Fact or Fiction, Dreams or Reality.. The IMF to Raise 1trillion

Fact or fiction, dreams or reality, rumors or news, which ever this is, it is the driving forces in the currency markets this afternoon. The International Monetary Fund (IMF) is planning to expand its lending capacity to $1 trillion from the current $385 billion to protect the global economy from the negative consequences of the European debt crisis, according to an official at a Group of 20 nations.

The expansion discussions will probably take place at the coming G-20 Finance Chiefs meeting in Mexico on Feb 25-26, where contributions from China, Brazil, Russia, India, Japan and oil-exporting nations are the main base for the expansion. The question is will they be able to find contributions to do so, and how would these contributions be limited to the EU. The IMF charter requires assistance to all countries. How would the US veto power work in this instance? Today’s report contains no facts just a fact that a discussion will be held.

Marketwatch.com news told the story: Most European stocks markets pared losses in choppy action Wednesday on news that the International Monetary Fund proposed a beefed-up lending program.

Stocks spiked on media reports that the IMF proposed expanding its lending fund to $1 trillion in a bid to protect the global economy from the euro-zone debt crisis.

“Although we have been cautious of recent economic data surprising to the upside this news from the IMF could be a short-term catalyst to push this market higher,” said Atif Latif, director of trading at Guardian Stockbrokers.

“If this materializes then it allows a safety-net mechanism by trying to persuade other nations such as BRICs [Brazil, Russia, India and China] and Japan to become more involved,” he said.

This is an old story, brought back to life. Several months ago, Christine Lagarde was touting promises from Latin American nations of additional support for the IMF during her visits to South America, to date nothing has materialized but to be certain there are always conversations and discussions.

The euro responded to this news, moving up in afternoon trading the EUR/USD rose to $1.2760 from $1.2728.

The big story unfolding is in Greece where Prime Minister Lucas Papademos said he would consider raising legislation to force a private-sector haircut on the debt if a deal can’t be reached voluntarily. Greek talks remained stalled as it is becoming more and more obvious that Greece will sooner or later default regardless of the negotiations and this temporary solution. This situation is running out of time and will eventually force the hands of the EU.

The IMF meetings in Mexico are scheduled for just one day after Greece reaches critical mass. The meetings will most likely turn into conversation as how to help Greece survive the default and the ramifications and consequences. The next 5 weeks should prove stressful on governments and banks, while investors might just move to the sideline and lose their appetite for risk.