FED Fighting Off Deflationary Depression (Jan. 22, 2008)
Posted January 22nd, 2008 by TxRedneck
output
The FED cut rates .75% today as Worlwide stock markets deflated. They want to increase the money supply because they fear deflation.
Our money is entirely create from debt. If ALL debt was retired in our country, there would be NO money. Deflation is defined as a reduction in the credit/money supply. Everytime a loan is created it increases the money supply. Once that loan is retired, the money that was created is also retired.
This would all be different if the money was actually printed. But only a very small fraction of money created is actually ever printed. Only the money needed to carry our day to day transactions is printed. Near ALL of our money is nothing more than book entries, or today, a computer entry.
Our fiat debt based money system REQUIRES inflation. If you go and buy a house on debt, at first you may have a hard time affording it. But due to inflation your wages increase and after a few years your mortgage payment becomes less and less of a percentage of your income. Same with the government. They borrow, get in over our heads, but they know that due to inflation their revenues will increase. So this HUGE debt, in theory, becomes less and less percentage of revenue.
Currently the subprime markets are seeing increasing defaults. Remember, when a debt is retired, it decreases the money supply. That computer entry that created the money is now zero. That money is gone. Into thin air, from which it came. Debt can also be retired by default or a debt being forgiven. So massive defaults are deflationary, they take money out of the system.
Lately the FED has lost its control, and Greenspan has openly talked about this in an interview a couple months ago. When he dropped rates to near zero, mortgage rates followed. But recently as rates have been increased, mortgages did not follow. Mortgage rates did increase but not proportionately to the previous decrease.
For those who remember, in 2002 Greenspan was talking a lot about "the risk of deflation" to our economy. This was the purpose of cutting rates to near zero. This was to encourage borrowing. Borrowing increases the money supply. At the same time, for those who remember, Bush issued tax rebates. Another increase in the money supply. Both are only temporary bandaids, and result in a larger problem later on (which is nearing).
So inflation is kept going to avoid deflation. Inflation is a increase in the credit supply, increasing debt. To increase debt REQUIRES 2 things. A WILLING BORROWER and a WILLING LENDER. When the banks lose confidence, they stop lending. When borrowers lose confidence, they stop borrowing. This is what controls the FEDS effectiveness. The FED lowers and raises rates to encourage/discourage lending. But this is their only control, they can't fully control the emotional side, the confidence equation.
In 2001 as the recession set in, the borrower lost confidence in borrowing, as is normal in a recession. Lower rates persuaded borrowers to borrow. Borrowers are not as smart as lenders, and more easy to persuade into borrowing. With lower rates borrowers were persuaded to buy new, bigger houses. They cashed out equity in their homes for consumption. And the money supply inflated, the desired goal.
This time around, as the subprime markets crumble, the Lenders have lost confidence. The FED has been injecting 100's of billions into the credit markets. But the credit markets have still stopped a large portion of lending. They are holding onto the cash as they fear that as this unwinds they may need it to cover their ASSetts. This failure to persuade Lenders to lend, combined with increasing defaults, is resulting in a failure to inflate and leading to deflation.
Bushes Tax Rebates. Bush is borrowing for us, increasing the money supply, to avoid deflation. He is borrowing for us because, well because he can, and we can't. When I say we can't I'm referring to the banks loss of confidence, they have cut back significantly on lending. When deflation rears its head, SOMEONE has to borrow, increase the money/credit supply, to inflate.
Fiat debt based money systems are ALL ABOUT ever increasing debt. Without it, they collapse into deflation through defaults. Deflation results in falling prices, wages included. As prices fall, there are less profits for corporations and corp. debt defaults increase causing further deflation. Wages drop resulting in large defaults in consumer debt further increasing deflation. At this point BOTH borrowers and lenders have lost confidence. Deflation continues to spiral downward until most debt has been cleansed from the system, and someone starts borrowing again. This someone is usually the government and usually to finance a war. The USA has gone though 4 depressions since its inception. Near the bottom of all these depressions you find a war followed by economic recovery. The larger the depression has been, the larger the wars have been.
