By Brad Zigler
Real-time Monetary Inflation (per annum): 8.3%
European Central Bank Executive Board member Juergen Stark seems to feel the world's tilt against the current financial crisis offers prospects as dismal as those bestowed upon Lord Tennyson's benighted Light Brigade.
Interviewed by the German business daily Handelsblatt, Stark darkly opined on the inflationary consequences of a planned $250 billion injection of Special Drawing Rights (SDRs) into the International Monetary Fund.
Stark sees inflation all around us, much as cannon confronted the doomed cavalry detachment in the Crimean War. Not one to shy from either the obvious or hyperbole, Stark told Handelsblatt, "That is pure money creation. That is helicopter money for the globe."
The helicopter reference was a rather unsubtle dig at the U.S. effort to ward off deflation, championed by Federal Reserve Board Chairman Ben Bernanke. As a Fed governor in 2002, Bernanke analogized central bank money injections as dropping cash from helicopters.
Helicopters and cavalry aside, Stark's concerns can certainly be understood.
The correlation between SDRs and the greenback is strong and, in fact, strengthening as gold is being talked down (we looked at SDRs in a recent Hard Assets Investors article, "Trash-Talking The Dollar"). A four-year coefficient of 98% makes the IMF basket – which is filled nearly two-thirds with dollars – a virtual clone of the U.S. buck.
Herr Stark's euro is no statistical slouch either. SDRs' 41% euro weighting yields a 92% correlation to the Continental currency.
Gold Priced In IMF Reserves And SDRs
Euro inflation has been picking up since last July when the dollar was cheapening at a rate 3.4% faster than the euro. Now the difference has been pared to 2.3%. Just since the conclusion of the G-20 talks, the relative inflation rate ratcheted down a third of a percentage point.
As these metrics are calibrated in gold, the current slide in bullion's price is adding some volatility to inflation rates. Gold trading has now reached a pivotal point. After breaking through support Monday with a $24 loss, April COMEX gold ended the day barely above its 100-day moving average at $871. Gold traded flat among London dealers Tuesday, while COMEX gold was up more than $7 this morning at today's opening.
COMEX Spot Gold
