Debt Ceiling...? We Are Already Defaulting (Jacob Hornberger)

By: Jacob Hornberger
The Future of Freedom Foundation
May 11, 2011

The doomsday crowd claims that the sky will fall in if Congress fails to raise the debt ceiling. If the ceiling isn't raised, they say, the federal government will be forced to default on its debt payments, which apparently will then cause the sky to fall in.



That's, of course, ridiculous. For one thing, just because the federal government isn't permitted to add to its ever-soaring mountain of debt doesn't mean that it will be forced to default on debt payments. With the $2.2 trillion it collects in tax revenues, it can give first priority to debt payments.

But let's assume there is a default. Will the sky fall in, as the doomsayers claim?

Not likely. After all, thanks to the Federal Reserve, the federal government is already defaulting on its debts – and has been for decades.

While the ostensible purpose of the Federal Reserve is to “stabilize” the money supply, its real purpose is to enable public officials to spend as much money as they want by borrowing it and then letting the Federal Reserve pay off its creditors with newly printed, debased, cheapened, devalued dollars.

That's precisely what the Fed is doing now, has been doing recently, and has been doing ever since it was established in 1913. It “monetizes” the government's debt by printing the money to pay it off. The inflated supply of money cheapens the value of the money in circulation, which means that bondholders are being repaid in currency that is worth less than it was when they loaned it.

That's a default.

Let's assume I loan the government $1,000 at 10 percent interest, with the note payable one year from now. The year passes. The government owes me $1,100. The government doesn't have the money to pay me because all of its tax revenues are devoted to welfare and warfare, which the big spenders in Congress are dead-set on continuing.

The members of Congress are reluctant to raise taxes to pay me back for two reasons: one, they know that overtaxed people get upset over more taxes, and, two, they're concerned that more taxes will kill the private sector that funds the welfare-warfare state

No problem. The big spenders simply turn to the Fed to do the dirty work for them. The Fed cranks up the printing presses and starts printing large quantities of new money to pay me and the other creditors whose debts are now due.

The government sends me its newly printed $1,100 to pay off my debt. But there is one big problem: That $1,100 now only buys 90 percent of what it used to. Due to the Fed's expansion of the money supply, the dollar has been debased or devalued by, say, 10 percent.



The government has not complied with its promise to pay me $1,100. It has instead paid me in money now worth $990.

That's a default because the government isn't paying me what I am owed.

That's what the Fed has been doing for decades. That's why the dollar is worth about 5 percent of what it was worth in 1913, when the Fed was established. Decade after decade, the Fed has expanded the money supply to accommodate the big spenders in Congress (and the big-spending President), thereby debasing and devaluing the currency. Throughout most of that time, the government's creditors have been paid off in cheapened, debased, devalued dollars.

While decades of continuous default have brought monetary chaos, the sky has never fallen in.

Needless to say, the big spenders in Congress love the Fed. They know that they can keep spending and borrowing to their hearts' content and not have to incur voter wrath by raising taxes. They know that the Fed will always come to their rescue by printing the money to pay for their big spending and big borrowing.

The citizens, of course, have no idea what is occurring. All they see is soaring prices (initially gold, silver, oil, gasoline, and other commodities, and, later, retail prices in general). Unaware that the government itself – through the Fed – is the culprit, the citizens blame the rising prices on greed, speculation, the banksters, the profiteers, the capitalists, the middle men, the entrepreneurs, and perhaps even the illegal aliens.



Our American ancestors had it right. That's why they lived for more than 100 years with no Federal Reserve and no welfare-warfare state and a way of life based on economic liberty, sound money, private property, the free market, and a limited-government, constitutional republic.

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He is a regular writer for the Foundation's publication, Freedom Daily, and is a co-editor or contributor to the eight books that have been published by the Foundation.

Originally published on April 29, 2011 at CampaignForLiberty.com. Jacob G. Hornberger, the Future of Freedom Foundation, and Campaign for Liberty are not affiliated with Euro Pacific Capital, Inc. Euro Pacific Capital does not guarantee the accuracy and completeness of third-party authored content.