Note: If the FED starts actually printing all the money, then we're in for hyperinflation, as once the money physically exist, it does not dissappear when a default occurs as it does currently. Germany, before they totally collapsed, was printing physical moeny so fast the they started printing on only one side of the bill, to speed up the printing. The back side of their bill was blank.
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The FED will INFLATE, that
The FED will INFLATE, that is the only trick they have....and in fact, last night they loosened the restrictions that were placed on "in-house" lending back in the 1930s where a savings bank owned by an investment bank or group or vice-versa can lend from the savings (the people's deposits) to the investment bank of the parent company. This, of course, will blend the risk from the investment side to the commercial banking side.
“Men do not willingly read unpalatable truths of themselves. The people like those best who fool them most by pandering to their vices and flattering their foibles”—Admiral Raphael Semmes.
Today the FED held rates steady
because maintaining Confidence is currently the number one concern to effect inflation, not rates.
The FED/GOV really has only
The FED/GOV really has only two options, it can either allow for massive deflation or it can inflate to the point that the over-burdened debt load will balloon even more. Either way, it doesn't look good.
“Men do not willingly read unpalatable truths of themselves. The people like those best who fool them most by pandering to their vices and flattering their foibles”—Admiral Raphael Semmes.
There really is only one
logical choice. They can't inflate, lowering rates only encourages inflation, it does not guarantee it. The only way to guarantee inflation is to start physically printing monopoly money. That results in Hyper inflation and ends in full destruction of the currency.
Then there's the only logical option, Deflation. Tell all the foreigners, "Oops, sorry about that..." and hope they don't invade...
They will INFLATE!!!! They
They will INFLATE!!!! They will not allow the economy to deflate, watch them drop the rates! It's because they have nothing else they can do, they know nothing else to do so they will lower rates and try to inflate the economy out of a deflationary slump. Yes, the destruction of the currency is on its way. The massive inverted debt pyramid will become even more top-heavy.
“Men do not willingly read unpalatable truths of themselves. The people like those best who fool them most by pandering to their vices and flattering their foibles”—Admiral Raphael Semmes.
Thank you very much for this
Thank you very much for this useful article.
sohbet - güncel haber
They will TRY to inflate
As you posted on another post, US's credit rating has been lowered. This results in fewer willing lenders. Would you loan all of your money to AIG right now? Most would say no. And the ones that are loaning them money are not doing so because they think its a good investment, they're loaning them money to try to save their own butts from a domino effect. Do you think these people are going to loan money to the local Mom & Pop Credit Union that is over extended? No, only the one that are "too big to fail". But there is enourmous threat from all these little guys when you put them all together, and the little guys are in just as much of a hole as the rest. A large group of small failures leads to another of the bigger players falling, and it keeps going. Cleansing the excess debt from the system. It is history repeating, its all happened before.
No, the FED will TRY to inflate. But the FED has NEVER been omnipotent. They have saved the economy in some situations that looked dire, and that has presented people with the ILLUSION that they can inflate at will. But the FED does very little inflating. They set rates. The lending and borrowing is the creator of the inflation, not the rate. The rates encourage/discourage lending/borrowing. But rates are not the only factor of lending/borrowing. Confidence overrides rates. Principal preservation is the first concern of lenders, the rate of return is after that. During good times principal preservation is taken for granted, but we're not in good times.
They WILL TRY to push that string though.
At the moment, the
At the moment, the FED/Treasury maladjusted child of THE STATE is attempting to push a very inflated bubble, we have not seen this massive bubble bust or even deflate at this point. What they are doing now is simply pushing on one side of the bubble and, in effect, distorting it in a variety of areas that are not even evident at the moment. The “unintended consequences” of their actions are where most of the dangers lay. These massive bail outs are indeed inflationary for it does is simply layer another level of monetary creation on various investments, such as MBSs, which at the time of their creation also placed a layer of newly created money into circulation. The writedown of the investments themselves are not deflationary because the money that was created by those initial mortgages has already been circulating through the economy, and the actual investments only represent future earnings, money that would circulate back into those investments as a debt payment. Anytime a debt is paid there is a corresponding contraction in the money supply, but if the debt is never retired, but simply written off as a book entry then it does not deflate or contract the money in circulation. Since it appears that the MBSs have been a major problem in the credit sector, we must understand that what is taking place is another slathering of monetary paint which will be inflationary.
