[...]... money also came from China In other words, China was operating a system of vendor finance, lending the USA the money to buy its own exports Since at some point it would need to be paid back, this was not an indefinitely sustainable situation Washington had been complaining vociferously for most of a decade that this dysfunctional embrace was the result of China continually intervening in the foreign exchange... prime minister was by now infamous in the UK for conjuring big public spending announcements out of nothing with statistical smoke and mirrors—doubleand triple-counting money, re-announcing or relabeling existing plans, rolling up multi-year programs into a single commitment—and now he had a global stage on which to practice his fiscal sleight of hand “The Trillion-Dollar Summit” was the headline Mr... lowinterest loans to the poorest countries All fine, but as the global economy has grown, and with it the ability of low- and middle-income countries to borrow from international private investors has risen, so the bank finds itself playing a less important role in filling financial holes Indeed, during the 2000s one of the biggest threats to its preeminence was an emerging-market country itself China,... an aggressive campaign of lobbying bordering on intimidation to get Fund officials to pipe down If the institution showed bias toward the eurozone in lending, it leaned toward the USA and the UK in its thinking, and particularly in its support for “light-touch” financial regulation Despite its minority shareholding, the USA has generally played a dominant role in directing the organization, not least... nil The USA tried to use the IMF’s artillery against China in several different campaigns First it organized a “multilateral consultation” exercise inside the IMF involving itself and China, wheeling in Japan, the eurozone and Saudi Arabia to maintain the facade that this was a broad consultative process China politely declined to be surveilled into accepting the U.S view that its exchange rate was an... identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and incomplete analytical approaches.” Indeed, far from spotting the dangers in the U.S financial system, the Fund spent most of the years running up to the crisis trying to do the USA’s work for it And yet, revealing another... currency wars raged in the run-up to the Seoul summit in November 2010, the USA tried to get the G20 to set numerical limits for current account balances, in order to put pressure on China to restrain its surpluses Determined resistance from China, and other countries sitting on the fence, meant the initiative largely ended in stalemate Throughout 2011, China slowed the rise of the renminbi to a crawl... super-loose monetary policy, shoveling money into financial markets, may have averted disaster in U.S financial markets, but it was unpopular abroad Some emerging-market countries such as Brazil were seeing their currencies soar against the dollar They blamed the Fed for weakening its own currency by creating so much of it, encouraging speculators to borrow heavily in cheap dollars and then use the... self-appointment of the G20 grouping of leading economies as a steering committee for the world economy, those “shareholder” governments have proved themselves fickle, selfinterested and disunited The International Monetary Fund, above all, is the obvious institution to step forward during global financial turmoil The Fund (as insiders, in a slightly Orwellian fashion, call it) was set up at the international... confident investors and buoyant financial markets had left it with little to do A cartoon in The Economist in 2006 nailed it perfectly: IMF staff were a bunch of bored firefighters sitting around an idle fire engine Despite subsequent events in hotel rooms in New York City, the IMF was fortunate to have Dominique Strauss-Kahn (“DSK”) as its managing director when the global financial crisis hit Strauss-Kahn, . prime minister was by now infamous in the UK for conjuring big public spending announcements out of nothing with statistical smoke and mirrors—double- and triple-counting money, re-announcing or. finance, lending the USA the money to buy its own exports. Since at some point it would need to be paid back, this was not an indefinitely sustainable situation. Washington had been complaining. businesses, their borrowing constrained by the credit crunch and their optimism battered by the near-meltdown of the financial system, were sharply curtailing their spending. Big emerging-market