Big Deflation coming then even bigger inflation.

SilverStandard

In the USA it took 200 years to go from zero $ to $825B in existence. Then along came the finacial crisis. Now we are talking Trillions of $, what comes after Trillions?

When the world banks started writing checks of money that didnt exist base money was created. They created more currency in just 18months than in the last 200 years.

Do you think thats a good thing? I dont.

Thats just the base money thats the magic money the government and the central banks just create out of thin air. That only accounts for 7% of the currency supply before the crisis now it accounts for about 15%.

If you deduct base money from M3 you see something is happening here that is ringing alarm bells. There is a collapse of the currency supply of such magnituse the world has not seen anything like this since the great depression.


The line shot up so much at the start of the crisis they have just opened up the gates for huge deflation and I bet to counteract this they will turn on the printing presses all over the world Zimbarbwian style. This can only lead to big or even hyper inflation.

http://www.youtube.com/watch?v=uzef43gdupk

michaels

Where is the inflation going to come from? At the moment the central banks really seem to be struggling to get the monetary stimulus in to the real economy - the funds are there but no one wants to spend and fiscal policy is being tightened everywhere.

Arcaine

SilverStandard wrote: »

In the USA it took 200 years to go from zero $ to $825B in existence. Then along came the finacial crisis. Now we are talking Trillions of $, what comes after Trillions?

When the world banks started writing checks of money that didnt exist base money was created. They created more currency in just 18months than in the last 200 years.

Do you think thats a good thing? I dont.

Thats just the base money thats the magic money the government and the central banks just create out of thin air. That only accounts for 7% of the currency supply before the crisis now it accounts for about 15%.

If you deduct base money from M3 you see something is happening here that is ringing alarm bells. There is a collapse of the currency supply of such magnituse the world has not seen anything like this since the great depression.


The line shot up so much at the start of the crisis they have just opened up the gates for huge deflation and I bet to counteract this they will turn on the printing presses all over the world Zimbarbwian style. This can only lead to big or even hyper inflation.

http://www.youtube.com/watch?v=uzef43gdupk

Massive inflation will not come round as quick as you think.....because the trillions that have been created are only being used to plug the black hole that has been created by fractional reserve lending. This money will never get out into the wider economy.

mbga9pgf

Correct. Which is why we are f00ked for a lot longer than most think. How long will 10 years of excess take to pay off I wonder? Not that we have started to pay it off looking at personal debt levels that is...

Batchy

Ill get my tin hat ready... lol

bendix

Great stuff.

Has anyone else noticed the propensity of the posters who advocate Gold and Silver as the only safe investment option seem to get all their economic wisdom from youtube?

nicko33

all the other media is "controlled" :shhh:

Hsarcgib

michaels wrote: »

Where is the inflation going to come from?

Good question the answer is printy printy.

We havent seen anything yet.

To get out of deflation they will add huge amounts of currency to the worlds supply, or in other words inflation.

Llubrevlis

I would argue that credit outstanding adds to the currency supply.

Even though mortgages loans and credit card Pounds are phantom pounds that sprang into existence with a signature, and are owed to a bank, they purchased a good or service when they sprang into existence.

Once the seller of the good or service has that pound it became a regular pound that is not owed to a bank. It can therefore go on to purchase other goods and services and so becomes one of the drivers of price inflation.

That phantom pound circulates in the currency supply until someone earns it back and pays off their debt to the bank. As long as credit outstanding is growing so is the currency supply.

The problem is at the moment even though base money is growing due to QE every so often, outstanding credit is contracting at a grater rate.

This is why the Bank of England is so worried right now. Its not just the UK its a worldwide crisis especially in the USA.

Banks are not lending as much and the public are not borrowing or spending much. So outstanding credit is coming down even though base money is going up. This is deflationary.

This will lead to adding huge amounts of units of fiat currency to base money all around the world to try and fight the deflation.

This has always ended with big inflation and currency collapse. It always has and always will.

gagahouse

Llubrevlis wrote: »

I would argue that credit outstanding adds to the currency supply.

Even though mortgages loans and credit card Pounds are phantom pounds that sprang into existence with a signature, and are owed to a bank, they purchased a good or service when they sprang into existence.

Once the seller of the good or service has that pound it became a regular pound that is not owed to a bank. It can therefore go on to purchase other goods and services and so becomes one of the drivers of price inflation.

That phantom pound circulates in the currency supply until someone earns it back and pays off their debt to the bank. As long as credit outstanding is growing so is the currency supply.

The problem is at the moment even though base money is growing due to QE every so often, outstanding credit is contracting at a grater rate.

This is why the Bank of England is so worried right now. Its not just the UK its a worldwide crisis especially in the USA.

Banks are not lending as much and the public are not borrowing or spending much. So outstanding credit is coming down even though base money is going up. This is deflationary.

This will lead to adding huge amounts of units of fiat currency to base money all around the world to try and fight the deflation.

This has always ended with big inflation and currency collapse. It always has and always will.

Good post, it is important to understand the difference between base money and broad money - Bean and Posen statements are a clear signal
that they have failed to stem the destructive effect on broad money of the current deleveraging - their only options are to increase the stock of base money and try to encourage an increase in velocity by saying spend rather than save.

I can't see this ending other than in the way you have described, gold whose price is really the derivative of the value of fiat, is telling us we are heading this way.

michaels

But surely you explain why the increase in currency is not inflationary in your own argument. The Central Bankers are shovelling money out of their helicopters but those catching it are neither spending it nor saving it in banks where it can support lending but using it to pay down debts. The banks are not then saying 'looks like we are under-leveraged, time to try and lend some more' but instead looking to build their capital ratios.

I guess the arguement then goes at some point banks will feel safely capitalised and look to increase profits and consumers and business will feel safe to spend again at which point the huge stock of currency will drive inflation. What evidence is there that there will be a change in sentiment so sudden that monetary tightening will not be an effective tool in managing any increase in demand before it becomes inflationary. After all in the real economy there is lots of spare capacity and labour which surely bears down on any price and wage increases?