So, as the FED creates these hundred’s of billions of dollars, or if we are realistic we should know that any bailout will end up being TRILLIONS of DOLLARS the overall debt burden will be heavy in the extreme. Once again, I believe we will see an inflationary depression, with deflationary sectors throughout the economy until the entire monetary system reaches its terminal point, at that time the whole house of cards will tumble down.
Rags make Paper; Paper makes Money; Money makes Banks;Banks make Loans; Loans make Beggars; Beggars make Rags
Don't forget that the Fed is the "Lender of Last Resort"
Lehman Bros going under is deflationary, but the US government taking over Fannie Mae and Freddie Mac is not. Ditto for the UK government and Northern Rock.
I recommend the following article on the Money Supply.
http://en.wikipedia.org/w...
Remember that M0 is the measure of legal tender in circulation. M1, M2 and M3 are measures of the "money" created by the banking system.
Don't be fooled by Paul Grignon's "Money As Debt" videos. Grignon advocates a state banking monopoly with a fiat money supply. Hardly a Ron Paul Supporter!
-"Ron Paul cured me of my predilection for Che Guevara T shirts."
What makes you think that the Fed is on our side?
"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
---
I'm much more concerned about their willingness going forward than their options.
It is all coming down
It is all coming down folks...prepare yourselves, even mainline economist are now saying that the debt and monetary system is killing the economy of world, starting in the U.S.
“Men do not willingly read unpalatable truths of themselves. The people like those best who fool them most by pandering to their vices and flattering their foibles”—Admiral Raphael Semmes.
Crude Oil
Drops below $100.
TxRedneck, this one is for you.
"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
---
This is related to what I was going to tell you before. I'm sure you can find the data.
http://www.depression2.tv...
"debt is really a 'dollar short' position"
"Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters." Benjamin Franklin
---
Inflate Or Financial Tsunami by JayTaylor
http://www.gold-eagle.com...
In the article, Jay Taylor wrote,
Wholesale prices report today,
wholesale prices fall for the second month...retail to follow soon.
Bailouts will push US into Depression
http://www.cnbc.com/id/26...
WOW! That was a pretty sobering assessment
"Evil flourishes when good men do nothing."
—Edmund Burke
Depressing But TY for the post
glad CNBC is willing to have him on air
What is the recovery path that least affects the people?
I keep see that wages and jobs are affected by inflation, deflation, confidence, etc.
Most people are living paycheck to paycheck...any big move by the people against the Fed would likely result in massive overturn in housing, increase in crime, and increase in homelessness/death. It's as if the Fed is going these people as randsom...thus, the government and Fed actually care to some extent.
What would be our ideal path that affects the people the least?
We say we want to get rid of the Fed, but how? Do we just say "Fed, you are banished. All the money we used to owe you, we no longer owe you. And if you try to screw with our economy like you did before when Andrew Jackson 'killed the BANK', we'll kill you."
I'd like to pitch DaveRamsey.com yet again. If we can get less people living paycheck to paycheck, out of debt, and stay out of debt, the Fed loses their grip on our government. And this would be done so slowly it wouldn't result in deflation...but even if it did, it wouldn't be so bad. Everything just costs too much including our salaries. We need everything to go down simultaneously.
Everything is
going down simultaneously, including salaries. Most of the salary reduction is coming in the form of layoffs unfortunately...
Well, it should now be obvious to all,
uhhh, except the ones living on the banks of De Nile, that we are infact seeing deflation. All class of Commodities are down, Stocks down, Bonds are flat or Defaulting, Real Estate still falling. We should begin to see this filtering into retail prices soon.
TMW2jDRc
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3 hours as a member, and you've SPAMMED10 THREADS
with your nonsensical crap!
Get lost!
This isn't an ad space.
Inflation vs. Supply and Demand
Inflation is an increase in the money supply.
Supply and Demand create prices. More demand or less supply drives prices up.
But one has to look to the overall consumper price index to find deflation vs. inflation. Prices are a side effect - not as a cause.
Understanding the situation is important, but I see no solutions
"Let's get rid of the Fed!" as yanking it off like a bandaid is not a real solution ... or is it?
