As outlined in several prior posts, one way to get a modicum of inflation going again would be to introduce a new currency so as to devalue the currency it replaces. This is one of the oldest tricks in the book and one that has been used often in the recent past (think Argentina, Zimbabwe…) and again very recently with the introduction of the Euro for example. At this stage of the game however, nothing short of somehow altering or even replacing the global reserve currency is going to help.
In recent months rumors have filled the airwaves at regular intervals regarding potential strategies that could be implemented: the Amero, adoption of the UN’ Special Drawing Rights (SDRs) and even rumors of a two tier devaluation of the US Dollar differentiating between US$ held overseas (to be devalued more) and US$ held within US borders.
What is clear is that governments are running out of options to restart the inflationary cycle and this would be a desperate last ditch attempt that would buy us some time. But that’s all it would do. Buy us some time because as per the latest BIS report, outstanding global financial obligations are still running at US$600Trillion whereas global GDP is running in the ball park of US$50Trillion and is dropping fast. The elephant in the room therefore is still the debt mountain we have built in 100 years of aggressive, pervasive and persistent inflation pumping in the US$ monetary system (the US$ being the world reserve currency of course).
Here is Jesse’s Cafe Americain with his comments and an article written by Martin Wolf in, of all places, some Persian Gulf daily:
Here is the UN’s own Trade and Development Report 2009 – true to form of course, always late to the penny-dropping party and always misguided in the final conclusion. But at least they’ve brought the issue up finally.
In the needlessly wordy, overly pompous lump of platitudes and redundant ideology that passes for a “report” at the UN, what you want to read is chapter IV: “Reform of the international monetary and financial system”. You will find the link at the bottom of the page under “quick links”. It is a PDF file and I seem unable to attach a link for you but I will post below their own highlights.
To be sure the report is actually reasonable in its initial chapters despite a glaring piece of ignorant pablum right at the start of the report when the luminaries that are the UN researchers state that:
“The crisis proves that free financial markets do not lead to optimal social and macroeconomic outcomes.”
Of course, the UN conveniently disregards the fact that in economies where, for example, the choice of monetary system is not submitted to the people for ratification, where interest rates are manipulated arbitrarily by political decree, where in order to pander to special interest groups companies are not allowed to fail, where governments arbitrarily decree that corporate and commercial law must be suspended in order to save the system and where governments arbitrarily appropriate public funds, where industries are protected and subsidized even though they are not economically viable, how free can the market really be?
But, in all honestly, the report does get better as you go along… to a point:
“… because speculative investments do not generate increases in real income. […] Financial globalization implies a de facto loss of national policy autonomy […] The current international reserve system does not provide for any disciplines on surplus countries and on deficit countries that issue reserve currencies. (Ed. you don’t say!) […] In the absence of symmetric interventions in currency markets, the system has a deflationary bias… […] Any reform of the inter- national monetary and financial system has to address the issue of SDR allocation (Ed. this is the allusion to a new reserve currency).
This is the point at which after having identified many of the shortcoming of the present monetary system, the bright crayons that are the experts in the UN box, go on to offer solutions that are nothing but variations on the floating exchange fiat theme… ergo… more of the same…
I expected no less from the UN so, here it goes:
“Unconditional countercycli- cal access to IMF resources would help prevent excessive currency depreciations. […] Achieving a stable pattern of exchange rates stands a bet- ter chance within a multilat- erally agreed framework for exchange-rate management. (Ed. of course the UN says it is desirable but does not say how to achieve that concretely. Also, the UN completely disregards the fact that government continuously intervene in the currency markets; what else is Quantitative Easing? Why set up Euro/Dollar swap lines of credit with foreign governments?… what a bunch of crock!!) […] An exchange rate system based on the principle of constant real exchange rates would tackle the problem of destabilizing capital flows at its source (Ed. these nitwits propose floating exchange rates by any other name i.e. more of the same)
So, after a reasonably good start even if peppered with pablum, the UN report goes on to propose more of what we already have but maybe with a new currency or a revalued global reserve currency and then, disregarding all the crap they have dished out in what is essentially a piece of trashy literature that aims to justify the grossly ludicrous salaries and benefits paid to an over staffed, under employed, unjustifiably proud, over arrogant, group of vain and ineffective “professionals” that couldn’t hack it in the real world, they conclude with one pearl of wisdom:
“A further accumulation of external debt obligations by the United States would make the world economy even more fragile.”
Of course, if you follow this blog, you will know that I contend that like Climate Change, the UN is nothing but a tool of inflation. I don’t mean to detract from the group of true idealists that are employed here and there within the organization and that are genuinely unaware of the ultimate purpose of the UN. But all the UN is, is a tool meant to create circulation of great amounts of money in an attempt to maintain a positive multiplier effect of the currency. That is the reason the UN must spend money regardless of the political/economic/social conditions it encounters in the areas where it operates. Have you ever heard the UN not to disburse on a project because the local government had been found out to be corrupt? Of course not. The UN must disburse because failure to deploy those sums would mean a reduced budget for the following year. And I can assure you that no UN department is going to stand for that. The UN will always outspend itself in an effort to acquire ever more resources year in year out. That is par for the course in a monetary/political system predicated on inflation.
But inflation is teetering on the brink of the deflationary cliff these days….
How far can a global war be?
2013/2015 is my prediction in the absence of radical political economic change in direction.
Take me to task then.