President Barack Obama should not print too much money to pay for his multi-trillion dollar bailout and stimulus packages, warns a Canadian report.
If he prints money at an unprecedented rate, it will drive up inflation and drive down the US dollar, dumping a large part of the financial burden on foreign investors, said the report by Canadian Imperial Bank of Canada (CIBC) Friday.
The report predicted that like Argentina in the late 1980s and Zimbabwe today, the US government will simply create more money to fund its plans.
``If the American central bank (the Fed) prints it, someone will spend it,'' Jeff Rubin, chief economist and chief strategist at CIBC (World Markets), said in a statement.
Rubin said, ``Already US money supply is growing at a nearly 20 per cent rate in the last three months and the printing presses are just warming up.
``And there's no shortage of more troubled assets to monetize along with $1.5 trillion-plus federal deficits to keep money supply growth chugging along in the future.
``As it buys up spread product, the Fed will leave Treasuries to be mopped up by foreigners. Since outsiders, like the People's Bank of China, now own over 50 per cent of America's debt, there has never been a better time to reflate. Why default on your taxpayers when you can default on someone else's?''
Rubin said 10-year US Treasury bonds may mature at par, ``but who's to say the greenback won't sink 40 per cent against the Yuan over its term like it did against the Yen between 1971 and 1981?''
He said the prospects of reflation looked ominous considering that monetization of past deficits - which were a mere fraction of what they are today in relation to the size of the American economy - led to explosive bouts of subsequent inflation.
Giving three examples, he said, ``The huge World War II deficits saw inflation peak at almost 20 per cent in 1947.
``When the printing presses were turned up to pay for the Korean War, inflation moved from negative territory to over nine per cent within the space of nine months in the early 1950s.
``And when Arthur Burns greased the Fed's presses after the Vietnam War, inflation soon made a triumphant return back to double-digit territory.''
The Canadian economist said: ``Headline US CPI inflation will grab a negative handle in the next few months, but it will be running north of four per cent in less than a year.''
He said increased pressure on oil prices will add to these inflationary forces in the next year.