Legalize Competing Currency
The answer is to legalize competing currency and let the people/market determine the best solution.
Then, the FED will become just another competing bank.
Investment will once again be funded by actual accumulated savings, not fiat - producing slow, but steady growth.
Inflation also in China, India, Europe
March 11 (Bloomberg) -- China's inflation accelerated to the fastest pace in 11 years as the worst snowstorms in half a century disrupted food supplies, adding pressure on the central bank to raise interest rates.
March 20 (Bloomberg) -- India's inflation accelerated to a ten-month in the first week of March, making it more difficult for the central bank to reduce interest rates to bolster slowing economic growth.
Wholesale prices rose 5.92 percent in the week ended March 8 from a year earlier, faster than the previous week's 5.11 percent, the Ministry of Commerce and Industry said in New Delhi. A Bloomberg survey of 13 economists forecast a 5.11 percent gain.
March 3 (Bloomberg) -- Europe's expanding economy is helping buy Jean-Claude Trichet time to overcome the region's worst bout of inflation in a decade.
Signs are mounting that growth is holding up in the 15 nations that use the euro, fueled in part by demand for exports in eastern Europe and other emerging markets. That gives the European Central Bank's toughest inflation-fighters ammunition to block any push for lower interest rates.
TIPS Trading NEGATIVE = Inflation
March 10 (Bloomberg) -- Bond investors have never been so sure that the Federal Reserve will lose control of inflation. They're so convinced that they're giving up yields just to buy debt securities that protect against rising consumer prices.
The yield on the five-year Treasury Inflation-Protected Security due in 2012 has been negative since Feb. 29, and traded today at minus 0.17 percent. The notes, which were first sold in 1997, have never before traded below zero. Even so, firms from Deutsche Asset Management to Vanguard Group Inc., the second- biggest U.S. mutual fund company, say TIPS are a bargain.
For the first time in a generation, money managers must come to grips with a central bank that's more intent on spurring the economy than restraining price increases. With oil above $100 a barrel, gold approaching $1,000 an ounce and the dollar at a record low against the euro, TIPS show investors aren't convinced Fed Chairman Ben S. Bernanke will be able to tame inflation once policy makers stop cutting interest rates.
I find these things really interesting,
did you read this thread "Chart" that nalicosh posted earlier today? The "Experts" are often wrong, or have their own motives-interests. Don't forget, management companies are in dire straits right now, and in such times dire mistakes are made. When things are running smoothly they look like Gods, when turbulence prevails they look to be fools. They have been fools for the last 8 years, and the public is BEGINNING to see such.
http://www.gold-eagle.com...
This is an extremely important discourse
TxRedneck, this reads as though you wrote it yourself. And if this is the case, you clearly give a good name to what I presume you wish to represent: Texas redneck. You've made a great case for falling prices from not enough dollars chasing the goods and services produced.
You've described, exactly, the way things are. In my mind, the question is whether or not during this deflationary cycle that we completely jettison the fiat system. If so, the exact one thing that will not deflate are the commodities.
Fiat systems have been jettisoned in the past, and as infrequent as they are, it is a certainty that it will happen again...
With China, India and Russia entering the world's marketplace... who are starved of gold and starved of protein (and therefore wheat, corn, soy, sugar who feed the livestock), the US is no longer in a position to edict what is to be done with the fiat currency.
I'd like to hear your thoughts on how a dislocation in the markets play out.
In my opinion,
and I'd like to emphasize I believe, we are already in deflation. Many argue "yeah, have you been to the grocery store lately?"
Prices for automobiles began falling in 2000. I bought a Toyota Tacoma in Dec 1999 for $22,000. Six months later the same EXACT truck was $20,000. Stocks prices began falling in 2000 (funny how rising stocks are not considered in the inflation indexes...). REAL prices on houses began falling in 2001 ( funny how rising real estate prices are not considered in the inflation indexes...).
Why do people not see deflation? Because commodities are inflating. And as of late, that is about the only thing inflating. Food and energy, and metals. Metals are going up PURELY on emotion, fear and greed.
