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 Wiccan_Seeker
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 OK this is bad, this is really f*cking bad... 
#11033395 - 09/10/09 12:40 PM (3 years, 8 months ago) |
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The New Inflation Threat
By Paul Nathan Printer Friendly Version Bookmark and Share
Aug 31 2009 11:00AM
www.kitco.com
Late on a Friday in August, when most people around the world were not looking, the international monetary system, in an unprecedented move, evolved. We were notified by the IMF of the following:
Aug. 28 (Bloomberg) -- The International Monetary Fund said it today pumped about $250 billion into foreign-exchange reserves worldwide, acting on an April call from leaders of the Group of 20 nations to boost global liquidity.
Countries will be able to convert the money, to come from so-called Special Drawing Rights, into hard currencies through “voluntary trading arrangements” with other members, the IMF said on its Web site today. The SDRs are the institution’s unit of account based on a basket of currencies.
The allocation, approved by the IMF’s board of governors earlier this month, will not increase the fund’s pool of money available for lending, the IMF said. “It will, however, provide members with an additional method to obtain hard currencies.”
Another smaller reserves allocation of about $33 billion will take place Sept. 9 and will be limited to members that joined the lender after 1981, such as countries from the former Soviet bloc, the IMF said.
About $110 billion of the total allocation will go to emerging-market and developing countries and $20 billion to low- income nations.
“A number of members with sufficiently strong external positions” have already said they are ready to set up or expand existing arrangements enabling the sale or purchase of SDR's, the IMF said. The lender typically acts as a broker and arranges transactions between parties at no cost. (End News Release)
What this means is that for the first time in history we have a world central bank capable of creating money out of thin air. No longer does the IMF need to borrow money with a vote of all members plus the consent of the US congress. It can simply create whatever amount of money it needs through the creation of SDRs. Not for itself, mind you, but for the world. The SDR has been around since 1967, but never as a convertible asset. That changed Friday, August 28th, 2009. The SDR has quietly mutated.
The decision was made August 7th, in an IMF vote. According to the IMF "global reserves will increase from just USD33bn to USD283bn or about 4% of global reserves excluding gold. In addition, the IMF will start issuing SDR notes later this year (China, Brazil and Russia will be the main buyers). These SDR notes can be counted as part of currency reserves and hence SDR assets could reach 5% of total reserve assets later in 2009 and possibly surpass GBP, JPY and CHF in importance as reserve assets." This is a foot in the door.
The prospect of this happening was covered in my article, The Making Of An International Monetary Crisis:
"The spectacle of billions of inconvertible dollars frozen in the vaults of central banks has brought on cries of condemnation over the dollar’s credibility as a reserve currency. The Policy Maker’s theory of a stable yet artificially ever-expanding reserve currency has failed.
The "solution" to the problem (if the Policy Maker remains consistent) will be to evolve the international monetary system from a system in which an ever-expanding reserve currency provided the world with credit and liquidity, to a system in which an ever-expanding reserve "asset" will fill that role. Like the dollar, this reserve "asset" will amount to circulating debt, i.e. something owed rather than something owned. It will be a non-market instrument, deriving its acceptability from government cooperation and decree, "immune from the laws of the free market and outside the reach of greedy speculators."
Where will this "asset" come from? Under the Bretton Woods system, dollar reserves were furnished by the U.S. central bank. Both the bank and the "asset" failed to provide sufficient stability. The next step is to create a world bank (a larger bank of last resort) controlled by an international organization (the IMF) with the power to create a new "asset," independent of any single government’s monetary policy.
As a supplement to gold and like the dollar before it, this "asset" should be a credit instrument. Unlike the dollar, it would have the backing of an entire world of central banks. The "asset" should be ever-expanding and should provide both liquidity and stability." That asset is the SDR and the potential became a reality this weekend. (For a further discussion of creating international reserves and the SDR, see my articles The Making Of An International Monetary Crisis and Bretton Woods 1944-1971, under "Other articles" by Paul Nathan).
As of this weekend, the world is 250 billion dollars "richer". No products were produced. No taxes were raised. Not even one cent was borrowed. The IMF simply created a bookkeeping entry on behalf of those countries it felt worthy of receiving additional reserves. The reserves, SDRs, are a claim to "hard currency". The hard currency will be provided by those with "sufficiently strong external positions”, in other words, surplus nations.
There is no reason for surplus nations to part with hard currency, save two, that I can think of: Altruism or Power. And in my opinion they are having a go at the latter. My read on this is that the surplus nations have just made an end run around the United States and the US Congress who have veto power over IMF decisions. Surplus nations can now provide “voluntary trading arrangements” with non-surplus (importing) nations with the IMF as "broker". This sounds like a mechanism for the surplus nations to provide buying power to importing nations at the expense of us all.
