Financial Sense recently posted this intriguing article (6 Nov 2008 - FinancialSense.com - The Strange Case of Falling International Reserves). I have linked their chart which summarize the biggest question: Why has the global reserve stop growing? If you read further, you will find that the conclusion of the article is monetary inflation. We have already discussed that all this all end in tears and the only way to long term stablity is having a Gold Standard to stop irresponsible money printing. Unfortunately, this solution will not help the US, UK or Europe who needs to print a lot of money or have other countries fund their debt. If no-one would like to buy their debt because of global delveraging or questioning their credit quality, the money print machine will have to keep humming.... but for how long????
chart linked from financialsense.com
This is what Hugo Salinas Price from FinancialSense.com wrote (my emphasis in bold):
Now, if the Reserves are no longer growing but diminishing, this might indicate that the exporting countries are no longer buying and accumulating more US, British and European debt. If they are not accumulating more foreign currency bonds and debt, then the fiscal deficits of the US, the Brits and the European Union countries are no longer being funded – especially important to the US, which is running an immense fiscal deficit, what with the US Treasury going into debt like a drunken sailor on account of the need to bail-out all and sundry debtors.
Now if the US deficit is not being funded, then that means that the fiscal deficit is simply being monetized by the Fed. Or what else can it mean?
The US is on track to incur a fiscal deficit of $1 Trillion, perhaps much more, in this fiscal year. If the International Reserves are not growing, that means it will be impossible to fund that deficit. That would mean: monetary inflation in spades, in the US.
chart linked from financialsense.com
This is what Hugo Salinas Price from FinancialSense.com wrote (my emphasis in bold):
Now, if the Reserves are no longer growing but diminishing, this might indicate that the exporting countries are no longer buying and accumulating more US, British and European debt. If they are not accumulating more foreign currency bonds and debt, then the fiscal deficits of the US, the Brits and the European Union countries are no longer being funded – especially important to the US, which is running an immense fiscal deficit, what with the US Treasury going into debt like a drunken sailor on account of the need to bail-out all and sundry debtors.
Now if the US deficit is not being funded, then that means that the fiscal deficit is simply being monetized by the Fed. Or what else can it mean?
The US is on track to incur a fiscal deficit of $1 Trillion, perhaps much more, in this fiscal year. If the International Reserves are not growing, that means it will be impossible to fund that deficit. That would mean: monetary inflation in spades, in the US.
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