12.12.2012 0

IMF’s Lagarde and the fiscal cliff

NRD Editor’s Note: This column was originally published at TheHill.com.

Christine LagardeBy Rick Manning — The International Monetary Fund has jumped into the so-called “fiscal cliff” crisis in the United States with Managing Director Christine Lagarde weighing in on the situation this past weekend, saying, “The best way to go forward is to have a balanced approach that takes into account both increasing the revenue, which means raising tax or creating new sources of revenue, and cutting spending as well.”

Speaker Boehner should immediately take Ms. Lagarde up on her challenge by eliminating the $100 billion line of credit that the U.S. Treasury has given Lagarde’s IMF.

Legislation that has 96 co-sponsors has already been drafted by Boehner’s incoming House Republican Conference Chairwoman Cathy McMorris Rodgers (Wash.). The only thing the legislation needs is House leadership backing to bring it to the floor.

While eliminating the $100 billion in liabilities would not have a major, immediate impact on the budget, it would eliminate a massive liability that hangs over our national treasury.

The prospect of having the IMF tap the U.S. Treasury to provide bailouts to countries that are negatively impacted by our nation’s massive national debt is almost Bernankean in its perversity.

Lagarde is correct in noting that the U.S. debt problem has become a problem. She is also correct in noting that many of the European countries that teeter on the brink of economic disaster actually have better balance sheets than the United States.

For instance, Spain has been in the news in recent months as it continues to struggle with its debt crisis. Yet Spanish government debt only represents 69.3 percent of that nation’s economy as measured by gross domestic product.

The U.S. debt-to-GDP ratio is 103 percent and skyrocketing with another $1.1 trillion in deficits logged in fiscal 2012.

It is this debt-to-GDP ratio that investors use to gauge the future ability of a nation to pay back its creditors, and the $800 billion increase in U.S. government expenditures since 2007 has caused our nation’s credit rating to be lowered, threatening the entire world’s economy.

In fact, if the U.S. were not the largest economy in the world, and the dollar weren’t the world’s reserve currency, Lagarde and others would be demanding immediate and massive cuts that would make the fiscal cliff look like the water drop in Disneyland’s Pirates of the Caribbean next to Niagara Falls.

Of course, while Lagarde recognizes the fiscal disaster if the U.S. doesn’t get its economic house in order, she has been strangely silent on having any willingness to do her part.

It would seem the least she could do is urge Congress to rescind her automatic withdrawal account from the U.S. Treasury as a first step toward fiscal sanity. Instead she pontificates like some mountaintop seer, when in reality her hands are covered in Uncle Sam’s red ink.

Rick Manning (@rmanning957) is the communications director for Americans for Limited Government.

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