Senate Unanimously Rejects Greek Bailout

In an uncharacteristic display of fiscal rectitude, Senators voted 94-0 against the Greek bailout. But don't get too excited. They only voted to instruct the White house to oppose the bailout in the absence of a plan to pay back the money. Needless to say, the Greeks, the IMF, and/or the White House will lie if the amendment becomes law. Speaking of which, approving an amendment in the Senate means nothing unless the provision is included in a final bill. Last but not least, the amendment is too weak. It should have blocked any bailout. Heck, it should have withdrawn the United States from the IMF altogether. But a baby needs to learn to crawl before it can walk, so I suppose we should be happy that the kleptocrats in Washington at least cast a symbolic vote to defend taxpayers. Here's a report from the EU Business:

The US Senate on Monday easily approved a measure aimed at blocking International Monetary Fund (IMF) aid packages like the one for Greece absent a guarantee that the money will be repaid. Lawmakers voted 94-0 to approve the measure, crafted by Republican Senator John Cornyn of Texas, attaching it to broad legislation to overhaul financial industry rules in the wake of the 2008 global economic meltdown. The amendment calls for President Barack Obama's administration to measure any IMF aid package to a country whose public debt exceeds its annual gross domestic product in order to certify that the loan will be repaid. If the administration were unable to make such a certification, it would be directed to oppose the assistance and vote against it at the IMF. "Greece is going to get 40 billion dollars in loans from the IMF, out of which seven billion dollars is attributable to the contributions of the American taxpayer. They shouldn't have to do that unless we have an assurance that it will be paid back," Cornyn said shortly before the vote. ...If the Senate passes the overhaul legislation, Cornyn's measure would still need to survive a House-Senate "conference" to reconcile their rival versions of the bill before it can go to Obama to be signed into law.

The IMF Is Urging Governments to Adopt Regulatory and Tax Cartels to Benefit Politicians

Price fixing is illegal in the private sector, but unfortunately there are no rules against schemes by politicians to create oligopolies in order to prop up bad government policy. The latest example comes from the bureaucrats at the International Monetary Fund, who are conspiring with national governments to impose higher taxes and regulations on the banking sector. The pampered bureaucrats at the IMF (who get tax-free salaries while advocating higher taxes on the rest of us) say these policies are needed because of bailouts, yet such an approach would institutionalize moral hazard by exacerbating the government-created problem of "too big to fail." But what is particularly disturbing about the latest IMF scheme is that the international bureaucracy wants to coerce all nations into imposing high taxes and excessive regulation. The bureaucrats realize that if some nations are allowed to have free markets, jobs and investment would flow to those countries and expose the foolishness of the bad policy being advocated elsewhere by the IMF. Here's a brief excerpt from a report in the Wall Street Journal:

Mr. Strauss-Kahn said there was broad agreement on the need for consensus and coordination in the reform of the global financial sector. "Even if they don't follow exactly the same rule, they have to follow rules which will not be in conflict," he said. He said there were still major differences of opinion on how to proceed, saying that countries whose banking systems didn't need taxpayer bailouts weren't willing to impose extra taxation on their banks now, to create a cushion against further financial shocks. ...Mr. Strauss-Kahn said the overriding goal was to prevent "regulatory arbitrage"—the migration of banks to places where the burden of tax and regulation is lightest. He said countries with tighter regulation of banks might be able to justify not imposing new taxes.

I've been annoyingly repetitious on the importance of making governments compete with each other, largely because the evidence showing that jurisdictional rivalry is a very effective force for good policy around the world. I've done videos showing the benefits of tax competition, videos making the economic and moral case for tax havens, and videos exposing the myths and demagoguery of those who want to undermine tax competition. I've traveled around the world to fight the international bureaucracies, and even been threatened with arrest for helping low-tax nations resist being bullied by high-tax nations. Simply stated, we need jurisdictional competition so that politicians know that taxpayers can escape fiscal oppression. In the absence of external competition, politicians are like fiscal alcoholics who are unable to resist the temptation to over-tax and over-spend.

