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COMMENTARY
November 13, 2010
Interesting times
We are pleased to see less and less journalistic attention being given to meetings of the G20. There is only so much of world leaders that anyone wants to see, and if they persist in their stratagems for impinging upon our collective consciousness, the effect is inflationary.Start with U.S. President Barack Obama, a man who, just two short years ago, was elected to a position in which he might easily dominate the world stage. The whole earth got to see a lot of him on the campaign trail. Satiation was achieved about the time of his inauguration, and it has been downhill from there. Thanks in no small part to his own political incompetence (a risk every electorate takes when it elevates a novice), he is now received on the world stage, alike by scriveners and statesmen, as a species of sad joke. Nothing he can say will hold anyone's attention. The remarks in India and beyond were only about his teleprompter, and politely avoided such feints towards "content" as Obama's fatuous, starry-eyed encomium for Gandhi. Except for those Indian reporters who asked: "Why must every first-time tourist to India deliver fatuous, starry-eyed encomia for Gandhi?" He would have to do something to get attention again; and thanks to the result of the U.S. midterm election, he can no longer do anything legislative. The plausible theory was that, checked on the home front, Obama would now invest attention in old-fashioned "statecraft," or foreign affairs -- and no doubt make as much of a hash there as he had already done with "stimulus" and "Obamacare." The physical scale of his wooing in India suggested he was off to a plausible start, on the morning after the "dark night of the Democrats" before. The Indians were, however, unable to construe what he wants from them, besides vague goodwill, and by the time Obama had landed in Seoul for the G20, he was entirely on the defensive. The rest of the world wants to know why the United States dollar, upon which many economies are propped, is not only being allowed to tank, but even encouraged to do so. Here we enter into the arcana of monetary policy, but to make a long story short, the U.S. government has now put in place all of the conditions for hyperinflation. In the Round 1, they pile up the most extraordinary debts the world has ever seen. In Round 2, they create a mountain of paper to cover it. This collects, like gasoline, in the vaults of half-nationalized private banks, too scared to do anything beyond hold their breath. Then, in Round 3, executed in the last fortnight, the U.S. Federal Reserve, finding that this immense quantity of monetary gasoline is having little "stimulating" effect on the economy, puts a match to it -- through the mechanism of pledging to buy vast quantities of ugly U.S. Treasury bonds. The whole manoeuvre is called "quantitive easing" (thus: "QE2"), and at the very least, it involves pouring fresh liquidity into a lending market where the banks already sit on lakes of it. It is an intentional inflationary strategy, and the potential victims -- everybody -- are predictably crying foul. At the G20, Obama mostly just listened to people crying foul; while giving no evidence he understands what they are talking about. The chatter superficially came down to currency exchange rates, with the U.S. being accused of purposely driving down the dollar to gain trading advantages. In point of fact, as our own prime minister (who has a degree in economics) tried to explain to reporters, exchange rate imbalances are not to be blamed on the fairly freely traded dollar, but instead, on the currencies that are pegged quite purposefully to create unfair trading advantages (read: China's renminbi). And nothing was achieved in addressing that. But Stephen Harper, and other more reasonable politicians, can do no more than imply that the real problem -- the bottomless pit of debt, and the inflation triggered by governments as a way to wash their hands of it -- is now beyond addressing. We remain in the calm before what could well be the hyperinflationary "perfect storm," in which the whole planet finds itself clutching great wads of worthless paper. Such a catastrophe would incidentally be announced by a wild international rush on commodities. (The bust then follows that.) There are two schools of thought on whether this is already happening. That even a World Bank president (Robert Zoellick) is now thinking aloud about restoring some sort of gold standard, is an indication that somewhere, the problem is understood. Hang on for the ride, gentle reader. For it appears we will be living through what the ancient philosophers of China called, "interesting times." David Warren
© Ottawa Citizen
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