The commentary above is for the benefit of our readers from opinion makers and writers not associated with Euro Pacific. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific, or its president, Peter Schiff.

Bernanke's Strong Dollar Policy (Michael Pento)

U.S. dollar has lost 40% of its

purchasing power as measured

against a basket of foreign currencies

in the last decade alone.

Thursday, April 28, 2011
Euro Pacific Capital
By: Michael Pento

Thank God the Fed has a Strong Dollar Policy

The Fed has kept interest rates at zero percent for 27 months and has created--out of the blue--2 trillion new dollars in the last few years alone. If these actions constitute a strong dollar policy, Americans can only cringe at the thought of what a weak dollar policy on the part of the Fed would possibly look like!

Ben Bernanke’s hour-long press conference was packed full of an amazing quantity of contradictions, and economic fallacies. For example, the price of gold soared by $25 during the conference as the dollar was falling to a new 52 week low. In fact, the U.S. dollar has lost 40% of its purchasing power as measured against a basket of foreign currencies in the last decade alone. And the price of gold has risen 400% during that same time frame. Yet somehow Bernanke wanted investors to believe that these conditions are just transitory even though they have been in place for the last 10 years. How could they possibly be transitory if the Fed maintains its zero percent interest rate policy and refuses to reduce the size of its balance sheet?

He also had the temerity to suggest that stable prices actually engender rising unemployment and that inflation needs to be near 2% for an economy to function properly without the threat of deflation. But the former Princeton Professor never explained the economics behind how a strong and stable dollar can ever lead to increasing layoffs. Could it be that Bernanke is unaware that a stable dollar is absolutely necessary for a vibrant middle class and to have an economy that is balanced with the appropriate amount of savings and investment?

The Fed head finally uttered a truth when he correctly stated that low and contained inflation expectations are essential for a strong economy and that the FOMC would closely monitor those expectations of rising prices. However, Bernanke fails to understand that he is doing everything in his power to make sure those inflation fears become intractable. He blamed the uptick in inflation on rising commodity prices that are again supposedly “transitory”. But he fails to associate those rapidly rising commodity prices with the fall of the dollar, which is directly the result of the Fed’s monetary policy. He instead blames the 30% rise of the CRB Index in the last year on “global factors.”

But the most egregious error made during the press conference was Bernanke’s failure to acknowledge the Fed’s aiding and abetting of our huge budget deficits. Although he correctly identified the biggest problem facing our nation is our overwhelming debt, he failed to realize that it is the Fed’s sponsorship of an ever expanding money supply that enables our government to run up massive debts without sending interest rates so high that they render the nation insolvent.

The sad truth, however, is what will be transitory is the U.S. dollar’s status as the world’s reserve currency. The end of that condition coupled with rapidly rising inflation will eventually send interest rates much higher than any economic model Bernanke has ever seen.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Core Incompetency (Michael Pento) and the U.S. Dollar Is in Free Fall

Euro Pacific Capital
By: Michael Pento
April 4, 2011

For years the Federal Reserve has told us that in order to detect inflation in the economy it is important to separate “signal from noise” by focusing on “core” inflation statistics, which exclude changes in food and energy prices. Because food and energy figure so prominently into consumer spending, this maneuver is not without controversy. But the Fed counters the criticism by pointing to the apparent volatility of the broader “headline” inflation figure, which includes food and energy. The Fed tells us that the danger lies in making a monetary policy mistake based on unreliable statistics. Being more stable (they tell us), the core is their preferred guide. Sounds reasonable…but it isn’t.

If it were truly just a question of volatility the Fed may have a point. But for headline inflation to be considered truly volatile, it must be evenly volatile both above and below the core rate of inflation over time. If such were the case, throwing out the high and the low could be a good idea. However, we have found that for more than a decade headline inflation has been consistently higher than core inflation. Once you understand this, it becomes much more plausible to argue that the Fed excludes food and energy not because those prices are volatile, but because they are rising.

