China, Inflation & Gold -- and Trade
Financial Expert: Global Free Trade Necessary
“Globalization” is the culmination of a centuries-long process of ever-increasing international trade; it is inevitable and ultimately more benign than malign. Conversely, too much new money is both avoidable and malignant. This 2011 article is from a blogster, Feb 10, on inflation by Darryl R. Schoon (author of How to Survive the Crisis and Prosper in the Process).
by Darryl Robert Schoon
China, Inflation & Gold
China has not only been the country that prints money at the fastest rate but also been the country with the largest money supply in the world in the past decade. China’s M2, a broad measure of money supply, was up 19.46% at the end of November from a year earlier. This compares with 3.3% and 2.5% of annual M2 growth in the United States and Japan, respectively, over the same period.
Officially, China’s inflation rate was 4.6% in December, but many believe the actual inflation rate is considerably higher. But Chinese savers earn a paltry interest rate of 2.75% on one-year deposits, which means they face negative real interest rates. As inflation continues to increase, the buying of physical gold by the Chinese will send the price of gold skyrocketing.
Prices, especially food prices are rising rapidly. And while some may be ecstatic by the S&P's modest rise YTD, it is nothing compared to what agricultural products did in January: corn spot up 7.76%, wheat up 5.63%, rice up 10.08%, hogs up 10.16%, sugar up 5.64%, orange juice up 3.33%, and cotton up 17.08%.
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JJS: While the rise in prices of agricultural products is related to weather, not just to the issuance of newly printed money, it is still nevertheless true that excess currency is letting, even forcing, producers to raise prices and consumers to bid up prices. Usually, inflation heralds decline of a civilization, since it is the result of dishonest monetary policy, and both money and honesty matter. Perhaps, since traders prefer, if not demand, a stable currency, maybe another good can come from international exchange: honest money.
World trade policy also works against subsidies. As governments curb biased spending, perhaps that will open the debate to the right ways to raise public revenue, too. Then we might adopt the complete geonomic paradigm: replace counterproductive taxes with land dues and replace addictive subsidies with rent dividends. Getting this Citizens Dividend means workers won’t be vulnerable to trade, and protectionism, too, can become a relic of the past.
Editor Jeffery J. Smith runs the Forum on Geonomics.
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