By Simon Johnson
Most Americans paid no attention this weekend when the International Monetary Fund announced it was well on its way to roughly doubling the money that it can lend to troubled countries – what the organization calls a $430 billion increase in the “global firewall.”
The United States declined to participate in this round of fund-raising, so the I.M.F. has instead sought commitments from Europe, Japan, India and other larger emerging markets.
At first glance, this might seem like a free pass for the United States. The additional I.M.F. lending capacity is available to euro-zone countries that now face pressure, such as Spain or Italy, so it might seem that global financial stability is increased without any cost to the American taxpayer.
But such an interpretation mistakes what is really happening – and actually represents a much broader problem with our budgetary thinking. The I.M.F. represents a contingent liability to taxpayer sin the United States – much as the Federal National Mortgage Association (known as Fannie Mae) and Freddie Mac (formerly the Federal Home Loan Mortgage Corporation) have in the past — and as too-big-to-fail mega-banks do now. Continue reading