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The Fed and other central banks can reign in monetary inflation pretty quick.
If things heat up, and economies start picking up... all they have to do is slowly raise the reserve requirements and sell treasuries and raise taxes inline with banks credit expansion.
The problem with last time was that they didn't reduce the money supply fast enough and rates stayed low for a few years giving banks and financial institutions a gaping hole to exploit.... oh, I mean "capitalize" on.
-chuck22b
Hi chuck22b,
That is because they ignored real estate inflation as if the concept does not exist. Cheap Chinese imports was their excuse. The real conundrum they are trying to solve is how to they keep the money supply to the same level through debt. Going into debt to buy now is not in one's self interest during deflation. Have they even bothered to tell us how they intend to overcome this problem?
Deflation is impossible, the crooks printing the money can crank out cash faster than anyone can deflate. Once the deflationary pressures ease, expect inflation to explode like a room full of gasoline vapors. I expect inflation to start building up more steam by the end of this year and crank up next spring.
Hi tallrick,
Why is this impossible? Its no more so than inflation which is a conscience choice. The analogy is actually quite good. There may be a room full of gasoline vapors but if there is no spark and not enough oxygen then we will just asphyxiate.
Many people are waiting on the next bubble. I say its here. Its a cash bubble which is resulting in hoarding and no new loans. As we saw in other cases bubbles can absorb trillions. Unless they can create debt it will not matter.
What is truly ridiculous is this great mystery of debt to economic growth. All growth is measured in debt since all everything of value is measured by debt. All debts represent the dollar and fully paid is a net of $0. If all dollars circulated domestically then a $100 in one person's account is another person's bank debt of $100. Net US saving would be $0. Paying down debt axiomatically reduces nominal value of the economy. The reason why our debt growth has exceeded economic growth is also axiomatic. The moment a dollar is in foreign hands it does not circulate in our economy thus it will not serve to bid up domestic assets. Dollars circulate freely outside the US so unless debt is created domestically the effect will be muted. Debt and money supply as it is used to monetize say oil transactions involving India and Saudi will show as increased debt in US obligations but will not circulate locally. It mathematically must happen that as US obligations are traded internationally debt must grow in excess of the local economy. Most people don't see this because they fail to understand creating dollars is creating government obligations.
Now the real problem we have is we have one really good export. The comparison to a small island with a single cash crop could come true if there is a blight on our number one export. Our export is the dollar accepted as a world legal tender. If there is a blight in that case then kiss not a few of our luxuries good bye.
Many people are waiting on the next bubble. I say its here. Its a cash bubble which is resulting in hoarding and no new loans. As we saw in other cases bubbles can absorb trillions. Unless they can create debt it will not matter.
Our dollar being exported is a statement of the security other nations feel behind our leadership in world affairs and good judgement in our economic policies,both have taken MAJOR hits of late,say about 2003 or so.As regards our only good export,remember one US company (Boeing) exports more finished products than some 100 other countries in the world.Our manufacturing base is still 50% larger than Japans,which is number two in the world.Our agricultural production is the envy of the world,despite political interference.However,due to our relatively large debt 11 Trill and counting versus Gdp of 14 Trill,it is in our best interests to let the currency inflate,though hopefully not to a crippling amount.This will be Bernankes true leadership test,taking the punchbowl away just as the party is starting (i.e. jacking interest rates early and often).As regards Hank Paulson,a noose over a sour apple tree comes to mind!As for money hoarding being the next bubble..PLEASE!We can ALWAYS trust banks to throw around OTHER peoples money with the reckless abandon of sailors on liberty in Hong Kong!!!!!!
I am planning on retiring on a fixed income. I sincerely hope all prices fall through the floor. I would love to see small houses selling for 20 grand, gasoline at $1 per gallon and hotel rates back at $35 per night. Then I would really enjoy being retired. It is no skin off my a** if the banking, housing and currency speculators go broke because they can't cover their bets.
We could restart the economy simply by having the government start rebuilding the infrastructure instead of the failed financial system.
