Elephant in the Room: Washington’s giant hedge fund.

Most know that the International Monetary Fund isn’t a bank in the conventional sense – at least in theory, or in the way those who frequent these virtual pages think of them.

Yet headlines and anecdotal evidence over the past few weeks might suggest there is more bank – and even fund-like activity – going on than meets the eye.

First, the IMF comes up with a forecast that commodities prices are going to rise this year – not drastically or in a bubbly kind of way like they did in 2008 but in a grind-higher kind of way, thanks to recovering economic activity and reduced supply.  This, despite already rising significantly during the recent recovery (chart below via IMF Survey magazine)…

Then they announce that they’re dumping a bullion-load of gold into the market – 191.3 tons of gold reserves parked somewhere deep in their Washington DC coffers in a bid to raise cash for lending purposes.

What gives? Has the IMF turned into some sort of hedge fund / CTA-style speculator? Are they talking their own book, so to speak?

Most would strongly suggest otherwise. Contrary to what a broader portion of the news-absorbing public believe, the IMF’s mandate is to help countries in financial trouble out of their mess – with short term loans and with longer-term market-friendly direction and advice that eventually leads to renewed investment and recovery, and in turn growth, employment and reduced poverty.

In fact, the history behind why they have so much gold in the first place makes their mandate make that much more sense, not to mention the organization’s long history of producing reams of research, working papers and forecasts.

Yet in the span of less than six weeks, the IMF, which has 186 member countries, the biggest one being the US, has made public announcements about where it sees commodity prices going: black gold on one side of the coin, and real gold on the other.

Lest anyone forget, the IMF’s sister organization, the World Bank, has its own $65 billion portfolio and an in-house, high-tech, multilingual, proprietary trading floor to manage it.  In fact, the pension money of both the IMF and World Bank is allocated to a broad range of outside hedge funds and other alternative investments.  So the IMF is no stranger to hedge fund strategies.

Is there something else behind the IMF’s recent actions?  Does it have a case of hedge fund envy?

Ironically, the recently unveiled “Volcker Rule,” if ever approved would effectively ban banks from engaging in proprietary trading or even having separate businesses that engage in trading and investment activity would make the kind of stuff the IMF and World Bank are doing effectively illegal. Scoff-worthy, indeed, but not completely beyond the realm, we might suggest.

Indeed, with news like Britain’s long-standing  encounters of the third kind swashing about, one can never be absolutely dead-fast sure about government motivation, intervention, action and what may or may not be real – like the IMF being a hedge fund in disguise, and in turn influencing commodities markets to its benefit.

A candidate for the Volcker rule, or one for the conspiracy bin? We’ll let you be the judge.

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One Comment

  1. Duffminster
    February 25, 2010 at 3:10 pm

    Personally, I believe the IMF has not done the 3rd world any good. It along with the world bank has supported far too many brutal dictators that effectively signed over those countries natural resources, national treasures, and economic future so that giant loans paid largely to said non democratic governments ruling elites. When things go wrong the ruling elite shift the entire burden of debt repayment back on to the backs of the citizens of the nation and the IMF takes the national treasure. Now they sell it to “raise money” for the poor countries. The create the problem and then act as if they are the heros comming to the rescue.

    A program of person to person micro loans to women and small business and full support of liberty and democracy would be a far more honest and humane policy in my opinion.


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