Simon Johnson analyzes the Dublin gambit

There is little doubt that Ireland, as a one-off situation, is handled easily, albeit at greater expense than anyone would like.  But how does the game tree run?

…the Irish leadership has every incentive to delay until other countries can be dragged into turmoil. The crisis will become euro-zone wide, at which point all eyes will turn to some combination of the European Central Bank, the German taxpayer, and the IMF. But the ECB can’t pay and the German taxpayer won’t pay. Does the IMF have the resources to tackle Spain, let alone a bigger country like, say Italy or even France?

The U.S. could add sufficient funding to the mix — this is what it means to be a reserve currency — but the mood in Washington has shifted against bailouts.

As an alternative, Europe could place a call to Beijing to find out if China would like to commit some of its $2.6 trillion in reserves to keep European creditors whole. This would be an enormous opportunity for China to vault to a leading global role. Perhaps it was a good idea to place Min Zhu, a top Bank of China official, in a senior position at the IMF.

Comments

China as lender of last resort.

Priceless.

If we eliminated the Fed, China too could be our lender of last resort. As to the US, I would prefer to internalize this and have control within our financial system via the Fed, but can understand that Europe, which has not integrated financing obligations across its system, may want to consider this "loan" from China.

Funny, EU countries that try to look for their local optima instead of the interests of the Grand Project. Who would have thought?

Greece is already in debt to China, so it is only a natural progression of events to the Periphery.

Ireland should be printing 0% 1 year bonds, 100% convertible for payment of taxes but NOT requiring private companies to accept them at par value for debts (not legal tender).
Greece too.
And Portugal, Italy, Spain ... and California.

Send these bonds to those overpaid gov't workers and pensioners, so that they either save / loan to their state, or else get some factoring conversion to cash.
It should be an effective way to reduce borrowing costs. All states can do this for 100% of their deficit, and even more if they want to reduce their debt to non-state recipients of cash.

Simon Johnson had a fine note in 2009 about the US bank financiers unfairly getting the bailout cash.

BPO, In answer to your question, if they sold US currency to exchange it for Euros, the dollar would fall.

"BPO, In answer to your question, if they sold US currency to exchange it for Euros, the dollar would fall."

My question was rhetorical. Your answer has no bearing on the reality of the constraints on China's "currency reserves," and presupposes that China could "sell" any significant portion of them without wrecking themselves. That bizarre thing is that Simon Johnson has joined in with the "what if" crowd, and that such bizarre flights of fancy have become a common part of discourse. It's as though western commentators have become so inundated with hysteria and hyperbole, and are so confused about the current fiscal and economic climate in the developed world, and have talked themselves out to the point that they're now giving serious air time to utter fictions which are often wholly and almost always partially contrary to simple economic and fiscal fact, and to the basic mechanics of How Things Work. I'm not talking about economic theory, I'm talking about, literally, the mechanics of how any of these things could actually even come about.

Johnson says China could tap its currency reserves to bail out Ireland, up-fund the IMF and move it to Beijing. He may as well be saying Chinese scientists can turn a blade of grass pink, and so wouldn't it be wonderful if China took this opportunity to change the color of every blade of grass on the planet.

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