The ability to inflate has now been augmented. It has transcended national boundaries from national central banks to a world central bank. This "new" bank now has the power to create money. Inflation is no longer limited to one currency but will affect all paper currencies in the world. We now have the prospect of a synchronized international inflation. It's not enough that citizens throughout the world had to keep a keen eye on their nations central bank, now we all need to keep an eye on the IMF.
The "IMF's Board Of Governors", a group never elected to office, unknown to most, and accountable to no one, has now gained the power to create new claims on production without legal limits or oversight from any regulatory body. All it need do is vote for more SDRs.
Given the "announcement in the dead of night" tactics just employed, I suggest we all sharpen our eyesight. This development doesn't change the inflation outlook for the next month or even for the next year. But make no mistake -- the "powers that be" just took the fiat system and the inflation threat to a new level.
Paul Nathan
August 31, 2009
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 zorbman
Be Prepared
Registered: 06/04/04
Posts: 5,746
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 Re: OK this is bad, this is really f*cking bad... [Re: Wiccan_Seeker]
#11033570 - 09/10/09 01:24 PM (3 years, 8 months ago) |
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Quote:
As of this weekend, the world is 250 billion dollars "richer".
Yippee!!!!!!! 
If the economic crisis was the result of a lack of money why not just give every person their very own printing press?
That way when money is needed you just go into your office and print whatever money you need!! 
Problem solved.
Right?
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Why does changing the party in power never change policy? Could it be that the views of both parties are essentially the same? - Ron Paul
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Wiccan_Seeker
gold foil hat admin
Registered: 02/06/02
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Loc: Virgo Supercluster (or b...
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Re: OK this is bad, this is really f*cking bad... [Re: zorbman]
#11034163 - 09/10/09 03:10 PM (3 years, 8 months ago) |
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I must admit, if i could print my own money I'd celebrate it too by printing $250.000.000.000
250 G dollars
6 G people
$42 for each of us to pay to fund the victory party of the IMF taking world domination one step further.
We pass $42 as easy as a wet fart, but for many people in Africa its two months of income.
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Mr.Al
Alphabet soup
Registered: 05/27/07
Posts: 5,175
Loc: N.S.A. D.C.
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Re: OK this is bad, this is really f*cking bad... [Re: Wiccan_Seeker]
#11034808 - 09/10/09 04:59 PM (3 years, 8 months ago) |
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Quote:
Wiccan_Seeker said:
I must admit, if i could print my own money I'd celebrate it too by printing $250.000.000.000
250 G dollars
6 G people
$42 for each of us to pay to fund the victory party of the IMF taking world domination one step further.
We pass $42 as easy as a wet fart, but for many people in Africa its two months of income.
At some point no one will accept paper anymore.... Hopefully people would stop having faith in government then.
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Silversoul
Holon
Registered: 01/01/05
Posts: 22,562
Loc: Mostly harmless
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Re: OK this is bad, this is really f*cking bad... [Re: Wiccan_Seeker]
#11034883 - 09/10/09 05:12 PM (3 years, 8 months ago) |
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Do you really expect this money to be spent on inflationary things like derivatives? Or do you suppose it will go into wealth-producing things like infrastructure? I suspect it's the latter. You know, it's not just the amount of money that causes inflation. It's all in how it's spent. If in fact the IMF is just giving away this money instead of loaning it out, that's great news, as it will allow these countries to pay off their loans more easily.
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Mr.Al
Alphabet soup
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Loc: N.S.A. D.C.
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 Re: OK this is bad, this is really f*cking bad... [Re: Silversoul]
#11034957 - 09/10/09 05:25 PM (3 years, 8 months ago) |
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Perhaps this new way of creating money will make things more affordable Silversoul?
Maybe if the purchasing power of a nation's money is improved through increased production that might help things just a smidgen?
I'm sure the guys at the I.M.F. are really swell fellas who go to sleep at night planning about all the nice things that they can do for poor folk in third world countries!  
Edited by Mr.Al (09/10/09 05:26 PM)
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Wiccan_Seeker
gold foil hat admin
Registered: 02/06/02
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Re: OK this is bad, this is really f*cking bad... [Re: Silversoul]
#11034966 - 09/10/09 05:28 PM (3 years, 8 months ago) |
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Quote:
Do you really expect this money to be spent on inflationary things like derivatives?
It's not about what its spent on, the very creation of the surplus money devalues all money in the money supply.
And look at this, its the IMF. A private bankers consortium is printing money and spending it in the world to their advantage. The IMF is a business. They put countries over their ears in debt and then let them pay it by selling their infrastructure off.