So that leaves food and energy. And the switch to methanol explains largely these rises. More land is being used for methenol production resulting in less food, so groceries prices rise. Methanol is more expensive than petro gasoline and less efficient, so gas prices rise. Methanol is what is keeping prices inflated, in my opinion. It is a sneaky equivilent of Franklin Roosevelt's distruction of crops and livestock in order to keep prices up. Land for food has been converted to land for fuel, reducing the available food supply for livestock feed and grocery stock. It has reduced oil consumption, which is why we see oil at $100 a barrel producing gasoline for the same price it did when oil was $70 barrell.
With less food being produced food shortages are a real threat. With less food available we could see Deflation all around but high food prices. If there is not enough food for everyone then then ones who can afford food are the ones whom eat. BUT. As people need to eat they will consume less energy, and the price of corn (methanol) drops below the price of food crops, farmers convert to growing food. The end result is the market decides, and food in the end is more valueable than fuel. Falling fuel prices will lead to falling food pirces. And once again, this is what I believe.
In a deflation - CASH is king
That is what Gary North said.. He has proof of the deflation on the FED's own charts. He goes with the M1 money supply. I have read all of stuff of late (but I've been reading his stuff for 30 years). I agree with Tredneck and Gary North.
So, what does it mean "Cash is king." Does that means to take your $ out of the bank and stash them? Comments please.
The Solution
Regardless of what happens the solution stays the same.
STOP your consumer ways and BECOME a producer of something that your neighbor needs.
We the People are in control. Get out of debt. Stop consuming junk from overseas. Start thinking about helping out = producing something of value.
When all is said and done it is going to come down to what skills and knowledge do you have that is of value to your fellow man. Be a person who matters.
Interesting points
I'm a Dave Ramsey baby-stepper (on step 4) and I whole heartily agree with you. Dave's slogan is to "Live like no one else, so I can live like no one else" (alluding to get debt free and wealthy so I can live as I wish); however, his business of giving this wisdom has started a movement for getting as many people out of debt and wealthy as possible. And it incorporates all sorts of morality that benefits one's marriage, family, and community. Taking to its end, wealth and (more importantly) this wisdom builds exponentially over family generations...thus good people can achieve things like the Rockefellers have. Just think of the advantage that Rand Paul has...now imagine if one million moral decent Ron Paul supporters were able to give that advantage to their children...we could change the world beyond our comprehension in one or two generations!
And remember, if we don't do the generational thing, immoral families are (e.g., Bush).
And I like your nationalism touch. Definately check those labels.
Finally, your advice about choosing a skill of real value is dead on. I currently produce products that often immediately become obsolete. Thus, I've been training myself in other subjects. Most of them will translate well in a tough economy.
this is crazy. The majority
this is crazy. The majority of currencies fail througout history becuase of inflation Zimbabwe, France. I don't know who's preaching deflation but their way off. Who went to the grocery store last week and paid more instead of less, or filled up a tank of gas with less money?
Deflation is
a decrease in the Money/Credit supply, not lower prices. Lower prices are the RESULT of deflation, and the results are not immediate. And without M3 knowledge, deflation will not be known until it is reflected in prices. I suspect that deflation began in the final quarter in 2007, and that metals are currently reflecting such. Time will tell.
If you do some research you'll find that countries that suffer hyperinflation do so because the PHYSICALLY print their currency. That results in currency remaining in circulation even as defaults occur. If the US begins PHYSICALLY printing money, the we're in for hyperinflation. Until then all winning bets are on deflation.
well John Williams states in
well John Williams states in his newsletter that M3 is increasing at unheard of rate, Peter Schiff, Jim Rogers, and many others believe inflation is occurring in the U.S. I know who these folks are but have no idea who this guy is. So stick with what you know.
Besides Ron Paul is also of this opinion.
Evidence that BIG "WILLING Lenders" are Losing confidence
in lending. This is the type of events that shut down new creation of money and lead to deflation. The failure to create new money is magnified by the increasing defaults in existing debt. Credits are being wiped off the books and new credits are failing to be created to replace the vanishing credits. Deflation.
http://www.telegraph.co.u...
PS: Read the URL on the Telegraph article, I found it amusing :).
One should note that during Deflation ALL assets lose value, including metals. The only holding that gains in value is the currency.
very good post
very good post
Good Post
Thanks
link?
Youtube link for this interview below?
