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Author Topic: Where's the link to inflation broken?  (Read 1923 times)

DiabloLoco

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Where's the link to inflation broken?
« on: April 22, 2014, 02:52:47 pm »

A fairly long article about why there hasn't been hyper-inflation (yet!) due to the seemingly limitless money creation of the past few years. I "think" that they're basically saying that the banks that are on the receiving end of the free money, are sitting on it so they can collect some interest, instead of lending it out like they were supposed to. The article is long winded and may be a bit beyond my ken. Perhaps Silver can chime in and consolidate and "dumb it down a bit" so us average joes can understand it if he gets a chance. I feel that this is a topic worth discussing.

Again, this is a fairly long article, but worth the time IMHO. I had a hard time trying to decide what to quote from it. Please click the link and read the full article. :thumbsup:



The Bear's Lair: Where's the link to inflation broken?
April 21, 2014 by Martin Hutchinson

http://www.prudentbear.com/2014/04/the-bears-lair-wheres-link-to-inflation.html#.U1bQ0vldWAN

Quote
Monetary economists around 2009-10 were sure of one thing: the Fed's unprecedented creation of "narrow money" in the form of bank reserves would show up fairly quickly in a burst of inflation. Clearly, they were wrong.

 
The Fed has created $2.7 trillion of bank reserves, increasing the monetary base by $3 trillion, or 319%, since September 2008. Yet inflation remains very subdued, indeed, at 1.5% in the past year, according to the U.S. Consumer Price Index statistics. So why aren't we suffering from incipient hyperinflation?

The leading monetary economist Allan Meltzer of Carnegie Mellon University last August identified the route by which the monetary base should increase inflation. Banks have $2.7 trillion in excess reserves, so they should lend them out to companies, which in turn would redeposit them with the banks, creating more broad money and leading to economic expansion. With the amounts involved, we would pretty soon have inflation advancing a brisk trot, and not just in asset prices.

Since this isn't happening, there are two possibilities to explain it. Either monetary theory must be wrong or, even though monetary theory is generally correct, the recent extreme monetary policy, far outside the normal range, must be producing pathological behavior in the banking system.



However, when you look at the composition of bank balance sheets, you see what has gone awry. Cash, which in January 2008 represented only 2.9% of total assets, now represents 19.3% of assets. There are those excess reserves, lying on banks' balance sheets like great lumps of suet, doing nothing useful at all. Since the Fed is paying interest at 0.25% per annum on the excess reserves, and the banks can count them at zero when calculating their required capital, there is no incentive for banks to do anything with them. The return on them is simply free money.

Total credits, which include loans and securities, have fallen from 81.9% of the banks' combined balance sheet to 71.6%. Indeed, the amount of total credits has increased by only 15%, less than the increase in nominal GDP. So even though the banks have bloated themselves in size at almost double the rate of GDP growth, their actual working assets have grown more slowly. In other words, they have been slightly restrictive in their impact on the economy.
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Silver

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Re: Where's the link to inflation broken?
« Reply #1 on: April 22, 2014, 10:36:16 pm »

Short answer: time.  There is always a delay between the moment newly created money is released into the economy and when prices rise in response.  The diffusion of new money into a large, complex economy takes a long time, and follows paths that are largely impossible to predict. These paths are difficult to trace even with the benefit of hindsight.

The article offers a plausible but by no means definite explanation of one source of the delay: banks sitting on piles of newly created FRNs.  Maybe, maybe not.  There are other measures, particularly of derivatives and similar complex financial instruments, largely unregulated and unreported, that suggest the money is simply working its way into the general economy through new channels.

It is the delay that make the giant money-pump known as the fed work so well. The money-pump transfers wealth from the productive class and the poor to the richest of the rich.  The money-pump works extremely well, and has been in operation for a full century.  It is no accident that the 1% control such an outsize fraction of all wealth.  Thank the fed.

The new money goes to politically favored parties: the government itself, banksters, the military-industrial complex, the medical-industrial complex.  They get to spend it first, before their snapping up resources that they did not earn causes the prices to be bid up.  That's what money really is: the power to command actual resources.

The process of prices rising in response to the newly created money is not only delayed, it is uneven and happens to different degrees in different sectors of the economy.  In some cases land gets bid up while gold and food stay largely untouched.  In other cases the price of tulips, gasoline, bonds, or stocks rise.  It is impossible to predict in advance.

I dispute the notion that there has been no price rises in response to the flood of new scrip.  Anyone who has filled a gas tank or bought groceries knows better.  The stock market is at absurdly high levels.  It is no accident that the "Consumer Price Index" excludes "volatile" food and energy costs.  To include them (energy use is extremely well correlated with wealth and standard of living) could alert everyman to the scam.

That's inflation: an increase in the money supply that always causes a rise in prices.  Hyper-inflation is a psychosocial phenomenon; it occurs when everyman finally catches on to the fact that they are being screwed, that it isn't by accident, and isn't going to stop.  Suddenly everyone wants to get rid of their fiat money as fast as they can, before it can lose still more value.  Think of a viral video but in your pocketbook. Then, and only then, price inflation is visible day by day and hour by hour.  It's like a bank run on a massive scale; instead of destroying a single corrupt and insolvent bank, hyperinflation destroys a corrupt civil society along with the government and financial institutions that enabled the unlimited creation of money.