If you talk about the grand sweep of Fed policy, it’s fairly easy to fix the onset of our current monetary period with the onset of the dot.com recession of 2000. To prevent the economy from going further into recession at that time, the Fed began cutting interest rates farther and faster than at any other time in our history. During the ensuing 11 years, interest rates have been held consistently below the rate of inflation. Even when the economy was seemingly robust in the mid years of the last decade, monetary policy was widely considered accommodative.

Over that time annual headline Consumer Price Index (CPI) data has been higher than the Core CPI 9 out of 11 years, or 81% of the time. Looking at the data another way, over that time frame, the U.S. dollar has lost 20% of its purchasing power if depreciated year by year using core inflation, and 24% if depreciated annually with headline inflation. The same pattern held during the inflationary period between 1977 thru 1980, when the Fed’s massive money printing sent the headline inflation rate well above the core reading. The empirical evidence is abundantly clear. When the Fed is debasing the dollar, headline inflation rises faster than core. The reason for this is clear. Food and energy prices are closely exposed to commodity prices which have a strong negative correlation to the falling dollar that is created by expansionary policies.

Data we have seen thus far in 2011 underscores the need to focus on headline inflation and to avoid the trap of relying on the relatively benign core. The difference between the core rate and headline rate of inflation was .6 percent in January and a full percentage point in February. If annualized those relatively small monthly disparities will become enormous.

It is shocking how few Americans, even those with economic degrees and press credentials, fully appreciate the Fed’s vested interest in reporting low inflation. With benign data in hand, Fed policy makers are given a free hand in adopting stimulative policies. Central bankers who shower liquidity on the economy earn the gratitude of their peers and the thanks of their political patrons. But once a central bank goes down the expansionary path to fight recession it is much easier to keep pumping money than to reverse course when inflation starts to bite into purchasing power.

The sad truth is that the Fed’s record low interest rates are once again causing food and energy prices to rise much faster than core items. Bernanke is focusing on the core just as we need him to focus on the headline. It’s time for the Fed to stop hiding behind flimsy statistical juggling and to start protecting the value of our dollar, which unfortunately is in free fall no matter what statistics one chooses to use.

Trade Deficit Woes (Michael Pento)

Friday, February 11, 2011
By: Michael Pento

The U.S. trade deficit increased by 5.9% to $40.6 billion during the month of December, which was up $38.3 billion from the prior month. For the year 2010, the trade gap surged 43%, which was the biggest jump in a decade, as our government’s efforts to reignite consumer borrowing and spending led to a record number of imported consumer goods. For all of 2010, the trade gap climbed to $497.8 billion, up from $374.9 billion in 2009. The Commerce Department reported that consumer spending rose at an annual rate of 4.4% in the fourth quarter of 2009. That increase—which was the biggest in four years—was led by a surge in imports and helped send the trade gap back onto its unsustainable trajectory.

Despite the fact that the U.S. dollar has fallen 8% since June of last year, the trade deficit has continued to widen. That’s because the inflation caused by a falling dollar has made it more expensive for foreigners to importer U.S. made goods—thus offsetting the increased purchasing power of their currencies. And, of course, the cost of U.S. imports has increased because there is no immediate domestically produced alternative to foreign made goods. Therefore, the U.S. trade imbalance continues to climb higher.

That economic truth ushers in the fear over how much wider the trade gap will grow once the dollar actually crashes, as it inevitable must. Why must it crash you ask? Simply because the U.S. is incapable of paying its debts without a massive dilution to the currency. Once the greenback loses its place as the world’s reserve currency, prices will skyrocket for our imported goods, thus sending many more dollars into foreign control. And send the red ink associated with our trade imbalance beyond the limits of what most economists could ever conceive to be possible. And before anybody tells you that a trade deficit isn't something to be concerned about, ask them if they don't mind selling a great proportion of the assets and the sovereignty of the nation to another country. Add'l Michael Pento Posts

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Import Prices and Inflation (Michael Pento)

Wednesday, January 12, 2011
By: Michael Pento

In keeping with the tradition of believing the Emperor Has New Clothes, the U.S. consumer must try to just imagine that inflation isn’t a problem. The cost of goods imported into the U.S. rose in December, led by higher prices for commodities such as fuels and food. Import prices surged by 1.1% last month after jumping by a revised upward 1.5% gain in November.

