To pay for its multi-trillion dollar bailout and stimulus packages, the administration of U.S. President Obama will print money at an unprecedented rate, a course that will drive up inflation and drive down the greenback while shifting a large part of the financial burden onto foreign investors, finds a new report from CIBC World Markets.

The report predicts that like Argentina in the late 1980s and Zimbabwe today, the U.S. government will simply create more money to fund its plans.

“If the central bank prints it, someone will spend it,” says Jeff Rubin, chief economist and chief strategist at CIBC World Markets.

“Already U.S. money supply is growing at a nearly 20% 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 US$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% 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? A 10-year Treasury bond will, of course, mature at par, but who’s to say the greenback won’t sink 40% against the Yuan over its term like it did against the Yen between 1971 and 1981?”

Rubin notes that while the prospect of inflation may seem incredulous on the cusp of negative U.S. CPI numbers, past deficits that were a mere fraction of what they are today in relation to the size of the American economy, were readily monetized. And without fail, that monetization led to an explosive bout of subsequent inflation.

“The huge World War II deficits saw inflation peak at almost 20% in 1947,” adds Rubin.

“Headline U.S. CPI inflation will grab a negative handle in the next few months but it will be running north of 4% in less than a year,” he forecasts.

Adding to these inflationary forces in the next year will be increased pressure on oil prices, the report says.

“The IEA (International Energy Agency) recently estimated that the industry will have to spend well over half a trillion dollars annually to meet future demand and counter depletion,” says Rubin. “No one is going to finance those money-losing mega-investments at oil prices anywhere near $40 per barrel. If yesterday’s record high prices haven’t spurred supply growth, what chances do oil prices a third or a quarter of those record levels have?”

IE