Friction at IMF meeting as global economic outlook worsens

Sharp disagreements over the US Federal Reserve’s “quantitative easing” came to the surface in the final two days of the meeting. On Saturday, Guido Mantega, Brazil’s finance minister, who has warned of “currency wars” as a result of the Fed policy because it lowers the value of the US dollar, branded the policy “selfish”.

Wrong. Quantitative easing does NOT lower the value of the dollar. It has nothing to do with the value of the dollar. A monetarily sovereign government like the US government can create limitless money, and still it won’t cause inflation.

Reason: With a limited commodity like gold, you can depress the price (i.e. devalue the gold) by flooding the market with gold. This is supply and demand. Most people think it is the same with money (e.g. Guido Mantega, Brazil’s finance minister). They are wrong. (Or they are lying.)

For a monetarily sovereign government like America’s, fiat currency is unlimited. (Gold is not.) What causes hyperinflation is not the supply or shortage of money, but the degree of demand for it (i.e. trust in it). Massive printing of currency is the result, not the cause, of hyperinflation. If people lose trust in the currency, then they need a mountain of money to buy a loaf of bread. The government can print more money, but if it does not restore faith in the currency, then the more money it prints, the less faith the people have in the currency, and the worse the hyperinflation.

In Weimar Germany, people lost trust in the currency. The result was hyperinflation. The government responded by printing money, which further decreased the trust in the currency, and thus increased the hyperinflation. Hjalmar Schacht cured this by introducing an alternative currency (the Rentenmark) and using sheer bullshit to get the people to have faith in it. He said the Rentenmark’s value was based on “a mortgage on all of the properties in Germany.” If you don’t understand the meaning of that, it is because it has no meaning. However the people bought the bullshit, and currency stability returned. Then the Rentenmarks were traded in for regular Deutschemarks, and all was well until the depression hit, which was an entirely different phenomenon.
 
Currently the USA has very low money inflation (not to be confused with price inflation, which is a different thing) because there is still a high trust in the currency. The shortage of currency (i.e. the depression) makes US dollar seem even more desirable, as though dollars were a limited commodity. Thus there is full demand for the money (i.e. trust in it). Thus there is no dollar inflation. (But there is price inflation, which worsens the depression, which increases the demand for dollars, which keeps money inflation in check.)

With a limited commodity like gold, the “demand” side of the supply-and-demand cycle is based on supply. With an unlimited item like fiat currency, the “demand” side is quite different. It means trust in the currency. It has nothing to do with supply.

Currently the Fed discount rate is 0.75%, and the Fed funds rate is 0.25%. That’s a lot of cheap money flowing around the financial economy (but not the real economy). And yet there is no inflation, because the demand for dollars (i.e. trust in dollars) remains high, since T-bills are the only safe investment in a world of endemic bank fraud. And also because the dollar remains the world’s reserve currency, and the basis of petrodollars.

If the dollar “collapses,” it will not be because there are too many dollars in circulation. (Currently there is a severe shortage of dollars in the real economy; hence the depression). No, it will be because people lose trust in the currency, regardless of how much or how little currency is in circulation.

Price inflation is different. It is based on energy prices. The higher the price of energy, the higher the price of everything else. This worsens the depression, but it does not trigger monetary inflation. On the contrary, is mitigates monetary inflation.

Just remember, with fiat currency and a monetarily sovereign government, the ordinary definitions of “supply and demand” do not apply. Instead, with a limitless thing like dollars, “demand” does not mean shortage of dollars. It means trust (or “faith”) in the dollar, regardless of shortage or surplus.

Fed chief Ben Bernanke replied the next day when he insisted that the ultra-loose monetary policy not only boosted the US economy but helped support the global economy as well.

Wrong. It only boosts the financial economy, which is a parasite on the real economy. Creating money and dumping it into the reserve accounts of banks (which cannot legally spend the money) does nothing to get money into the economy. Hence the depression remains. Bernanke is lying, as usual.

However, Masaaki Shirakaw, the governor of the Bank of Japan, which is engaged in its own version of quantitative easing, warned that the policy could be creating the next financial crisis as it “may have parallels with the environment that gave rise to the great credit bubble of the 2000s.”

