Is this why they say there's going to be hyperinflation?Submitted by ShannonOBrien on Tue, 12/16/2008 - 16:25
I think I finally understand why Schiff and Rogers are saying there is going to be hyperinflation.
Banks loaned out way more than it had (because of the low reserve ratio) --> People defaulted A LOT --> Banks are going bankrupt --> Fed gives them money to cover their losses (5 trillion or so plus bailout $) --> Banks are at almost full reserves --> Banks hold on to the money because they don't know how much more they are going to lose --> As soon as the massive defaults slow down to a trickle, banks feel comfortable loaning out money again --> 5 trillion becomes 500 trillion (5 trillion x 100 because of the reserve ratio) because banks can loan out a certain amount more than they actually have in reserves --> hyperinflation
Here's what I don't understand though, if the banks lend out the money slowly, can we just have inflation instead of hyperinflation? Have the banks learned a lesson about lending out significantly more than they have or will they end up loaning out just as much as before (plus, they have an incentive because the Federal Reserve has given them the cash to make sure they won't go bankrupt)? Can the Federal Reserve halt the hyperinflation by increasing the amount of money they destroy and thereby deflating the dollar? Will they do that?