Latin America pressed on rising inflation … The International Monetary Fund warned Latin America on Saturday that economies across the region are overheating, and Canada urged policymakers not to underestimate the risks from rising inflation. The calls for caution contrasted with an upbeat mood among many Latin American policymakers gathered in Canada for an annual meeting of the Inter-American Development Bank. – UK Daily Mail
Dominant Social Theme: "O Oysters," said the Carpenter / "You've had a pleasant run!" / "Shall we be trotting home again?" / But answer came there none… / And this was scarcely odd, because…They'd eaten every one.
Free-Market Analysis: Thumpety thump thump. This is the sound of price inflation reminding us of the famous "Energizer Bunny" that never stops going. The IMF is worried about it; but the IMF's expressions of concern (see article excerpt above) also put us in mind of The Walrus and The Carpenter by Lewis Carroll. Both of them pretend to be quite concerned about the oysters in their charge while gobbling them down. The IMF, a proponent of the destructive inflation-creating machines known as central banks, pretends to be concerned about the price inflation that is an inevitable byproduct of central banking money printing (monetary inflation). But these are "crocodile tears" that the IMF is crying in our humble opinion.
The IMF is correct to be concerned of course. Price inflation is on the march everywhere. China's rickety old leaders have tried everything from price controls to banning real-estate purchases, but still the value of apartments and food goes up in a forbiddingly steep curve. The EU is so worried about price inflation that the central bank is about to raise rates even though the southern half of the EU is spiraling at a fast clip toward bankruptcy.
The UK Telegraph, meanwhile, keeps running articles urging the Central Bank of England to "come clean" on inflation – which is verging on five percent (according to official statistics) and is probably higher than that. Fed chairman Ben Bernanke seems to have no worries about price inflation though food and energy are rising with horrible speed in the US. Perhaps Bernanke doesn't realize what's going on because food and energy are not included in price inflation estimates because the prices of those staple goods are too "volatile."
We read recently that Bernanke tried to make the case for low inflation in a speech in Florida and received such a booing that he had to stop talking. He's still inflating though; QE4 may be on the way; Bernanke et al. has dumped some US$2.5 trillion into the economy recently – and that's just what the Fed is wiling to admit to. Now that the Supreme Court has decided that the Fed must give up lists of banks – and loan amounts – that were made in 2008 and 2009, we may find out more. The Fed is nervous about the additional disclosures. Should they be?
Now … South America: The IMF says so! We knew a while ago, actually. Our gnomes and elves have traveled extensively through that huge, sad continent recently. Some of them even live for significant parts of the year in different regions of South America. Almost everywhere you go in South America there's a building boom going on. There are probably as many high-rises being built in South America as there are banks, and that's saying something. In fact, in many major cities in South America the two most obvious trends are high-rises being completed and the penetration of major banks, many with names you never heard of.
It is almost impossible to overstate how many banks and bank branches there are in South America. Even little countries like Panama and Uruguay have banks springing up like palm trees on every corner. The Anglo-American banking establishment doesn't want you to know this, dear reader. Citizens of major Western countries are used to seeing lots of banks in their downtowns. They figure it's because these cities are "major financial centers." Nothing could be further from the truth. The WHOLE WORLD looks like that. Everywhere you travel, from South America to Africa to Asia, big cities are flush with banks and bank branches. Big ones. Tall buildings. And more on the way.
Actually, it's not merely "animal spirits. It's a bubble. A bank bubble. The world right now is run by central banks and central banks simply will not let their distribution chains contract. The instinct is to build more and more banks to distribute more and more currency. Of course we have pointed out that central banks create money at the push of an electronic button. Central banks don't need banks for currency distribution. They could just as easily provide currency directly to people's individual accounts. Or set up a home delivery system for money. Or drop paper currency from helicopters.
Of course central banks would never do such a thing! It would create "inflation" (price inflation is what they mean). People can't be trusted with "fresh" central bank money. Only banks can. And so central banks print their ridiculous fiat currencies and pack the electronic digits into commercial banks that then, as they choose, circulate the money to customers, but only after they leverage the newfound money via central-bank supported fractional reserve banking.
It costs the banks nothing to put the money in circulation, but when they do manage the trick, they "loan" it out with interest. This is a great marvel; in fact, if you owned a large commercial bank you too would be eligible for central bank money-from-nothing. All you need to do is find your way into the club and be prepared to leverage all you can at interest: The mercantilist Ponzi scheme needs an ever-increasing base of new demand. No wonder there are so many banks in the world!
And the central banks keep printing … In fact they have to print. The dollar reserve system was virtually destroyed in 2008, and only by throwing trillions into the world's banking infrastructure did central banks manage to salvage the ruined system for the moment. But the problems remain and short of printing another US$50- $100 trillion those problems continue to fester. Ireland just performed a stress test on its banks and found out there was an additional US$20 billion hole. Lord knows what kind of shape the rest of the EU's banks are in. Not very healthy, we'd surmise. (Germany's never even bothered to recapitalize.)