For all of 2010, import prices were up 4.8%. However, the costs of imported food and petroleum were both up over 13% last year. The U.S. dollar is down about 10% on the DXY, since it achieved a cyclical high on June 7th of last year. The weakness in the U.S. currency has helped send the cost of imported goods higher.

The Labor Department will release data on Producer Prices tomorrow and Consumer inflation on January 14th. Official inflation data should be on the rise as food, fuel and rental prices continue to escalate. In fact, the USDA is expected to confirm today that stock piles of grains are the lowest in years. The price of oil is now holding above $90 per barrel and food prices are surging across the globe. And Bernanke still looses sleep over deflation!?

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Bernanke Bashes the Chinese (Michael Pento)

Friday, November 19, 2010
By: Michael Pento

In a speech given at the sixth European Central Bank conference in Frankfurt Germany, Chairman Benjamin S. Bernanke implied that China’s currency manipulation is leading to global instability. The Fed head blamed, “Large, systemically important countries with persistent current-account surpluses” [think China], for the current global imbalance. He declared, “Globally, both growth and trade are unbalanced.

He continued, “Because a strong expansion in the emerging-market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favor of slow growth for everyone if the recovery in the advanced economies falls short.” In Bernanke’s mind, Chinese growth is totally dependent on the U.S., not the other way around.

But what Bernanke fails to understand is that the U.S. manipulates its currency first and foremost. In addition, he also doesn’t grasp the idea that further US dollar devaluation will only exacerbate the trade imbalance. And, to make matters even worse, if he were to get his druthers the U.S. would see soaring interest rates and rapidly rising domestic prices. In fact, a rapid rise in the value of the Renminbi verse the USD would most likely render the U.S. insolvent.

Bernanke also gave a strong clue as to just how long it will be before he decides to raise interest rates and protect the purchasing power of Americans. He said, “On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years,” he said. “As a society, we should find that outcome unacceptable.” Therefore, we have many more years ahead to punish savers and reward debtors. And many more years to come of rising commodity prices and an eroding standard of living.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

QE2 Is A Goldmine For Traders, Shafts The Rest Of U.S.(Bob Lenzer)

Bernanke's salvo to stave off deflation

pumps up commodity prices but could

prolong an already profound slump.

StreetTalk With Bob Lenzner
Robert Lenzner, 11.13.10
Forbes

We seem to be in quite a bind. Federal Reserve Chairman Ben Bernanke’s QE2 policy of a loose monetary policy is creating opposition across the globe. Presidential Obama’s inability to fix fiscal policy is paralyzed by a weak economy and stiff political opposition.

We are approaching a national emergency because the U.S. must reduce its debt and deficit while simultaneously stimulating an economy enough to avoid deflation. This is an impossible policy combination at the moment. Reducing debt and deficits will just have to wait.

Where fiscal fixes from Washington have fallen short, Bernanke is picking up the slack and embarking on a course of dollar devaluation. The devalued dollar makes U.S. exports more competitive in the world market but it also makes imports like crude oil more expensive--not to mention hugely irritate our trading partners. This is a high wire act that will make or break the Bernanke-Obama regime.

The grim reality is that total public and private debt in the U.S. has reached 400% of gross domestic product, far above even the previous record of 299% of annual national economic output in 1933 during the nadir of the Great Depression. God help us if QE2 and its potential progeny spike interest rates and make it even more costly to service the national debt, which is projected to be $900 billion a year by 2020.

