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It’s a repeat game

Argentina is now number eight in a quarter-trillion dollar stream of rescue packages to bolster the credit of threatened emerging economies. Mexico was the first in 1995, recipient of what was supposed to be a one-time $50 billion ransom for world stability. But that failed to factor in the next round of play. Instead, crises have impacted more often and with greater force and will continue to do so as past example teaches the markets that speculation is protected by a G7 guarantee. Adam Lerrick proposes that the private sector should provide the first line of defence with standby financing subsidized by the IMF as a global public good

Adam Lerrick

You are the finance minister of a major industrial power. Faraway Xanadu is threatened with default. Financial contagion will spread around the globe. The dragons are waiting to devour the spoils. What do you want to do? You launch the thermo-nuclear bail-out package.

Congratulations! You survive, Mr Minister...but your taxpayers are dead.

If crises were a non-repeat game in the global gambling halls, then an expedient donation to prevent major defaults would not only be the wisest but the lowest-cost solution.

Concessions made and intelligence gained could not influence future bouts.

But if rescue missions encourage governments to become profligate, domestic entrepreneurs to overextend, foreign investment to be ill-considered, and speculation to be excessive, all with the expectation that errors will be erased by a G7 guarantee, there is a massive cost down the road. Crises will become a 10-times multiple of what has been endured.

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