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when the fed is quietly purchasing 80-90 percent of the long term Treasury note to keep the government juggernaut going, how is that not inflating the money supply? Have you vivited shadowstats.com?
tdeloco
2012 Mar 14, 12:03pm
And when we go to the bank to exchange our credits for cash, we put that bank under pressure to come up with cash that is relatively "harder" to come up with (more limited in volume) than credit.
Is this the sole reason bank runs can sink banks? Or is it because banks gamble with our money, and a bank run takes away their collateral?
Patrick - consider the charts below.
Monetary Base (M0) is all the physical currency. Granted, we can create trillions of electronic dollars in a microsecond, the fed still needs to fire up the printing press to represent this supposedly physical currency. I have charts zoomed in 2008-present.
Notice how the reserve balances closely follow the movement of M0. At the beginning, the difference is close to $900B. Now, the difference is a little less than $1.2T. So, about $300B has already leaked out (or 33% with respect to $900B before QE1). Whatever remains in reserve balances is the same as money printed and kept under one's mattress. It is out of the system and won't cause inflation until it leaks out. On top of that, I think China has been warehousing some of the money instead of buying more Treasuries. Just guessing, since I don't have up-to-date data on Chinese holdings.
So here is my theory: As more banks fail or as more entities (companies and private citizens) go bankrupt, more of this money leaks out. M0 isn't multiplied out until the banks begin lending out this money.
One more thing. When you experience a flight of capital, such as what happens in the event of a Sovereign Default, people will be selling dollars in exchange for other currencies. This creates a tremendous downward pressure on the dollar, since tons of dollars are being sold in the foreign exchange. Doesn't this cause severe inflation? I don't think you can look at only Money supply vs Goods being bought.
freak80
2012 Mar 15, 3:13am
Yep, and the median workers' income hasn't gone up 50% in 15 years for sure.
Very true. Remember, our government works for the big banks, not for us.
freak80
2012 Mar 15, 3:22am
Snore......yeah, oil and food are getting cheaper by the day.
We can thank China for that. Thankfully, their whole economy (or at least the part NOT based on producing cheap shit for Americans) is a bubble which will come crashing down. And unlike Japan, China is a powder-keg ready to explode.
uomo_senza_nome
2012 Mar 15, 3:25am
Is this the sole reason bank runs can sink banks? Or is it because banks gamble with our money, and a bank run takes away their collateral?
A combination of both I would say. It's out of control right now.
When you experience a flight of capital, such as what happens in the event of a Sovereign Default, people will be selling dollars in exchange for other currencies. This creates a tremendous downward pressure on the dollar, since tons of dollars are being sold in the foreign exchange. Doesn't this cause severe inflation?
Not quite. Remember US dollar is the king still, of all fiat currencies. It will actually create an upward pressure on the dollar, which Ben and company most certainly don't want right now.
US dollar is most certainly dying the slowest of all fiat currencies, purely because so much US dollars already exist in the system.
Here's a paper you can consider on Currency and Marginal Utility.
Robber Baron Elite Scum
2012 Mar 15, 6:52am
Well, Listen to John F. Kennثdy! The best American President and his last speech about the secret societies!
If you understand his speech and what he was saying to the world and Ron paul then you would understand what is going on!
PEACE TO THE WORLD FOR EVER..that is my wish! In the name of Humanity!
No....
Stop advising the sheeple to wake up. They will never wake up.
The secret societies are doing the world good. THEY are bringing PEACE to the world NOT they fucking sheeple.
Sheeple are the problem and cancer of this earth.
Join the banking elites and support the new world order. 99.9% of this entire world's population is piece of stupid shit with no intellect and serve no purpose to live on this earth.
Support the new world order, support global population reduction and support mass murder.
We the bankers are not done with you little pieces of shit peasants
Do you think a lack of inflation somehow means there will be no hyperinflation? Inflation and hyperinflation are two very different things.
Uh, the Fed can increase the money supply without more loans by buying existing assets (loans) from banks, then the banks can use the proceeds from the sales to buy equities, buy treasuries, pay bonuses, etc. ... and poof! Inflation!
I get a kick out of the limitations that people create for the Fed, what they can and cannot do.
I don't suppose you have ever bothered to read Bernanke's speech, The Fed Has a Printing Press.
And how is the Fed more limited than the central banks of Weimar Germany and Zimbabwe?
The Fed can create money at will, and use it largely at their discretion as long as they do not buy debt directly from the Treasury before it passes through the debt market, in at least some cursory manner so a Primary Dealer can put its pawprints on it.
I think hyperinflation is not likely. It is a major policy error. But the things you say are just not true.
All the best,
Jesse
Whatever the math and logic, the idea that in the next 10 years the US dollar will have actually increased its purchasing power is just outlandish. Deflation or not, the dollar will only lose value.
Uh, the Fed can increase the money supply without more loans by buying existing assets (loans) from banks, then the banks can use the proceeds from the sales to buy equities, buy treasuries, pay bonuses, etc.
Jahfre Fire Eater
2012 Mar 15, 9:25am
All the Fed needs to do is to get new cash into the hands of congress, they will spend it to reap political glory from the perpetual religious wars and the inflation will result. No loans, no public, just buy more expendable war machines at an ever accelerating rate and the inflation will come.
-Jahfre Fire Eater
freak80
2012 Mar 15, 11:31am
Deflation or not, the dollar will only lose value.
How exactly does deflation result in dollars losing value?
tdeloco
2012 Mar 15, 2:10pm
Here's a paper you can consider on Currency and Marginal Utility.
Thanks. It was a good paper.
Corollary: the relative value of a good bears no direct relation to its scarcity. Therefore the relative value of a good bears no relation to its perceived abundance.
True. It should be supply vs demand.