It is very worrisome that the world a few days ago got its own privately owned "federal reserve" in the guise of the IMF printing money as they see fit.
The little control there was, them having to borrow money, is out the window now.
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Silversoul
Holon
Registered: 01/01/05
Posts: 22,562
Loc: Mostly harmless
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Re: OK this is bad, this is really f*cking bad... [Re: Wiccan_Seeker]
#11035000 - 09/10/09 05:36 PM (3 years, 8 months ago) |
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Quote:
Wiccan_Seeker said:
It's not about what its spent on, the very creation of the money devalues all money in the money supply.
Wrong. If I have 100 widgets and 100 dollars, then each widget will cost a dollar. If I increase the money supply to 1000 without producing anything, then each widget will cost 10 dollars. HOWEVER, if I use the extra 900 dollars to produce 900 more widgets, then they will still only cost 1 dollar. If you use new money to bid up the price of existing assets(speculation), that will cause inflation. But if you use it to create wealth, that is not inflationary.
Quote:
And look at this, its the IMF. A private bankers consortium is printing money and spending it in the world to their advantage. The IMF is a business. They put countries over their ears in debt and then let them pay it by selling their infrastructure off.
There's a lot to criticize the IMF about, and I really don't like the way they have all those countries in debt slavery. But it does them no good to inflate their currency in the denomination that is owed back, because then the money owed to them is worth less.
Quote:
It is very worrisome that the world a few days ago got its own privately owned "federal reserve" in the guise of the IMF printing money as they see fit.
The little control there was, them having to borrow money, is out the window now.
It is my wish that all central banks and monetary systems would be in government hands. But if they're giving money to these countries without further indebting them, I would consider this a very good thing. In fact, even if the countries didn't want to spend the money, they could hoard it and keep it out of circulation, and that would prevent inflation as well. The mere existence of money means nothing until it starts circulating.
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Mr.Al
Alphabet soup
Registered: 05/27/07
Posts: 5,175
Loc: N.S.A. D.C.
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 Re: OK this is bad, this is really f*cking bad... [Re: Silversoul]
#11035054 - 09/10/09 05:47 PM (3 years, 8 months ago) |
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Your widget analogy is priceless...
It falls apart when you realize that the money supply is not increased across the board evenly...
What I mean to say is that it is not as if some benevolent individual is dropping money into everyone's wallet....
No Silversoul. A few well connected corporations will benefit greatly from the influx of new money. The Average Joe & Jane merely see prices begin to creep up and wonder why their paycheck doesn't buy shit anymore!
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zorbman
Be Prepared
Registered: 06/04/04
Posts: 5,746
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Re: OK this is bad, this is really f*cking bad... [Re: Silversoul]
#11035149 - 09/10/09 06:11 PM (3 years, 8 months ago) |
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Quote:
If you use new money to bid up the price of existing assets(speculation), that will cause inflation. But if you use it to create wealth, that is not inflationary.
As a practical matter, how could they limit spending to capital expenditures only?
Wouldn't that injection of money eventually spill over into the broader economy?
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Why does changing the party in power never change policy? Could it be that the views of both parties are essentially the same? - Ron Paul
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Silversoul
Holon
Registered: 01/01/05
Posts: 22,562
Loc: Mostly harmless
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Re: OK this is bad, this is really f*cking bad... [Re: zorbman]
#11035191 - 09/10/09 06:18 PM (3 years, 8 months ago) |
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Quote:
zorbman said:
As a practical matter, how could they limit spending to capital expenditures only?
If it's in government hands, they could spend it on infrastructure.
Quote:
Wouldn't that injection of money eventually spill over into the broader economy?
Once the money has been spent on the capital, it will have grown the economy. Thus, the money circulating afterward will be proportional to the existing wealth within the society.
As a historical example, let's look at Spain and Portugal on the one hand, and England and the Netherlands on the other. During the age of exploration, Spain and Portugal were bringing all this gold into their own countries only to enrich the aristocracy, thus resulting in massive inflation. However, English and Dutch privateers would steal the gold out of Spanish and Portugese ships, and then the money was used to create infrastructure, helping their economies grow tremendously. There was some inflation in their countries, but it was a small, manageable amount compared to that of the Iberian peninsula.
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ArmFromTheAbyss
Old Hand
Registered: 10/09/02
Posts: 1,351
Loc: Down here in Babylon
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Re: OK this is bad, this is really f*cking bad... [Re: Wiccan_Seeker]
#11035308 - 09/10/09 06:42 PM (3 years, 8 months ago) |
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Obviously the money supply has an effect on prices, but its more complex than that. This notion that prices are directly tied to the quantity of money fails to account for several factors:
First there is velocity. If velocity of money is declining, it will negate "money printing" to an extent.
