Bloomberg reports today:
Aug. 24 (Bloomberg) — The global economy is showing “clear” signs of a rebound and central banks are unlikely to raise borrowing costs for many months, the International Monetary Fund’s No. 2 official said.
“The signs are clear — if still tentative — of renewed growth,” John Lipsky, the IMF’s first deputy managing director, wrote today on its Web site. “With inflation threats distant, there is little doubt that central bankers intend to keep policy interest rates very low for some time to come.”
We find that the IMF is rather lagging in everything it does and says and the comments above regarding inflation are certainly no exception. We wonder if Lipsky has paid any attention to the two graphs below which are commodity prices in USD and non-USD terms. Rising commodity prices are inflationary because it suggests that the value of paper currencies are depreciating relative to hard currencies – that is, things that hurt when you drop them on your foot!
But wait there is more, the world bond market continues to send a clear signal that inflation is coming sooner rather than later:
If you are not convinced try looking at the behavior of the large inflation protected bond portfolios relative to the US 10 year:
Perhaps the behavior being depicted in the charts above is hardly surprising given the growth in the money supply………… Since the start of this global economic crisis, the U.S. government has been injecting massive amounts of new currency into the financial system to prevent deflation and stimulate economic growth. All that money is going to find a home. We think that this phenomenon is already devaluing the dollar and pushing price inflation higher.
We take careful note of what the IMF “says” because they have proved to be rather good contrarian indicators.
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