Geithner, G-20 Threaten to Use 'The Bazooka' While Searching for Ammo

Fri, Oct 14, 2011 - 12:56pm

The greatest fear among short-sellers right now is the use of what has come to be known as the “coordinated response bazooka.” The idea is for the world’s biggest economies to join together to provide a massive amount of capital which could help Europe backstop its banks and put an end to the debt crisis once and for all.

Think about it; if the United States, China, Japan, Canada and emerging market countries such as Brazil would pool their resources, the problem would effectively be solved. With no crisis to bet on, the shorts would be forced to cover. Then the value crowd would get off the sidelines and jump on all the bargains we’ve been hearing so much about in the stock market. Thus, the stock markets of the globe would likely soar higher into the end of the year. This would increase confidence and remove the worry of a global recession. Simple, right?

If only. The problem with the plan is also relatively elementary – most of the world’s economies stink and nobody has an extra trillion laying around to put into the bailout pot.

Take the United States for example. Treasury Secretary Timothy Geithner did his best to appear calm, cool, and collected when interviewed on CNBC Friday morning in Paris. Geithner appeared to confidently say the situation is in hand and the Europe has the resources to take care of the problem. He even said that the U.S. will play a “very major role” in helping Europe.

Geithner told CNBC’s Steve Leisman, "Through the IMF, of course, we're already playing a very major role. We're happy to see the IMF continue to play that role in support of a more forceful, comprehensive strategy where Europe's own resources—very ample resources—are deployed on a much more substantial scale."

The Treasury Secretary went on to say that the “bazooka” was out there waiting to be used. "A basic rule of financial crises management is you want to make sure you have a level of resources that are larger than the potential need you face."

On that note, the BRIC nations have also publicly talked about the idea of lending a hand to Europe recently. But officials from the individual countries almost instantly backpedaled on the idea suggesting that Europe must first get its house in order before looking for help from other countries.

The mighty U.S. appears to have done the exact same thing on Friday. No sooner had Geithner told a CNBC audience that the U.S. would play a major role “through the IMF, of course” than the Treasury Secretary had shot down a plan to double the size of the IMF in a closed door meeting.

According to Reuters, Geithner said the IMF has plenty of resources and that the U.S., which is the largest investor in the IMF, is not in favor of increasing the size of the IMF.

"They (the IMF) have very substantial resources that are uncommitted," Geithner said.

Herein lies the problem with “the bazooka” being fired – nobody has the ammo. In other words, it is tough to find countries that want to put up the money as they are busy fighting the problems on their own home fronts.

There is little doubt that the European leaders will have a new, comprehensive plan of attack before the next G20 meeting on November 3-4 and it is even likely that we’ll see a plan before the EU Summit on October 23. The only question is whether the plan will actually include “the bazooka” or if the powers-that-be will just talk about it some more.

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