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A little difference of opionion here, until the toxic assests are cleared from the banks books nothing will work.
The assets are toxic because the people can’t service the debt that they got into. If you were to double your wages you should be able to double your debt load to match. Really simple, wage/price inflation will make the toxic asset a whole lot less toxic.
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Originally Posted by SilverOne
Inflation is going to keep happening due to the quantive easing (printing money) from thin air.
Deflation not in the consumer price aspect but in the amount of money in serculation is what we are playing with in the economy now. Will we keep it at bay with QE? Well printing money and giving it to everyone is just the same thing as QE but it is cash based and would allow for reducing the total debt and having economic growth at the same time.
Quote:
Originally Posted by SilverOne
The banks are broke, and no amount of wage increases will do anything until the to big to fail banks are cleaned up and those that took to many risk are filtered out of the system. Once the economy is reset and a new currency is estabilished ( no paper currency has ever lasted more than 40 years- the last time for the US was 1971) then we can rebuild from the bottom up. As it is now we will just be paying interest on the money we are borrowing, it has to crash to get the trash out of the system.
It doesn’t have to crash. The banks are broke because they have loaned out more money than we can repay. Inflate our wages and the debt as a % of all the money earned goes down. Give everyone extra money at the same time is also a really good thing to do as it will stimulate the consumer economy. We don’t need a new currency we just need to balance the amount of debt with the amount of income. Crash the debt or inflate the wages. Take your pick.
Legal tender laws mandate the medium of exchange, but they do not and cannot name the store of value. For that they rely on credibility management by institutions like the Fed and CNBC. Jim Sinclair calls this MOPE. And it is the monetary store of value that is on the move, not the medium of exchange. But thanks to legal tender laws the monetary store of value must pass through (and be priced in) the medium of exchange, dollars, whenever it is on the move.
Thanks to our legal tender laws, in order for all that "wealth" at the top of the upper pyramid to escape to the bottom pyramid it must pass through the dollar. But as this occurs, the dollar swells in value. It becomes "more expensive." It'll cost you more derivatives to buy a dollar in order to pass through the neck of the hourglass. The dollar becomes a little bit harder to get, and this starts to look like deflation to the deflationists.
the above article contends that an hourglass shape with the upper must pass thru the middle (converted to dollars to be cleared) of the glass or choke point to become assets aka commidities or land. Too much chasing too little causes inflation.
Inflation and hyperinflation are two different things. If you have slow inflation then before you get to inflation you should get up on the employment curve. The http://en.wikipedia.org/wiki/Phillips_curve is what I’m talking about. Printing money and giving it to everyone should push inflation and employment.
Hyperinflation is different. With rapid price movement you don’t economic stability. You don’t get full employment.
the above article contends that an hourglass shape with the upper must pass thru the middle (converted to dollars to be cleared) of the glass or choke point to become assets aka commidities or land. Too much chasing too little causes inflation.
When you try to convert the top into the bottom all at once you are correct. The over simplification in the article leaves out the buying power of an average hr of labor, the top of the hour glass is supported on the buying power of the labor preformed in the economy. (And by labor I mean anything that people do that gets turned into money.) That is the “gravity” that the article talks about. Or more precisely one divided by the average wage. Increasing the wages reduces the pull on the top of the hr glass.
The two key commodities that have been rising as of late are oil and grains, specifically wheat, corn and livestock feed. The BLS report on Producer Price Index of commodities is here.
Grains as a class have risen over 33% year-over-year. Refined oil products have risen just shy of 13%, with home heating oil rising 18% year-over-year. In other words: Food, gasoline and heating oil have risen by double digits since 2009. And the 2010-‘11 winter in the northern hemisphere is approaching.
A friend of mine, SB, a commodities trader, pointed out to me that big producers are hedged against rising commodities prices. As he put it to me in a private e-mail, “We sometimes forget that the commodity markets aren’t solely speculative. Most futures contracts are bought by companies who use those commodities in their products, and are thus hedging their costs to produce those products.”
Location: Jonquil City (aka Smyrna) Georgia- by Atlanta
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Quote:
Originally Posted by SilverOne
Everybody thinks you have to go through defaltion, then inflation and on to hyperinflation. In todays world with the internet it can be a matter of hours. Following two article explains how, first is how the second is the authors explaining in lay terms due to the amount of questions he got from the first. Excellent read....
Right now deflation is the problem. But you are right. The Fed cannot just flood the system with trillions of printed dollars and it not lead to inflation- or worse a crisis in confidence of the currency (hyperinflation). We are in a very dangerous situation that requires precise work. At some point, the Fed is going to have to know when to pull the plug on zero interest rates. If they get it wrong, we are all in big doo doo.
Location: Jonquil City (aka Smyrna) Georgia- by Atlanta
16,259 posts, read 24,752,651 times
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Quote:
Originally Posted by SilverOne
Everybody thinks you have to go through defaltion, then inflation and on to hyperinflation. In todays world with the internet it can be a matter of hours. Following two article explains how, first is how the second is the authors explaining in lay terms due to the amount of questions he got from the first. Excellent read....
Location: Jonquil City (aka Smyrna) Georgia- by Atlanta
16,259 posts, read 24,752,651 times
Reputation: 3587
e the underlying problem, which will be hyperinflation.
In fact, the only way the Federal government might be able to ameliorate the situation is if it decided to seize control of major supermarkets and gas stations, and hand out cupon cards of some sort, for basic staples—in other words, food rationing. This might prevent riots and protect the poor, the infirm and the old—it certainly won’t change
There are already plans in place to do this. That is one reason they went to the new "Secure ID" program. It had nothing to do with terrorism. It was done because the government wants an efficient way to ration commodities and wants to insure that fake ID is not used to circumvent the rationing program. After all, if they allow you to only buy 8 gallons of gas per week and you have a vehicle that is not very MPG friendly, you would love to get more.
When looking at these figures, it is wise to remember that what is being “produced” here is the reserve currency of the world. This is why the US government has gotten away with this borrowing as long as they have. And it is also why the Fed has been able to accommodate them with non-existent official interest rates for as long as they have. But for how much longer?
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