I still don't see how the USD will become stronger when everyone is trying to sell it. Are you saying this is because M3 will drop sharply?
On the subject of marginal utility, the vast majority of the Gold ever mined are warehoused in government vaults and whatnot, and the flow is only a trickle compared to the stock. What happens if (for some hypothetical reason) every government decides to liquidate its gold inventory? A large quantity of gold dumped into the market will surely collapse its price.
The Fed is indeed "printing" money to fund the deficit. They lend money to the primary dealers at 0-.25%, who then buy treasuries at market rates (currently 2-3%) and pocket the difference. Treasury then funds the US government's deficit spending. The primary dealers spend the "earned differential" by purchasing "preferred" assets (ie: stocks, bonds, anything to maintain the ponzi). Inflation (as measured by the money supply) **IS** occurring. It will be realized in the price of goods/services as soon as the velocity of money increases. Now that interest rates are turning up, you can expect the banks to start lending again. This will increase velocity and -- voila -- inflation. There is NO WAY out of the trap that Bernanke has laid. We WILL have a hyper-inflationary depression. The cards are already on the table.
I have a question. When debt among people increases in terms of transferring private debt to public debt then is the money supply increases or not? It comes to my mind the case of Greece where it had a haircut. One outcome of this is that half of the previous private debt was transferred to public one, so to the greek people. Will this increases money supply in this case or not? Thanks
For your consideration: http://www.economicpolicyjournal.com/2012/03/how-quickly-can-price-inflation-explode.html
uomo_senza_nome
2012 Mar 16, 4:53am
the vast majority of the Gold ever mined are warehoused in government vaults and whatnot, and the flow is only a trickle compared to the stock. What happens if (for some hypothetical reason) every government decides to liquidate its gold inventory? A large quantity of gold dumped into the market will surely collapse its price.
Price measured in what? Price is different from value.
Either case, I don't think Governments are stupid to dump physical gold in the market. Look at Hugo Chavez for example.
I still don't see how the USD will become stronger when everyone is trying to sell it. Are you saying this is because M3 will drop sharply?
M3 includes long-term time deposits also right? I don't think M3 will drop sharply, what will happen is the demand for M0 and M1 will explode, therefore causing a shortage of cash.
tdeloco
2012 Mar 16, 4:16pm
Price measured in what? Price is different from value.
Two types of value:
Nominal Value - Dollar price (or other currency)
Real Value - Purchasing power
It will fall on both measures. Unless you measure its value relative to gold (itself). An ounce of gold will always be an ounce of gold.
Either case, I don't think Governments are stupid to dump physical gold
My example was hypothetical.
what will happen is the demand for M0 and M1 will explode, therefore causing a shortage of cash.
Thanks.
uomo_senza_nome
2012 Mar 16, 5:23pm
Nominal Value - Dollar price (or other currency)
Nominal value of gold measured in dollars would have no meaning if the dollar is toast.
Real Value - Purchasing power
Real value might actually increase temporarily during such a transition.
My example was hypothetical.
Hmm, then we don't have to worry about that do we? :)
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I'm sorry to inform everyone that hyperinflation is not coming. If people fully understood the Fed they would know that the Fed cannot directly manipulate the money supply. The Fed can only make circumstances more enticing for consumers to voluntarily increase the money supply by taking on more debt. One way they do this is by lowering the interest rate. 100% of the increase or decrease in the money supply comes from our fractional reserve banking system. Accordingly, people who take out debt (voluntarily) directly increase or decrease the supply of money, not the Fed.
If the Fed creates 100 trillion dollars through quanitative easing and has it sitting in the banks, nothing happens; zero inflation. The money supply actually increases when that money is lent out to customers and is spent. Resultantly, it is turned into someone else’s income that will eventually end up in a bank which will then have a fraction (90%) of this money loaned out.
So, the process starts all over again. The bank loans it out and more money is created. The only thing remaining in the bank is the reserve of 10%. If the Fed creates 1 trillion dollars and has it in the banks, it has the potential to create approximately 9 trillion in new money through loans. No inflation has occurred form the feds actions, ONLY THE POTENTIAL FOR INFLATION! Banks are who cause the increase or decrease of the money supply, and that is based on the supply and demand of new money from customers and their loans. REMEMBER IF THE 1 TRILLION IS NEVER LOANED OUT AND CHURRNED OVER AND OVER IN THE FRACTIONAL RESERVE SYSTEM, IT IS AS IF THE MONEY IS NOT IN THE ECONOMY.... NO INFLATION!
This means when a large group a people all increase debt at the same time they are increasing the money supply. As a result you will see excessive inflation where they spend that money. This my friends is why housing has had a bubble. This is exactly what happened in the 90's when the baby boomers where in their peak spending/earning years (40-55) and bought everything on credit. The mistake that the Fed did in the 90's and in early 2000 is they adjusted the interest rate making debt look more appealing at the exact time that they should have been trying to prevent the largest cohort in U.S. history from spending debt, which would cause inflation.
Currently generation x, which is a much smaller cohort, is approaching their peak spending/earning years and will have a lesser aggregate demand for debt(created new money) than in the 90's. This decrease in the money supply will result in less new money flowing into the economy and less "stimulation". A lesser demand for the money supply produces lower wages and as a result lower asset prices.... hence, deflation. What is even worse is that we still need to pay back all the excessive debt created from the last 15 years.
This brings up the subject of deleveraging. The reason we are hurting is that we are paying back the dollars we spent 10 years ago with no economic benefit today. This problem the Fed and Gov. want to fix by taking on more debt. This thus perpetuates the cycle and makes it worse! The pain has to occur in order to restore to reality. We need to pay the money back with real money, not easy debt money. The more we extend and pretend the worse the debt gets and the more the future generations will be enslaved to pay for our Fed's mistakes.
#housing