Thumpety thump. The beat goes on, as Sonny and Cher sang long ago. The Daily Mail informs us that "countries such as Brazil and Chile are enjoying sustained strong economic growth, propelled by healthy demand for commodity exports and double-digit expansion of bank lending to their consumers." Unpack it a bit. There is a boom, sure; eventually there will be a bust. Perhaps sooner rather than later. America is still in a quasi-depression; China is trying to tighten its way out of an incipient hyperinflation; Europe cannot dig its way out of its PIGS disaster no matter how hard it tries; the IMF, observing South America, is starting to get that ole' sinking feeling.
More from the Mail: "The head of the IMF warned that many Latin American economies are growing too quickly, putting pressure on a region where some countries suffered hyperinflation a few decades ago." And IMF Managing Director Dominique Strauss-Kahn (pictured above left) apparently committed his concerns to an Internet blog, writing, "In many [South American countries] there are worrisome signs of overheating." A credit boom creates the risk of asset price bubbles, Strauss-Kahn indicates.
How fast is the larger Latin American economy expanding? How about six percent in 2010 and somewhere between 4.5 percent and 5 percent in 2011? Brazil house prices have doubled in 24 months, according to reports. The currency meanwhile has risen 10 percent in the trailing 12 months. Not all of that can be attributed to Bernanke's intention to flood the world with cheap US dollars, though. There's a global business boom going on as well, or at least there is in South America and parts of Asia, according to economists that track such things.
But that hasn't stopped the currency arguments, old as they are. They keep being rehashed. Bernanke is printing too many dollars; the Chinese yuan is underpriced relative to the dollar. Investors as a result are buying Latin American stocks and bonds that look healthier than American and European instruments.
Yes, the IMF is right to be worried. They only thing central banks produce more of than commercial bank distribution platforms (and sundry branches) in big-city downtowns is the fiat-currency itself. Central banks print money during a boom because economies need additional currency. Central banks print money during a bust because economies need additional liquidity. But the main point here is that THEY NEVER STOP PRINTING. They can't or the cards begin to fall, an eventuality that cannot be avoided sooner or later regardless. All Ponzi schemes end the same way. ALL OF THEM.
In between central bankers like Ben Bernanke swear that they can remove the currency at will before it causes "inflation" (price inflation they mean). Bernanke recently said he was 100 percent sure that he could remove as much money as he needed when the time came. Of course he wouldn't say when the right time would come because he has no way of knowing. It's just more Bernanke-babble-speak. Central bank money fixing – er, money management, is like piloting a boat or airplane by looking into the rear review mirror. You can only see what's already happened. There are no tools to let you foresee the future.
Thumpety thump. The sound of price inflation. The IMF is worried. The outposts of fiat distribution are starting to show signs of price inflation and that inevitably exacerbates social tension. The price of food alone is overturning governments these days. Of course, perhaps that's the plan. The infliction of maximum misery via controlled (or perhaps uncontrolled) hyperinflation. Are IMF leaders merely voicing the obvious in order to put themselves on record as the wise ones who deserve to be at the head of the money-printing pulpit? … Our new ministers of misery?
Eventually, perhaps, amidst the chaos and bloodshed, Strauss-Kahn will again propose a global currency. (Ooops… Didn't see that one coming.) National central banks are making a hash of it, he will explain. People are rebelling around the world. Let the UN handle the political aspects. We here at the IMF will handle the monetary ones. We will build a new currency, the bancor, to take place of your old ruined money. And because we, the IMF, will produce the new currency and manage it, there will be NO MORE INFLATION. Why? Because the IMF is a far-better and more responsible manager of fiat money than the Fed or the ECB.
Is this the plan? Is this what's really going to happen? The world is not a healthy place monetarily. (It apears that our trusted "money doctors" have found it to be an acceptable practice to infect all "patients" with a terminal disease.) But we have suggested many times that central bankers should worry as much about the mechanism as the result. Too many people understand the reality of the wretched, ruinous system. The anger is building.
Perhaps this is nonetheless the scheme; out of chaos comes order. The trick will be creating the "order." In the era of the Internet, it may not be so easy as it has been in the past. Perhaps people will not be so suggestible. But the payoff, a global monetary system controlled out of the City of London with branches of power in Washington DC and even Israel, would be substantive – unimaginable.
To create such a situation, the citzenry of nations will surely need to be further indoctrinated (and intimidated) via social chaos and the controlled mainstream media to ensure their support, grudging or not. As the system evolves, those that created the chaos will stand behind their global financial facilities with their hands out funnelling the additional money into their own ever-expanding pockets. The result: Truly the realization of King Midas' dream. It did not end well for Midas.