Adding $600 billion to the public debt as we are in order to drive the rate of inflation up 1%-- to in effect double the rate of inflation--only underscores the predicament faced by Bernanke and ultimately Obama. There is not a lot of wiggle room in the federal budget for more of this because so much of what we’re not yet spending on stimulus or national defense goes to entitlements, a burden made ever more costly thanks to runaway health care costs.

A Congressional Budget Office chart projecting the rising cost of health care presented this week at a Goldman Sachs alumni meeting showed a sharp line going from 10% of GDP in 2010 to 20% in 2050, while the costs of Social Security remain in a flat line basically. Goldman expects only minor changes in the health reform bill passed by the Obama administration.

This is the backdrop to the next two years and the national debate that will rage about how to get back in control of U.S. finance.  Continue Reading

Bernanke infuriates China and they Retaliate with a Downgrade of U.S. Credit Rating

"The serious defects in the US economy

will lead to long-term recession and

fundamentally lower the national solvency"

"In essence, the US government's move to

devalue the dollar indicates its solvency

 is on the brink of collapse"

China Daily
11/9/10

BEIJING - The United States has lost its double-A credit rating with Dagong Global Credit Rating Co., Ltd., the first domestic rating agency in China, due to its new round of quantitative easing policy.

Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the US by one level to A+ from previous AA with "negative" outlook.

The Chinese rating agency said the downgrade reflected the US's deteriorating debt repayment capability and drastic decline of the US government's intention of debt repayment.

"The serious defects in the US economy will lead to long-term recession and fundamentally lower the national solvency," Dagong said in a report.

The Chinese rating agency said the Federal Reserve's new round of quantitative easing would further depreciate the US dollar and was entirely counter to the interest of the creditors.

The Federal Reserve last week decided to buy $600 billion of US Treasury securities and other assets held by banks in a bid to inject fresh funds into the economy and bring down long-term interest rates.

"The credit crisis is far from over in the United States and the US economy will be in a long-term recession," Dagong Global warned in the report, adding a weakening greenback will cripple US capability to attract dollar capital reflow.

The Chinese rating agency said the Fed's move would not substantially reverse the trend of increasing the US federal government's fiscal deficit and debt burden in the long term.

"In essence, the US government's move to devalue the dollar indicates its solvency is on the brink of collapse," said the report.

Dagong Global noted the potential overall crisis in the world caused by the US dollar's depreciation would increase the uncertainty of the US recovery and the United States may face much unpredictable risks in solvency in the coming one to two years.

Founded in 1994, Dagong Global is a pioneer in creating credit rating standards on industries, regions and sovereignties in China, and is also leading the credit rating market in corporate bonds, financial bonds and structured financing bonds.

Ron Paul: The Federal Reserve Will Self-Destruct (video-CNBC)

Ron Paul goes off on the Federal Reserve and unfortunately, the segment is during Joe Kernan's time slot...just mute when you see Joe's lips move.

• Federal Reserve will self-destruct
• this is a deeply flawed monetary system
• 1 person can create $600 billion with the stroke of a pen
• Where did this authority come from
• Bernanke will continue to create money until their is economic growth however creating money has never been proven to stimulate growth

Geithner Swears that the U. S. will not devalue the dollar

Tim Geithner: "...the United States needed to "work hard to

preserve confidence in the strong dollar."

By JimChristie and David Lawder
10/19/10

(Reuters) - Treasury Secretary Timothy Geithner vowed on Monday that the United States would not devalue the dollar for export advantage, saying no country could weaken its currency to gain economic health.

"It is not going to happen in this country." Geithner told Silicon Valley business leaders of devaluing the dollar.

Geithner broke his silence on the dollar's protracted slide ahead of this weekend's meeting of finance leaders from the Group of 20 wealthy and emerging nations in South Korea, where rising tensions over Chinese and U.S. currency valuations are expected to take center stage.

"It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to (be) competitive," Geithner added. "It is not a viable, feasible strategy and we will not engage in it."

Answering audience questions before the Commonwealth Club of California in Palo Alto, he said the United States needed to "work hard to preserve confidence in the strong dollar."

