Deflation Watch pt 152

PaulF81

Thing is, what is the net balance Gen (genuine question) of QE input + Fall in M4? If the net balance is positive, one would naturally expect inflation, wouldnt one? This of course is not a direct correlation, as money velocity is pretty poor at the mo (understatement looking at corporate balance sheet figures) and other factors such as the trade deficit and net money flows on the international markets.

One COULD argue that these other factors are less influential,on the other hand, having studied complex dynamic systems at uni, I am well aware of the "butterfly effect" which seems to dominate global market instability these days. Markets are trying to be too damn clever for their own good IMHO.

sabretoothtigger

Do what the Chinese did, issue money that expires a year from now. Spend it or lose it

Markets are trying to be too damn clever for their own good IMHO.

Markets have always had a mind of their own, its the biggest banks who altered the rules most of all I think

purch

PaulF81 wrote: »

Markets are trying to be too damn clever for their own good IMHO.

As has always been the case. The Market as a whole and individual participants usually believe they are smarter than the average bear, and rarely accept the most 'obvious' conclusion.

Generali

PaulF81 wrote: »

Thing is, what is the net balance Gen (genuine question) of QE input + Fall in M4? If the net balance is positive, one would naturally expect inflation, wouldnt one? This of course is not a direct correlation, as money velocity is pretty poor at the mo (understatement looking at corporate balance sheet figures) and other factors such as the trade deficit and net money flows on the international markets.

One COULD argue that these other factors are less influential,on the other hand, having studied complex dynamic systems at uni, I am well aware of the "butterfly effect" which seems to dominate global market instability these days. Markets are trying to be too damn clever for their own good IMHO.

You pose an interesting question and a difficult one to answer.

It's all very well for us to say, "Money supple => increased prices = inflation" but it ain't necessarily so.

For an increase in the money supply to cause inflation, the money has to be spent. However at the moment the Government is printing money and that isn't being lent by the banks, for the large part at least.

That's why I feel that M4 is the most important measure of money supply right now. It measures the net impact of QE and money creation by banks in a direct way.

M4 is down 3.4% YoY.

You can see the impact of QE in the monthly M4 figures if you go to the BoE website and look up the monthly numbers for M4. There's a big jump in the months when QE occurs and then back to a falling money supply.

My thought is that the problem is that the banks are broken: if banks don't lend then the mechanism for increasing the money supply doesn't work.

Generali

Ladies and Gentle-posters.

We have new M4 money supply figures and M4 fell by 5% over the past 12 months.

Can we expect more QE or does there come a point where it becomes politically impossible to 'print' any more money? I have no idea what the answer is but I do know that none of the QE so far has been inflationary as it has not caused the money supply to rise.

AndyGuil

I think we will see more QE. The economy has not improved. There is a major risk now to the AAA rating and more QE may damage this.

Bigdeflationfirst

Generali wrote: »

Ladies and Gentle-posters.

We have new M4 money supply figures and M4 fell by 5% over the past 12 months.

Can we expect more QE or does there come a point where it becomes politically impossible to 'print' any more money? I have no idea what the answer is but I do know that none of the QE so far has been inflationary as it has not caused the money supply to rise.

Not just the UK, but look at the worlds numbers supply. Some call it the money supply or currency supply, but they are just numbers on a computer screen since 1971.

The worlds numbers supply has to keep expanding or the system collapses. Every unit of currency is created with interest owed on it, where does this interest come from? More units have to be created with interest also on them. It has to keep expanding.

Things that grow exponentially can not grow forever. The thing about exponential curves is when they start going up they get steeper and steeper until they just go straight up, for the monetary system this would mean hyperinflation or death of the fiat currency system.

But for now the system is collapsing, all they can do is create more currency that has interest due in the future, and hope for the best.

So yes more currency abuse coming (QE) to fight the deflation, it will end badly as always has happened when same thing is tried throughout history.

Generali

Bigdeflationfirst wrote: »

Not just the UK, but look at the worlds numbers supply. Some call it the money supply or currency supply, but they are just numbers on a computer screen since 1971.

The worlds numbers supply has to keep expanding or the system collapses. Every unit of currency is created with interest owed on it, where does this interest come from? More units have to be created with interest also on them. It has to keep expanding.

Things that grow exponentially can not grow forever. The thing about exponential curves is when they start going up they get steeper and steeper until they just go straight up, for the monetary system this would mean hyperinflation or death of the fiat currency system.

But for now the system is collapsing, all they can do is create more currency that has interest due in the future, and hope for the best.

So yes more currency abuse coming (QE) to fight the deflation, it will end badly as always has happened when same thing is tried throughout history.

But with electronic fiat money you can have as much or as little as you like. There's no problem if a box of matches costs you £1,000,000 as long as the inflation you have to get you there is gentle.

That a loaf of bread could cost £1 7s 0d (link) would have seemed ruinous to someone living in the 1920s as that was almost a week's wages (link) yet the system hasn't yet collapsed after 90 years of near continuous exponential growth in both the money supply and prices.

purch

I think it should also be becoming obvious that History is the last place you should look for pointers as to how this will resolve itself.

What occurred was unprecedented, and the response so fare is also unprecedented.

Trying to liken it to past events is a mistake being made by many.

Bigdeflationfirst

Generali wrote: »

But with electronic fiat money you can have as much or as little as you like. There's no problem if a box of matches costs you £1,000,000 as long as the inflation you have to get you there is gentle.

That a loaf of bread could cost £1 7s 0d (link) would have seemed ruinous to someone living in the 1920s as that was almost a week's wages (link) yet the system hasn't yet collapsed after 90 years of near continuous exponential growth in both the money supply and prices.

Interesting theory, I have never though of that possibility. So do you really think for the first time ever the system could continually expand exponentially even when it starts to go straight up.

purch wrote: »

I think it should also be becoming obvious that History is the last place you should look for pointers as to how this will resolve itself.

What occurred was unprecedented, and the response so fare is also unprecedented.

Trying to liken it to past events is a mistake being made by many.

I would agree with small details here and there, the short term noise as it were. But the big picture is the 3 stages of the monetary cycle that has repeated time and time again. Do you really think it will stop repeating?