BOSTON (TheStreet) -- For all of the wild volatility in 2011, the U.S. stock market was essentially unchanged. After word that the International Monetary Fund is looking for more cash to combat the European debt crisis, it seems investors are in for more swings this year.
The IMF puts potential global financing needs at $1 trillion over the next two years, above current reserves of $385 billion. The funding agency is aiming to raise $500 billion in additional lending resources to cover the gap as well as another $100 billion as a buffer. Group of 20 officials will meet in Mexico City on Thursday and Friday to discuss possible outcomes, according to Reuters.
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| Christine Lagarde |
"I welcome the recognition of the importance of ensuring adequate fund firepower to help defuse the current global economic weaknesses and regional challenges," IMF Managing Director Christine Lagarde said in a statement Wednesday. "To this end, fund management and staff will explore options for increasing the fund's firepower, subject to adequate safeguards."
The U.S. said it has "no intention" of providing more money to the IMF, as CNBC reported Wednesday, raising concerns of where the money will come from -- if it comes at all. It's expected that Europe itself will be responsible for raising funds to cover the gap.
The news of the IMF's move to raise $600 billion came alongside renewed concerns that Greece, the ground zero of the European debt crisis, may default on its debt obligations. Even so, equity markets continued their ascent. The S&P 500 Index in the U.S. rose 1% Wednesday to bring the 2012 advance to 4%, the best start to a year in almost a quarter century.
If the IMF is readying its war chest to combat any exacerbation of the debt crisis and equities keep rising, that means investors should feel more comfortable in making more risky investments, right? Not so fast, said Michael Pento, president of Pento Portfolio Strategies.
"The idea that in the long term you can borrow and print money, or in effect monetize debt in order to keep long-term interest rates low, is ridiculous and impossible," Pento said. "It has never happened in the history of economics. It will fail again in Europe. It's a shell game of debt. What they are doing is borrowing and printing money to solve the situation. This can work only temporarily."
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