Geithner, normally reluctant to publicly discuss currency and market movements, has not uttered the so-called "strong dollar mantra" -- a refrain he helped create at Treasury in the 1990s -- since February.

On Friday, the dollar index hit a 10-month low against a basket of major currencies, while the greenback has been plumbing fresh 15-year lows against Japan's yen .

Many emerging market countries are complaining that Fed money creation is weakening the dollar, and causing more funds to flow into their markets, pushing up their currencies.

Talk of a "currency war" has persisted as countries take action to keep from losing export competitiveness.

Brazil on Monday moved to cool a strong rally in its currency by raising taxes for foreigners buying local bonds and trading in foreign exchange derivatives.

Finance Minister Guido Mantega said the move was aimed at reducing foreign investment into Brazil, and he urged other countries to take coordinated action against the weak dollar.

Argentina's Minister of Economy and Public Finance Amado Boudou on Monday called on developed nations to focus on creating jobs rather than actions that weaken their currencies, saying a "true currency war" was underway. Link to more on Geithner's Strong Dollar Farce

Global finance leaders fail to resolve deep differences that threaten full-blown currency war

Martin Crutsinger
AP Economics Writer
10/9/10

WASHINGTON (AP) -- Global finance leaders failed Saturday to resolve deep differences that threaten the outbreak of a full-blown currency war.

Various nations are seeking to devalue their currencies as a way to boost exports and jobs during hard economic times. The concern is that such efforts could trigger a repeat of the trade wars that contributed to the Great Depression of the 1930s as country after country raises protectionist barriers to imported goods.

The International Monetary Fund wrapped up two days of talks with a communique that pledged to "deepen" its work in the area of currency movements, including conducting studies on the issue.

The communique essentially papered-over sharp differences on currency policies between China and the United States.

The Obama administration, facing November elections where high U.S. unemployment will be a top issue, has been ratcheting up pressure on China to move more quickly to allow its currency to rise in value against the dollar.

American manufacturers contend the Chinese yuan is undervalued by as much as 40 percent and this has cost millions of U.S. manufacturing jobs by making Chinese goods cheaper in the United States and U.S. products more expensive in China.

China has allowed its currency, the yuan, to rise in value by about 2.3 percent since announcing in June that it would introduce a more flexible exchange rate. Most of that increase has come in recent weeks after the U.S. House passed tough legislation to impose economic sanctions on countries found to be manipulating their currencies.

Egyptian Finance Minister Youssef Boutros-Ghali told reporters Saturday at a concluding news conference that there were "a number of points of friction" at the meetings. But he said it was a significant achievement that all countries recognized the central role the IMF should play in trying to resolve currency conflicts.

IMF Managing Director Dominique Strauss-Kahn said he did not view the outcome of the discussions as a failure. He said they set the stage for further progress at the upcoming summit of leaders of the Group of 20 nations in November in Seoul and at future IMF meetings.

Strauss-Kahn said the G-20 countries remained committed to the goals they established a year ago of achieving more balanced global growth and that this will require changes in currency policies.

The G-20 includes traditional economic powers such as the United States and Europe along with fast-growing economies such as China, Brazil and India.

"I am not disappointed," Strauss-Kahn told reporters about the outcome of the two days of talks. "We can talk and talk and talk. What we need is real action. I don't believe this action can be done except in a cooperative way."

Strauss-Kahn acknowledged that significant differences also remained on the question of reforming the IMF by giving China and other fast-growing economic powers greater voting rights and representation on the IMF board. The G-20 leaders are supposed to endorse a deal on IMF reform at their Nov. 11-12 summit.

Treasury Secretary Timothy Geithner on Wednesday raised the possibility that awarding greater power to China in the IMF should be linked to a greater willingness of that country to reform its currency system.

Strauss-Kahn said this comment was not a form of blackmail but rather acknowledgment that as countries grow more important economically, they mush bear greater responsibility for the proper functioning of the global economy.