Utter Global Collapse
Enjoy!
>>
>> > Legendary Funds Manager Julian Robertson Predicts Utter Global
>> > Collapse Stemming From Bursting of Property Bubble Posted by the
>> > analyst under Economies, Financial Markets
>> >
>> > In a recent interview on CNBC with Ron Insana, one of the
>> > "old-timer"funds manager, Julian Robertson, predicted "utter global
>> > collapse" as a consequence of the bursting of the world-wide property bubble.
>> >
>> > Often called "Never Been Wrong Robertson", the former head of Tiger
>> > Management (once the largest hedge fund in the world), is extremely
>> > worried about the speculative bubble in real estate.
>> >
>> > Specifically, he is very worried about a world that is sustained by
>> > American consumer spending which is in turn 1/4 sustained by a
>> > property bubble. He predicts that 20 million people could lose their homes once the property bubble bursts.
>> >
>> > Even more worrisome, he thinks central banks around the globe out of
>> > desperation will try to re-inflate the world economy with more
>> > liquidity that will create an inflationary spiral unseen in the
>> > economic history of mankind. "Where does it end?", Insana asked
>> > Robertson. "Utter global collapse," he answered.
>> > But not just economic collapse ... collapse of epic proportions. Collapse
>> and disintegration of all infrastructure, including government.
>> Inflation will run into the double and triple digits. "Food production will
>> > fall. People will be carrying around U.S . dollars in wheelbarrows like Germany," he said.
>> >
>> > There will be "total collapse of public infrastructure. Total collapse of medical care systems. All public pension plans, Social Security will collapse.
>> > All corporate pension plans will collapse."
>> >
>> > "The American consumer is effectively now supporting the rest of the
>> > planet," he continued. "Consumption rates in all other nations are
>> > falling, have fallen to the point that the tax revenues to
>> > governments, that the business and industries those nation states
>> are providing is now a net negative number relative to total debt
>> service and public cost, that this exists in virtually every nation state
>> on the planet now."
>> >
>> > And for much of this "doom", interestingly, he blames the
>> Bush-Cheney "regime". "They have now consolidated power and money on the planet to the maximum extent possible. The planet's net liquidity, that is its,
>> net free cash flow. Is now a negative number. The planet is not simply sinking into a sea of red ink; it is already sunk. The people just don't realize it yet," he
>> > said.
>> >
>> > According to Robertson, "the Bush-Cheney regime is preparing the
>> > nation for transition from democracy into dictatorship because a
>> > dictatorship will be necessary to control, in 5 years time, food
>> and water riots." He said "the federal government, that part of Patriot II Act, the internal exile, that the government is going to have to build now huge detention compounds on federal lands, probably in the West where the land is available, to potentially house 50 million or more citizens that will be in financial ruin."
>> >
>> > In 10 years time, whoever is left will be effectively starting again,
>> > he said. "More importantly, and I'm trying to think how we imply this or how
>> we express this to the people, what extraordinary times we are living
>> in and how the destruction of the planet has been engineered by the
>> > Bushonian Cabal from 1980 to 1992, and then from 2001 to present,
>> > which has effectively destroyed the economic liquidity of the
>> planet," he said.
>> >
>> > Robertson ended the interview by saying that he hopes he is not
>> alive to see this. "The lucky ones are the ones who are my age now," he
>> > said.
>>
>
>
Very interesting post. It's
Very interesting post. It's very much in line with much of the one-world government conspiracy theories, except shifting the blame from the banksters primarily to the Bushes. Of course, according to the theories, the Bushes are simply pawns in this game of global conquest.
Many of these things have already begun to take place. Obviously the loss of freedoms in the US is becoming quite substantial, making it very easy for a dictatorship to be initiated. Also many of these "detention centers" are already in construction. The collapse of the US dollar leaves the door open for a new currency, the Amero, united North America's monetary system.
It's also rather interesting that all of these things seem to be to coming to a head at around 2012. Dec 12, 2012, of course, being the repeatedly prophesied armageddon.
youtube link?
is there a youtube link for this interview?
