Edmund Conway
Monday, March 16, 2009
The International Monetary Fund is poised to embark on what analysts have described as “global quantitative easing” by printing billions of dollars worth of a global “super-currency” in an unprecedented new effort to address the economic crisis.
Alistair Darling and senior figures in the US Treasury have been encouraging the fund to issue hundreds of billions of dollars worth of so-called Special Drawing Rights in the coming months as part of its campaign to prevent the recession from turning into a global depression.
Should the move, which is up for discussion by the summit of G20 finance ministers this weekend, be adopted, it will represent a global equivalent of the Bank of England’s plan to pump extra cash into the UK economy.
However, economists warned that the scheme could cause a major swell of inflation around the world as the newly-created money filters through the system. The idea has been suggested by a number of key figures, including billionaire investor George Soros and US Treasury adviser Ted Truman.
Simon Johnson, former chief economist at the IMF, said: “The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them.
“The objective is to create a windfall of cash. However, if everybody goes out and spends the money it could be very inflationary.”
Comment:
The Gold Anti Trust Action Committee (GATA) (which has this article on their website) has been one of the first groups to allege manipulation of the gold price. They’ve launched a Freedom of Information Act (FOIA) inquiry into the actual quantity of gold reserves held by the US, and they allege that it’s likely to be half the official amount because of secret sales, leases, and other arrangements promising it out. Rising gold prices indicate an erosion in savings, so a stifled gold price is part of government “propaganda” to keep people from figuring out that they’re losing their savings.
I also found an excellent piece by Antal Fekete on their site. Fekete, a renowned Hungarian mathematician, critiques a recent article by NY Times columnist and rock-star Keynesian, Paul Krugman, in which Krugman blames Asians for the financial crisis. The article, “Revenge of the Glut,” claims that Asian savings caused excess spending and debt. Fekete correctly calls this a piece of nonsense.
Instead, he points out something I haven’t seen any other writer talk about – the fact that while low interest rates are a good thing for business, falling interest rates aren’t. What falling rates do is make the cost of old loans more burdensome. A falling interest rate environment raises the cost of debt liquidation and thus erodes capital. Eventually it eats up the entire capital base of firms and banks, which is why we are seeing an across the board collapse of banks and auto companies.
Low interest rates thus feed the derivative bubble which in turn drives the interest rate lower and lower. Ultimately the savings and capital of the whole economy are destroyed. That’s what we are living through.
I’m actually working on a piece myself on Krugman’s article and how it ties in with the propaganda of the last two weeks.
I hope to have it ready tomorrow. Meanwhile, here’s a great line from the Fekete article for you to think about:
That’s the nature of the so-called Keynesian revolution. It is not a branch of economic science; it is a branch of Leninism, a blend of collectivist ideology reinforced with unmatched expertise on conspiracy, street fighting and barricades.