This is why the IMF's new scheme should be resisted. It is not the job of international bureaucracies to interfere with the sovereign right of nations to determine their own tax and regulatory policies. If France and Germany want to adopt statist policies, they should have that right. Heck, Obama wants America to make similar mistakes. But Hong Kong, Switzerland, the Cayman Islands, and other market-oriented jurisdictions should not be coerced into adopting the same misguided policies.

Good News for American Taxpayers (in the short run), Bad News for European Taxpayers

According to Financial Times report the politicians in Paris and Berlin want to set up some sort of European Monetary Fund to help bail out Greece and other profligate European nations. This is good news in the short run for American taxpayers since it is less likely that American taxpayers will be financing bailouts through the International Monetary Fund. But this is not good news for America in the long run. Bailouts will encourage bad policy in Europe, regardless of whether they are financed with European tax dollars or American tax dollars. This means more economic instability in the future. At worst, this means big future bailouts financed by the United States. But even in a best-case scenario, Europe will be poorer, and that means less trade:

Germany and France are planning to launch a sweeping new initiative to reinforce economic co-operation and surveillance within the eurozone, including the establishment of a European Monetary Fund, according to senior government officials. Their intention is to set up the rules and tools to prevent any recurrence of instability in the eurozone stemming from the indebtedness of a single member state, such as Greece. ...If France and Germany can agree on such proposals – long urged by Paris – they are likely to set the basis for the most radical overhaul of the rules underpinning the euro since the currency was launched in 1999. ...Both France and Germany agree Greece should not turn to the IMF for support, so the idea of an EMF has clear attractions for Paris, though it could hardly be set up in time to help Greece. Mr Schäuble said: “We are not planning a competitor . . . to the IMF, but we do need an institution for the internal equilibrium of the eurozone that would have at its disposal both the experience of the IMF, and comparable intervention mechanisms.” According to German thinking, the plan could include tough penalties for eurozone members that fail to curb deficit spending or run up excessive government debt. Ideas include cutting off countries that fail to curb deficit spending from EU cohesion funds, temporarily removing their right to vote in EU ministerial meetings and suspension from the eurozone.

Tax-Free IMF Bureaucrats Urging Latvia to Repeal Flat Tax

The International Monetary Fund does not always give bad advice, but the bureaucrats (who get very generous tax-free salaries) are infamous for advising economically-troubled nations to raise tax rates. The latest example if from Latvia, which got itself in trouble by overspending during the boom years and taking on too much debt. The IMF, to its credit, has asked for long-overdue reductions in a bloated public sector, but Latvia's economy also needs investment to get back on the right path - and that will be less likely if the nation's politicians acquiesce to IMF demands to replace the flat tax with a system that discriminates against those that contribute more to growth. Bloomberg reports on how the IMF is using American tax dollars to push bad tax policy:

Latvia and the International Monetary Fund reached a preliminary agreement yesterday paving the way for the first loan payment from the Washington-based fund since December. ...The process of reaching an agreement has “been tumultuous,” Christensen said. The IMF and the Commission have made loan payments to the Baltic state conditional on budget standards being met, with the government pushing through pension, wage and other spending cuts to meet targets. The budget deficit may reach 10 percent of gross domestic product this year after the economy contracted 18 percent in the first quarter. ...The country has cut spending by lowering pensions, state pay and maternity benefits, and raised value added tax since signing the agreement. It plans to introduce taxes on real estate, capital gains and earned interest income in next year’s budget, and may close some schools and hospitals. ...“The idea of moving away from the flat tax to a progressive tax is very much one of the measures that we’re looking at,” Anne-Marie Gulde, senior advisor in the IMF’s European Department, said in a conference call. “It could help to increase revenues while putting more of the burden on higher- income groups.” The country’s parliament on June 16 passed 500 million lati ($1 billion) in spending cuts and revenue gains for this year, to unlock the loan from the European Commission.