You tube post
Not that I'm aware of.
one more illustration
of where someone should not be entitled to have control over a blog. is this person an approved poster? has this poster earned the right by this site to be an author of the leading blog in a thread? as a result i continue to lose respect for this site for the manner in which it is moderated.
imo this author is naive.
this article
- fails to touch upon how currencies usually strengthen when governments begin rapid debt repayment
- does not mention how fiat currencies usually fail
- in the case of the u.s. dollar the story is unfolding therefore comparable to give the whole play by play for a 9 inning baseball game when the game is only in the 3rd inning
- fails to do a comparable analysis to hard asset backed currencies
- does not discuss the erosion of currency over time
I find it funny that
DIRECTLY next to this post, at the time I posted it, an ad for EWI is flashing. EWI, Elliott Wave International, is a financial News Letter run by Robert Prechter. One of the very few economist that have been preaching of coming deflation for the last 6 years while everyone else preaches hyperinflation.
In order for a government to begin rapid repayment of debt, the country from which the money comes from must be a producer nation not a consumer nation. In the mid 80's we crossed the line from producer (surplus) nation to a consumer (debtor) nation. If you consume more than you produce, what resource is the vehicle for this rapid debt repayment? Seems to me there are only 2 ways to accomplish this. Default (or forgiveness) on the debt, or reposession of collateral.
Fiat currencies have failed in different ways, but the end result is ALWAYS deflationary. Quite often printing physical cash is tried, resulting is hyperinflation. The hyperinflation results in total failure of the money, then currency replacement. This the final result of this hyperinflation is deflation, a reduction in the money supply, as total failure of the money system is a 100% deflation of the money system. A currency replacement is where maybe the exchange the old currency at a rate of 1-10, a 90% deflation.
The last 2 points really have nothing to do with the point I was making with the original post, yes it ties in, but I ain't writng a fricking book here. You are free to add your 2 cents too it. I originally posted this as a reply to a post where someone was stating their suspicion that Bush and Bernanke are putting all this money out to intentionally ruin our currency. My reply is that they are not, they are fighting the deflation that will result if they do not attack all the defaults occuring. Defaults are deflationary, they reduce the money supply. Defaults COMBINED with Lender's loss of confidence will lead to negative money growth, deflation. Then the borrowers loss confidence.
It's a one page article, not
It's a one page article, not a textbook. It's not going to cover every single issue. The risk of deflation is hardly mentioned by anyone right now, but it is a very real risk.
I agree that hyperinflation is the more likely scenario, at least in the short term, but it it wise to consider and prepare for both scenarios.
Renewable Wealth - Profitable Green Investing
Yes, but . . .
What you say is true of consumer debt - when the borrower pays off the loan the money dissolves and the money supply decreases. But this is NOT true with government debt. When the government pays ITS debts, the money supply increases! Our government owes $9 trillion in hard debt and has no way to pay it. When this debt has to be paid, our government will have two choices: default or print vast amounts of cash. If it chooses to print, as I believe it will, we will have dramatic inflation. Because calling in the debt will cause inflation, the lenders know that they will have only a short time to get out of dollars so there will be a rush to cash in dollar debt and convert to other currencies. The government will have to print cash and at the same time the market demand for dollars will fall as lenders flee to other currencies. Hyper inflation.
If that were not bad enough, we have over $50 trillion in unfunded medicare and Social Security obligations entering the pipeline right now and coming due over the next twenty years. No conceivable tax plan or growth projection can come anywhere near to covering this obligation. It is so bad that Moodys is threatening to lower the US government's bond rating. That is going to make it very hard for the government to borrow any more money. Again the choices will be default or print vast amounts of cash. Invest in printing presses.
Additionally, when massive amounts of loans default or are paid off, it is, in essence, a run on the bank and people who actually have money in the bank will have to be paid real cash by the FDIC when the electronic deposits evaporate. That money is going to have to be printed. More inflation.
I predict the government will print vast amounts of cash to avoid default and to avoid bank closures because it postpones the pain. So I am betting on hyper inflation. But I could be wrong.
Please offer some ideas for changing this system.
Without editorial comment it looks like you're saying "accept it, that's just the way it is." What are the implications for safeguarding gains, hang onto our paper dollars and hope for deflation instead of fleeing to gold and foriegn currencies? I'd appreciate knowing your recommendations/agenda.