Brazil, Russia, India, China and South Africa – the BRICS group of fastest growing economies – Thursday signed an agreement to use their own currencies instead of the predominant US dollar in issuing credit or grants to each other.

The agreement, the first-of-its-kind, was signed at the 3rd BRICS summit here attended by Indian Prime Minister Manmohan Singh, China’s Hu Jintao, Brazil’s Dilma Rousseff, Russia’s Dmitry Medvedev and South Africa’s Jacob Zuma.

“Our designated banks have signed a framework agreement on financial cooperation which envisages grant of credit in local currencies and cooperation in capital markets and other financial services,” Manmohan Singh told reporters at a news conference with other BRICS leaders.

But the agreement is confined to credit and not trade. BRICS economies hold 40 percent of the world’s currency reserves, the majority of which is still in US dollars. (Read more from politicalmetals.com)

They open with a discussion of the split among the people predicting massive economic crisis between inflationist and deflationist camps.

part 1:

part 2:

The Dow Jones industrial average closed higher for the seventh consecutive day Tuesday. That’s the longest series of gains for the index since July.

McDonald’s Corp. was the biggest gainer of the 30 stocks in the Dow, rising 2.6 percent after reporting January sales that were higher than analysts expected. (Read more from news.yahoo.com)

IT’S THE INFLATION, STUPID!

See: Price of a Newspaper in Weimar Germany

For a detailed account of the descent of an entire country into despair and barbarism read Adam Fergusson’s When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany.

First published in 1975, republished in 2010, and made available through the Mises Institute, When Money Dies should dispel the notion that the rule of men is superior to the rule of law. Why “the rule of law”? Because it was the violation of the rule of law by governments themselves that supplanted the peaceful, liberal order of a gold-based international monetary system with one in which central banks, at governments’ behest, could print fiduciary media without limit.

The full implication of this change was seen in Weimar Germany, the German people’s first experiment with representative democracy, where civilized society fell victim to the evils of the monetary printing press. For all practical purposes, the German mark was not worth the paper upon which it was printed. Eventually the Reichsbank issued the largest denomination note ever printed in the history of the world, a one-hundred-trillion-mark note, which no one would accept for payment. Be very careful if you believe that it can’t happen today. (Read more from mises.org)

This link to an Open Europe News Summary Blog reveals that any country in the Euro Zone can print as many Euros as it wishes simply by notifying the European Central Bank. This is why Ireland was able to print 51 billion Euros last week to bail out its banks. Here’s the quote from the Open Europe blog:

The Irish Independent learnt last night that the Central Bank of Ireland is financing €51bn of an emergency loan programme by printing its own money… …A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.

This is very disturbing. In effect it allows mutliple, legitimate counterfeiters to print as much money as they wish; therefore, hyperinflation will ensue very quickly, because each Euro Zone member will have a great incentive to print money as fast as possible before prices go up. This could be the very quick end of the Euro, and it could create chaos in Europe and around the world.

American readers can consider this analogy: it is as if each state of the union could print as many dollars as it wished simply by notifying the Fed. Does anyone doubt that the dollar would collapse into hyperinflation overnight?
(Read more from patrickbarron.blogspot.com)

The looming choice between government default and dollar collapse.

* Dow’s 10% year gain is BS. Foreign currencies did better.
* US dollar gains is also BS. Gold was up 27%! Silver was up 75%! Does that sound like a strong dollar?
* Mining stocks are beginning to lead.
* Commodities (CRB) up 18%. Oil up 17%. Cattle up 20%. Copper up 34%. Corn 40%. Wheat 43%. Soy beans way up. Sugar up 52%. Coffee 63%. Cotton up 90%.
* China may switch investments from dollars to euros in 2011.
* Kudlow show calls for more government welfare in China & less individual responsibility.

(Source: Mankiw, Macroeconomics, 5th ed. pp. 105-106)

I found this chart in the wonder Mises Institute lecture, Currency Failures from Argentina to Zimbabwe: A Brief History of Inflation:

“Just admit it Ben Bernanke. You’re a guy with a beard who’s allowed to print money.”

At the end, John Steward repeats the Keynesian propaganda that printing money fixes the economy, but this video is still valuable for demonstrating Bernanke’s two faces.

I suppose I should also add massive spending cuts as an option, but the government is not competent enough to consider this.