There is no credit bubble. The shadow banking system (which issues credit, not money) has dried up, and regular banks are not lending either. Currently the USA needs some kind of credit bubble. It would be better than the current depression. Better still, of course, would be the elimination of the Fed, of federal taxes, and of lying politicians. The USA should simply create money and spend it into circulation. This would cure the depression almost overnight. It would not cause dollar inflation, as long as people continue to trust the dollar currency.

Another conflict, between the IMF and Germany, erupted when IMF managing director Christine Lagarde took the conference floor on Thursday to call for Greece to be given more time to implement its austerity programs. She indicated that European countries should hold back budget cuts and tax increases if growth weakened.

She is trying to delay the inevitable wars, rebellions, and secessions. The MF helped create the Troika monster, and now even the IMF has lost control of austerity.

Her comments brought a sharp response from German finance minister Wolfgang Schäuble. Speaking on the sidelines of the meeting, he said Lagarde appeared to contradict the IMF’s own stance, noting that “time and again” the fund had warned that high debt levels threatened growth.

Translation: German bankers like maximum austerity, and Ms. Lagarde can get stuffed.

Hasty efforts were made to put on a show of unanimity. Lagarde and Schäuble appeared together in a televised debate hosted by the BBC and played down the differences. Lagarde denied the IMF had shifted its approach. It had consistently argued that “fiscal adjustment” was necessary. “Call it adjustment, fiscal consolidation or austerity—it is exactly the same thing,” she said.

Translation: “Aw shit, we had better create the illusion of solidarity, or else the peasants will doubt our godlike powers.”

In the case of Greece, however, Lagarde called for “a bit more time,” while Schäuble insisted that Greece had to “stick to what has been agreed.”

Translation: Lagarde says that if you want to suck all of Greece’s wealth all at once, you will drive Greece out of the euro-zone. Why not slow down, so you can suck ALL the wealth from Greece? German bankers respond that Greece is too tasty a morsel to resist devouring right away.

The dispute does not signify that the IMF, notorious for imposing a “lost decade” on Latin America, driving Indonesia into a deep recession after the Asian Crisis of 1997-98 and inflicting a social catastrophe on Greece, has suddenly had a change of outlook.

No, it means that the IMF has become scared. With the increasing depression, who knows where it will end up? By contrast, euro-zone bankers don’t care.

The dispute reflects the conflicting interests of the major powers. Germany fears that if Greece and other countries are given more time, this will ultimately have to be paid for by the German banks.

Solution: dump the euro, you krauts!

The position of the City of London was summed up in an editorial in the Financial Times entitled, “The Solomonic advice of the IMF.” It called for additional time to be given to Greece and warned that new cuts should not be imposed in countries where the slowdown was worse than expected. At the same time, the editorial made clear that there should not be a “relaxation” of the austerity measures in Britain.

In the first place, nothing is “worse than expected.” If you raise taxes and cut spending, such that 20 billion euros are sucked out of the economy, then you will increase the depression by precisely 20 billion euros. No surprise. No uncertainty. Secondly, England has austerity for completely different reasons from the euro-zone nations, since England creates its own currency. For England, austerity is a means to maintain the lie that money is limited. Hence the peasants must grovel to bankers and their puppet politicians.

The attitude of US financial circles was expressed by New York Times columnist Paul Krugman and former US Treasury Secretary Lawrence Summers, both of whom have criticised the European austerity measures.

Both Jews (Krugman and Summers) admit that the way to cure the depression is to get more money into the system. And yet, both Jews also maintain the lie that for the U.S. government, money is limited. Therefore we must “cut the deficit.” Just not right now.

The tensions between the major powers resulting from the slide into global recession are certain to increase.

No problem. War is good for business.

The IMF steering committee statement issued at the end of the meeting said the economic outlook was worsening. Global growth had “decelerated and substantial uncertainties and downside risks remain,” it warned. Its summary of the situation in the world economy did not point to any improvement.

Wow! You mean we have a depression, and it’s getting worse all the time? Who knew?