[SIZE=3] [/SIZE]
I'm no economist, but here's how I picture things:
Money loses value when it isn't "moving". The velocity of money acts as a multiplier to the actual money supply.
Our money supply didn't decrease, it simply stopped moving, causing deflation (as long as banks continue to horde $$)
Now, further, my understanding is that once money beings "moving" again, since we're printing dollars like madmen, that velocity multiplier will turn deflation into hyperinflation.
What do y'all think, is this in line with your understanding of the situation?
I'm no economist, but here's how I picture things:
Money loses value when it isn't "moving". The velocity of money acts as a multiplier to the actual money supply.
Our money supply didn't decrease, it simply stopped moving, causing deflation (as long as banks continue to horde $$)
Now, further, my understanding is that once money beings "moving" again, since we're printing dollars like madmen, that velocity multiplier will turn deflation into hyperinflation.
What do y'all think, is this in line with your understanding of the situation?
Hi rubber_factory,
If you believe that federal deposits are the only limiting factor this would be true. However they are not. Inflation is not like the weather though I am sure some people would like us to believe it is. If 10 trillion in bonds backed up dollar reserves and it became 20 trillion what would happen if they doubled the reserve requirement? The multiplier effect would be equivalent to 10 trillion with twice the reserve requirement. If it were up to me I would send that 700 billion to every house hold with a good 2007 credit rating and up the reserve requirement to match permanently. Who needs them to lend it now? The banksters would not see that person as fit to live however.
If we do get inflation it is the equivalent of our masters deciding its inflation time.
We really need to get off the credit binge as both a government and a people.
The government should set taxes to cover the yearly cost and people should save up money before they buy. It would take the economy a while to get used to this but it would be far more stable if we did.
We really need to get off the credit binge as both a government and a people.
The government should set taxes to cover the yearly cost and people should save up money before they buy. It would take the economy a while to get used to this but it would be far more stable if we did.
But that would mean that we would have to start innovating and producing goods again. We all know that's very undesireable to many people.
Why is this impossible? Its no more so than inflation which is a conscience choice. The analogy is actually quite good. There may be a room full of gasoline vapors but if there is no spark and not enough oxygen then we will just asphyxiate.
Many people are waiting on the next bubble. I say its here. Its a cash bubble which is resulting in hoarding and no new loans. As we saw in other cases bubbles can absorb trillions. Unless they can create debt it will not matter.
What is truly ridiculous is this great mystery of debt to economic growth. All growth is measured in debt since all everything of value is measured by debt. All debts represent the dollar and fully paid is a net of $0. If all dollars circulated domestically then a $100 in one person's account is another person's bank debt of $100. Net US saving would be $0. Paying down debt axiomatically reduces nominal value of the economy. The reason why our debt growth has exceeded economic growth is also axiomatic. The moment a dollar is in foreign hands it does not circulate in our economy thus it will not serve to bid up domestic assets. Dollars circulate freely outside the US so unless debt is created domestically the effect will be muted. Debt and money supply as it is used to monetize say oil transactions involving India and Saudi will show as increased debt in US obligations but will not circulate locally. It mathematically must happen that as US obligations are traded internationally debt must grow in excess of the local economy. Most people don't see this because they fail to understand creating dollars is creating government obligations.
Now the real problem we have is we have one really good export. The comparison to a small island with a single cash crop could come true if there is a blight on our number one export. Our export is the dollar accepted as a world legal tender. If there is a blight in that case then kiss not a few of our luxuries good bye.
If deflation gets bad enough, I have every reason in the world to believe the government will force banks to loan. Perhaps even more direct fiscal stimulus. The government has taken on so much debt, that I cannot fatham a 1930's type deflationary cycle. There is cleary a glut in the treasury market. Supply will exceed demand and foreigners wont finance this fiasco forever. When the federal reserve is the only buyer, you can bet dollars will come washing back to our shores creating a run on the dollar like never seen in history.
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