As of this weekend, the world is 250 billion dollars "richer". No products were produced. No taxes were raised. Not even one cent was borrowed. The IMF simply created a bookkeeping entry on behalf of those countries it felt worthy of receiving additional reserves. The reserves, SDRs, are a claim to "hard currency". The hard currency will be provided by those with "sufficiently strong external positions”, in other words, surplus nations.
There is no reason for surplus nations to part with hard currency, save two, that I can think of: Altruism or Power. And in my opinion they are having a go at the latter. My read on this is that the surplus nations have just made an end run around the United States and the US Congress who have veto power over IMF decisions. Surplus nations can now provide “voluntary trading arrangements” with non-surplus (importing) nations with the IMF as "broker". This sounds like a mechanism for the surplus nations to provide buying power to importing nations at the expense of us all.
The ability to inflate has now been augmented. It has transcended national boundaries from national central banks to a world central bank. This "new" bank now has the power to create money. Inflation is no longer limited to one currency but will affect all paper currencies in the world. We now have the prospect of a synchronized international inflation. It's not enough that citizens throughout the world had to keep a keen eye on their nations central bank, now we all need to keep an eye on the IMF.
The "IMF's Board Of Governors", a group never elected to office, unknown to most, and accountable to no one, has now gained the power to create new claims on production without legal limits or oversight from any regulatory body. All it need do is vote for more SDRs.
Given the "announcement in the dead of night" tactics just employed, I suggest we all sharpen our eyesight. This development doesn't change the inflation outlook for the next month or even for the next year. But make no mistake -- the "powers that be" just took the fiat system and the inflation threat to a new level.
http://www.kitco.com/ind/Nathan/aug312009.html
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