Second, there is the psychological aspect. When people have the expectation of future inflation they tend to speculate and bid up the prices of assets like gold, oil, real estate and commodities. One must not confuse speculation with inflation.
The financial markets, contrary to popular belief, are terrible at valuing things. Just look at the stock market rally- its based not on fundamental earnings growth, but rather expectations of "green shoots."
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"The man who knows something knows that he knows nothing at all" -Badu
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ChuangTzu
starvingphysicist
Registered: 09/04/02
Posts: 2,936
Last seen: 2 hours, 49 minutes
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Re: OK this is bad, this is really f*cking bad... [Re: ArmFromTheAbyss]
#11036160 - 09/10/09 09:06 PM (3 years, 8 months ago) |
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Quote:
ArmFromTheAbyss said:
Obviously the money supply has an effect on prices, but its more complex than that. This notion that prices are directly tied to the quantity of money fails to account for several factors:
...
Second, there is the psychological aspect. When people have the expectation of future inflation they tend to speculate and bid up the prices of assets like gold, oil, real estate and commodities. One must not confuse speculation with inflation.
...
Bingo. That's why this article came from kitco.com.
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Mr.Al
Alphabet soup
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Posts: 5,175
Loc: N.S.A. D.C.
Last seen: 3 days, 16 hours
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 Re: OK this is bad, this is really f*cking bad... [Re: ArmFromTheAbyss]
#11041298 - 09/11/09 05:30 PM (3 years, 8 months ago) |
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None of you ponder what an increase of M1 by 5 TRILLION dollars would do to the value of the dollar in America. The dollar presently has 4% of the purchasing power it had in 1913.
If an organization like the I.M.F. is allowed to create new money then there is a new mechanism for inflation of the money supply.
This is not sustainable economics. Throughout history economies have collapsed due to hyperinflation of the money supply.
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meams
Blessed
Registered: 01/11/05
Posts: 17,382
Loc: In a Tree
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Re: OK this is bad, this is really f*cking bad... [Re: Mr.Al]
#11042714 - 09/11/09 10:24 PM (3 years, 8 months ago) |
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I don't like this.
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Shins
Fun guy
Registered: 09/15/04
Posts: 11,284
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Re: OK this is bad, this is really f*cking bad... [Re: meams]
#11044516 - 09/12/09 05:04 AM (3 years, 8 months ago) |
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too bad! what are you going to do?
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meams
Blessed
Registered: 01/11/05
Posts: 17,382
Loc: In a Tree
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Re: OK this is bad, this is really f*cking bad... [Re: Shins]
#11045469 - 09/12/09 11:19 AM (3 years, 8 months ago) |
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Quote:
Shins said:
too bad! what are you going to do?
Try to get a job with the IMF, duh.
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koppie
astral projectile
Registered: 07/23/04
Posts: 2,653
Loc: cloud hidden
Last seen: 10 months, 26 days
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Re: OK this is bad, this is really f*cking bad... [Re: Shins]
#11046013 - 09/12/09 01:25 PM (3 years, 8 months ago) |
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Quote:
Shins said:
too bad! what are you going to do?
Gemany has the right idea.
Quote:
TG-Gold-Super-Markt, a German company, has installed a vending machine at the [Frankfurt] airport this week and the demand is really encouraging...All you have to do to buy your gold is insert your euros in the slot and a prettily wrapped bar of the world’s favourite precious metal thuds into the dispenser. It's very convenient — no waiting time — you just put in your cash and a minute later you are an investor in gold.
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ChuangTzu
starvingphysicist
Registered: 09/04/02
Posts: 2,936
Last seen: 2 hours, 49 minutes
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Re: OK this is bad, this is really f*cking bad... [Re: koppie]
#11046564 - 09/12/09 03:30 PM (3 years, 8 months ago) |
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Quote:
TG-Gold-Super-Markt, a German company, has installed a vending machine at the [Frankfurt] airport this week and the demand is really encouraging...All you have to do to buy your gold is insert your euros in the slot and a prettily wrapped bar of the world�s favourite precious metal thuds into the dispenser. It's very convenient � no waiting time � you just put in your cash and a minute later you are an investor in gold.
I'm sure the premiums are ridiculous.
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meams
Blessed
Registered: 01/11/05
Posts: 17,382
Loc: In a Tree
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Re: OK this is bad, this is really f*cking bad... [Re: ChuangTzu]
#11048088 - 09/12/09 09:22 PM (3 years, 8 months ago) |
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I'm tryin to rob that vending machine.
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