE OF FUNDS FOR MEMBER NATIONS
- IMF ADDS EMERGENCY FUNDING TOOL TO ASSIST COUNTRIES IN CRISIS
- IMF NEW CREDIT LINE AVAILABLE FOR SIX MONTHS TO TWO YEARS
- IMF CREATES PRECAUTIONARY AND LIQUIDITY LINE
- IMF SAYS ACCESS UNDER 6-MONTH LIQUIDITY LINE COULD BE UP TO 500% OF MEMBERS QUOTA
Nov 22 (Reuters) - The International Monetary Fund on Tuesday beefed up its lending instruments and launched a six-month liquidity line, throwing help to countries with solid policies that may be at risk from the euro zone debt crisis.
The announcement comes as concern grows over the spreading crisis in the euro zone, which has moved from Greece to larger economies such as Italy, Spain and France that are now under attack by financial markets.
The IMF said it was establishing a flexible liquidity line would act as "insurance against future shocks and as a short-term liquidity window to address the needs of crisis bystanders."
The IMF said the new liquidity line would be available for six months to countries with relatively good policies that are facing short-term balance of payments needs due to events not of their own making.
The language is interesting in that it seems to say that the help is available for innocent bystanders who are suffering through no fault of their own. This may be part of the answer to the question I asked earlier about the ECB and why they continue too finance debt.
Here are the downfalls that have come out in early analysis...
The drawing rights are based on a multiple of each country's IMF quota, the math on Italy and Spain combined would allow them to draw $91 Billion dollars combined, which is estimated to be enough to finance the two countries for approximately two months. It's not the grand fix.
The next problem is that this need to pass Congress, this is important because the US contributes 17.7% of the total to the IMF, by for the largest lender, and if the money is being used to bailout Europe, you probably can't expect Europe to be contributing to the fund. Look at this chart of the allocation of money provided to the IMF. I'm not sure who the second biggest contributor is outside of Europe, but Japan, the world's 3rd largest economy contributes 6.57% and China 4%, so obviously passing Congress and being ratified is crucial.
Furthermore, the IMF agreed last year to double the quotas or dues to be paid by each nation to roughly double the size of the fund, but as of yet, only 17 of 187 countries have officially agreed, among those who have not... some of the bigger quota countries such as the US, China and Germany have not ratified the increase.
Lastly, the amounts that countries can borrow, depending on which of the two credit lines is used, can be staggered in payments with the first coming after they are approved and the second up to 2 years later, With the speed of the EU crumbling, this may not be sufficient, but we'll have to wait on further analysis and details. For now it has sent the market higher, but strangely not at all what one might expect. I would expect a 2% move almost immediately just on the sugar rush initially, the S&P is only up about .15%
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