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Monetary inflation and credit deflation

The debate all year as to which it will be has been ended.

We currently have Monetary inflation and credit deflation.

This means there is ongoing fiat currency creation and this supply is expanding which is inflationary for prices. But there is also a massive deflation in outstanding revolving credit. It is falling in the trillions of units of fiat currencies.

This has never happened since the great depression.

I can see the currency creation continuing to the tune of trillions of units of fiat currency all around the world.

They will try to get the deflation in outstanding revolving currency going up again.

The danger is even if they turn off the printing presses it will be too late.
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Comments

  • Generali
    Generali Posts: 36,411 Forumite
    10,000 Posts Combo Breaker
    RDB wrote: »
    The debate all year as to which it will be has been ended.

    We currently have Monetary inflation and credit deflation.

    This means there is ongoing fiat currency creation and this supply is expanding which is inflationary for prices. But there is also a massive deflation in outstanding revolving credit. It is falling in the trillions of units of fiat currencies.

    This has never happened since the great depression.

    I can see the currency creation continuing to the tune of trillions of units of fiat currency all around the world.

    They will try to get the deflation in outstanding revolving currency going up again.

    The danger is even if they turn off the printing presses it will be too late.

    Most countries couldn't print money in the late 20s/early 30s as they were on the gold standard.
  • purch
    purch Posts: 9,865 Forumite
    This means there is ongoing fiat currency creation and this supply is expanding which is inflationary for prices

    No sign of that so far.

    But I am sure you live in hope.
    'In nature, there are neither rewards nor punishments - there are Consequences.'
  • jamesd
    jamesd Posts: 26,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Generali wrote: »
    Most countries couldn't print money in the late 20s/early 30s as they were on the gold standard.
    And it was the ones who left the gold standard first who recovered from the depression and recession first.
  • RDB wrote: »
    We currently have Monetary inflation and credit deflation.

    "Current" is stretching it a bit. Our last QE in the UK was almost a year ago and bank lending figures have been up and down.

    This means there is ongoing fiat currency creation and this supply is expanding which is inflationary for prices.
    Fail. Credit money is just as inflationary for prices as base money. This is why they use a compound measure (M4) to guage our money supply.
  • jamesd
    jamesd Posts: 26,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    RDB wrote: »
    This means there is ongoing fiat currency creation and this supply is expanding.
    More money around. OK.
    RDB wrote: »
    But there is also a massive deflation in outstanding revolving credit. It is falling in the trillions of units of fiat currencies.
    Less money around, OK.

    So which is it, more money around or less money around?

    There's a clue around: there have been problems with coffee, sugar and even onion crops that have caused supply shortages and price rises. There will soon be an increase in VAT that will increase prices. Next year sometime there will probably be an increase in interest rates that will increase RPI inflation.

    Those with a focus on precious metals tend to think that all inflation is caused by money supply. It's not. Sometimes you can have reducing money supply and inflation at the same time because of shortages of goods.
  • Generali
    Generali Posts: 36,411 Forumite
    10,000 Posts Combo Breaker
    jamesd wrote: »
    And it was the ones who left the gold standard first who recovered from the depression and recession first.

    That was true of the UK but the UK's economy had already been deflated in the 1920s to allow a return to the GS at the pre-WW1 value and later a large trading area (aka The British Empire) meant protectionism had less impact.
  • jamesd
    jamesd Posts: 26,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    It was also true of the other countries that left the gold standard. More information on this is available at "Essays on the Great Depression". Page 74 has a table showing when countries adopted the gold standard, when they suspended it and when they devalued.

    The general picture there is very ugly for fans of a gold standard: the great crash and depression a few years after most countries adopted the gold standard and the start of recovery after they left it. Pages 81 and 82 add deflation and inflation data showing deflation until countries left the gold standard, followed by reflation (AKA inflation) after they left it and started to recover.
  • RDB
    RDB Posts: 872 Forumite
    edited 25 December 2010 pm31 4:50PM
    jamesd wrote: »
    More money around. OK.

    Less money around, OK.

    So which is it, more money around or less money around?

    Well for a start we are not talking about money here. To be money something has to be a store of wealth over time. Only gold and silver can be called money what we are using today can be called fiat currency.

    So the amount of fiat currency being created and added to the supply called base money is expanding the world over.

    The amount of outstanding revolving credit is contracting as all this QE or whatever you want to call it is paying off debt. Also the helicopter drops of fiat currency all around the world mean less needs to be borrowed that the banks can charge interest on.

    It is quite easy to understand base money is going up and outstanding revolving credit is coming down.This has never happened since the great depression.
  • lvader
    lvader Posts: 2,579 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    RDB wrote: »
    Well for a start we are not talking about money here. To be money something has to be a store of wealth over time. Only gold and silver can be called money what we are using today can be called fiat currency.

    .

    Exactly how well has gold and silver stored wealth over the last 30 years?
  • Hereward
    Hereward Posts: 1,198 Forumite
    RDB wrote: »
    Well for a start we are not talking about money here. To be money something has to be a store of wealth over time. Only gold and silver can be called money what we are using today can be called fiat currency.

    If you are going to list precious metals, don't forget platinum, which is "worth" more than gold. You have forgotten that the "money" you have quoted is valued using fiat currency; therefore, if the value of fiat currency is decreasing, so is "money".
    So the amount of fiat currency being created and added to the supply called base money is expanding the world over.

    The amount of outstanding revolving credit is contracting as all this QE or whatever you want to call it is paying off debt. Also the helicopter drops of fiat currency all around the world mean less needs to be borrowed that the banks can charge interest on.

    It is quite easy to understand base money is going up and outstanding revolving credit is coming down.This has never happened since the great depression.

    So, fiat currency, created by QE, is increasing and all of it is being used to to pay off debt, and therefore being destroyed.
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