U.S. lending to foreign governments through the International Monetary Fund (IMF) has reached $35.6 billion, representing more than 25 percent of the agency’s $141.8 billion of outstanding loans. Well above its 17.7 percent quota, the U.S. is therefore funding a disproportionate share of IMF loans.
Astonishingly, 68 percent of IMF lending, or $96.9 billion, has gone to just three countries, Greece, Portugal, and Ireland that have been rocked by sovereign and mortgage debt crises. The U.S. share of those European bailouts is now $24.35 billion. Should conditions worsen in Europe, we may ultimately wind up wishing we could get that money back from this foreign aid slush fund.
Initially, the IMF was set up by the West to issue foreign aid to third world nations during the Cold war. It was never intended to bail out advanced economies, but now that is exactly what it is doing.
The U.S. stake in the IMF used to be just $57 billion a few years ago, but in 2009, the Pelosi-Reid Congress expanded contributions by $108 billion on top of that to a $165 billion total, including a $65 billion quota and a $100 billion line of credit. That is more than triple the first year of sequestration’s $53 billion cut to outlays. No more votes will occur now to approve further bailouts, as the agency can lend it all away if it desires.
The way Congress justifies these loans is by claiming minimal taxpayer liability. Hiding this theft of American taxpayers, almost none of this appears on-budget, but like student loans, when the IMF draws from these lines of credit, it gets drawn directly from the Treasury by being added directly to the national debt.
The problem is the track record for government lending programs is far from perfect. Just ask Fannie Mae and Freddie Mac, which drew a $187.5 billion bailout when the mortgage bubble popped.
Or ask the Federal Housing Administration, which for the first time in its 79-year history has had to draw $1.7 billion from the U.S. Treasury to cover losses on bad loans.
Or Sallie Mae and the rest of the student loan program, where 10.9 percent of its $994 billion of loans are 90 days or more delinquent. But half of student loans are actually in grace periods, in deferment, or in forebearance, according to the New York Federal Reserve. Meaning that for “loans in the repayment cycle delinquency rates are roughly twice as high.”
Ideally, legislation in Congress would rescind the entire $165 billion credit line. After all, why are we bailing out foreign countries that cannot even pay their own debts?
But, as noted above, the problem of government lending is not merely contained to any single agency.
Whether it’s the Federal Reserve, Small Business Administration, the Export-Import Bank, the Dodd-Frank orderly liquidation fund, the Department of Energy’s green loans, or Federal Deposit Insurance Corporation deposit guarantees — these institutions that provide unlimited financing to favored industries all take away Congress’ constitutional power over the purse.
Largely, we are able to carry on these activities because of the dollar’s reserve currency status — the nation’s exorbitant privilege that keeps interest rates low even though all debts public and private at more than $57.5 trillion are exceptionally high.
However, we cannot depend on this forever, as foreign creditors like the Chinese are pressing to replace the dollar with another currency, namely its own.
While the massive government lending problem may seem intractable — all of these functions occur without any votes in Congress — there is one simple step legislators start with to begin to get it under control.
And that’s to kill the IMF foreign aid slush fund.
Robert Romano is the senior editor for Americans for Limited Government.
