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Reconstruction of the Fables

JACKSON HOLE, Wyo. -- Is this Brazil thing really surprising?

Not to anyone who has been reading the excellent

work on the subject by our own

Peter Eavis

. And not to anyone who happened to hear

Rudiger Dornbusch

speak at the

American Economic Association

meetings in New York last week.

Your correspondent travels ridiculous distances to hear Rudi in person because he is one of the most engaging speakers -- economist or otherwise -- out there. He's terribly bright. His command of details, from market minutiae today to things you didn't even know happened 10 years ago, is impressive. He speaks more articulately and colorfully than most of us can ever hope to write -- and he does it without notes.

And he's worth listening to about anything having to do with (strange) currencies because (a) he was way out ahead of everyone on the whole


-euro thing, and he got it right; and (b) he spices up his speeches with excellent stories.

Story One:

The proprietress of a street-corner pretzel stand watches a man put a dollar into her jar and leave without taking his prize. The same thing happens the next day and the next day and the day after that. Months pass. Still the man shows up daily, without fail, only to pony up and then walk away without the pretzel for which he paid.

One day, about a year later, the woman grabs her kind customer's arm as he dutifully drops in his dollar.

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"I have to say something to you," she says.

"I know, I know," replies the man. "You want to know why, after paying you every day for more than a year, I have not once taken a pretzel."

"No. I care nothing about that," says the proprietress. "I just wanted to tell you that I upped pretzel prices."

Which leads us to the



Why, even after Mexico, was the IMF so woefully unprepared for what went down in Asia? Why, even after Mexico and Asia, was the IMF so woefully unprepared for what went down in Russia? And why, even after what went down in Mexico and Asia and Russia, was the IMF so woefully unprepared for what's going down in Brazil?

And save it with the each-crisis-was-different line, because they weren't. They were all identical. They were all born the same way -- it matters not whether the fetus came in the form of sleazebag governments or bad banks or dingbat central bankers -- and, in a world where capital moves so quickly, they were all bound to expire the same way. Central banks ultimately failed utterly to keep interest rates high enough long enough to convince the world that the currency was worthy, and short-term liabilities wanted to go back home -- at once. Poof. Implosion. Game over.

A drunk driver can go years without crashing. But the wreck eventually comes.

Rudi points out that the IMF has generally failed in two important ways.

It doesn't demand nearly enough -- or follow up on exacted promises aggressively enough -- in return for its gifts (oops! loans). That was particularly true with Russia, where the Case of the Missing $5 Billion remains unsolved. And what is the IMF doing intervening in countries with neither fully flexible rates nor a currency board anyway? Anything in between is a waste. And shouldn't the IMF have at least


Russia for a board before it "helped"?


World Bank

has gotten very critical of including higher interest rates in crisis-solution equations, and the IMF has rolled over like a

Steve Young

sissy in response. Rudi served up this gem:

The notion that a central bank shouldn't raise interest rates because someone's microeconomics paper shows that it will produce bankruptcies is ridiculous.

Good times never did, do not and will never go hand in hand with a currency crisis. And a crisis currency will not stabilize in the absence of serious debt restructuring, a fiscal policy so stringent that it makes elected officials cry and higher (or at least relatively high) interest rates. Russia's failure to hike already earned it a toe tag. Now the bailiff stands ready to bag Brazil.

It's senseless to spend time calling for the IMF to be abolished; it's the


biggest and best tool for bullying the developing world into doing what it wants. And it's just as silly to expect the folks at the IMF to know enough about every country to forever protect it from crisis.

But is it too much to ask that they at least peek at the %$^& balance sheets once in a while?

Story Two:

A Christian gets thrown into a ring with a lion. He kneels, bows his head and prays. On rising, he notices that the lion has assumed the same position he has.

"Umm, lion, sir?" asks lunch. "I think this contest favors you. A lot. Why are



"Oh, I'm not praying," answers the lion. "I'm saying grace."

Side Dish

A 64% to 36%

vote seems pretty decisive. (Consider that no American president since at least 1824 has won 64% of the popular vote.) Look for more


in the days ahead. All apologies to the No voters.

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