Peace,

Silver
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DiabloLoco

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Re: Where's the link to inflation broken?
« Reply #2 on: April 23, 2014, 06:52:38 am »



That's inflation: an increase in the money supply that always causes a rise in prices.  Hyper-inflation is a psychosocial phenomenon; it occurs when everyman finally catches on to the fact that they are being screwed, that it isn't by accident, and isn't going to stop.  Suddenly everyone wants to get rid of their fiat money as fast as they can, before it can lose still more value.  Think of a viral video but in your pocketbook. Then, and only then, price inflation is visible day by day and hour by hour.  It's like a bank run on a massive scale; instead of destroying a single corrupt and insolvent bank, hyperinflation destroys a corrupt civil society along with the government and financial institutions that enabled the unlimited creation of money.

Peace,

Silver
Oh boy, oh boy! I can't wait! :laugh: :laugh:
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knobster

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Re: Where's the link to inflation broken?
« Reply #3 on: April 23, 2014, 11:15:56 am »



That's inflation: an increase in the money supply that always causes a rise in prices.  Hyper-inflation is a psychosocial phenomenon; it occurs when everyman finally catches on to the fact that they are being screwed, that it isn't by accident, and isn't going to stop.  Suddenly everyone wants to get rid of their fiat money as fast as they can, before it can lose still more value.  Think of a viral video but in your pocketbook. Then, and only then, price inflation is visible day by day and hour by hour.  It's like a bank run on a massive scale; instead of destroying a single corrupt and insolvent bank, hyperinflation destroys a corrupt civil society along with the government and financial institutions that enabled the unlimited creation of money.

Peace,

Silver
Oh boy, oh boy! I can't wait! :laugh: :laugh:

Unfortunately the dying beast will take many folks with it before the death throes subside.  TPTB love what they have created.  They won't go quietly or quickly.
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DiabloLoco

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Re: Where's the link to inflation broken?
« Reply #4 on: April 23, 2014, 12:27:19 pm »



That's inflation: an increase in the money supply that always causes a rise in prices.  Hyper-inflation is a psychosocial phenomenon; it occurs when everyman finally catches on to the fact that they are being screwed, that it isn't by accident, and isn't going to stop.  Suddenly everyone wants to get rid of their fiat money as fast as they can, before it can lose still more value.  Think of a viral video but in your pocketbook. Then, and only then, price inflation is visible day by day and hour by hour.  It's like a bank run on a massive scale; instead of destroying a single corrupt and insolvent bank, hyperinflation destroys a corrupt civil society along with the government and financial institutions that enabled the unlimited creation of money.

Peace,

Silver
Oh boy, oh boy! I can't wait! :laugh: :laugh:

Unfortunately the dying beast will take many folks with it before the death throes subside.  TPTB love what they have created.  They won't go quietly or quickly.
Of course, but that doesn't mean that it shouldn't happen. The current system needs to be destroyed so that our future progeny can enjoy the freedoms that we so desire, but have never truly experienced ourselves.
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Silver

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Re: Where's the link to inflation broken?
« Reply #5 on: April 23, 2014, 02:35:12 pm »

Be careful what you wish for.  Hyperinflation is very ugly. They destroy the very foundation of civil society.  The Wiemar hyperinflation paved the way for electing a popular strongman.  That didn't work out very well.  Germans are generally sober and conservative democrats, but hyperinflation rewards the ruthless and unprincipled as well as the thrifty and prepared.

Peace,

Silver
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Rarick

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Re: Where's the link to inflation broken?
« Reply #6 on: April 24, 2014, 07:14:58 am »

It may be that the banks and other big buck businesses are sitting on the money and playing the DeBeers game? Keeping the value money high while having a seriius reserve for when the inevitable market collapse comes........

I know there is/was a cutoff day when the old styles green backs were considered legal FRN's, that would have been a fairly serious cut in money supply counterbalancing a lot of inflation pressure.   Those bills grandma buried out by the peach tree are now paper and worthless as currency........that encourages everybody to join the FRN system.......
« Last Edit: April 24, 2014, 07:17:58 am by Rarick »
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slidemansailor

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Re: Where's the link to inflation broken?
« Reply #7 on: April 24, 2014, 08:35:32 am »

Be careful what you wish for.  Hyperinflation is very ugly. They destroy the very foundation of civil society.  The Wiemar hyperinflation paved the way for electing a popular strongman.  That didn't work out very well.  Germans are generally sober and conservative democrats, but hyperinflation rewards the ruthless and unprincipled as well as the thrifty and prepared.

I expect the banksters, along with the media, political system and brute force they bought with the money they printed will push a one-world-currency (I call it The Rube).  I hope enough of us aren't ignorant enough to accept their new world order.

Neither side owns the victory yet. If they were supremely confident in it, the collapse would have begun quite some time ago.  We keep screwing up their plans. They keep delaying the collapse. It is close. They cannot delay it forever even if they want to. There is simply too much unbacked paper out there.
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DiabloLoco

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Re: Where's the link to inflation broken?
« Reply #8 on: April 24, 2014, 01:43:51 pm »



I expect the banksters, along with the media, political system and brute force they bought with the money they printed will push a one-world-currency (I call it The Rube). 
  :laugh: Nice one! :laugh:
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Rarick

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Re: Where's the link to inflation broken?
« Reply #9 on: June 06, 2014, 09:41:44 pm »

Yeah, I think me and mine have done about all the durables and trade goods buying we can.  My cousin up on his gulch actually has 2 brand new washer/dryer sets he stored in the box.......the RV versions.   He has the patent on the Ides of March virus solution and his own little firm sucking down nice computer security consulting fees........

There is a limit to what you can efficiently cache/ store/ warehouse and that is a risk too.  I am sure the National State Acquisitions monitors watch for certain patterns......
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Most of the time news is about the same old violations of the first principles of consent and golden rule with a dash of force thrown in........ with just enough duct tape to be believable.

Silver

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Re: Where's the link to inflation broken?
« Reply #10 on: June 09, 2014, 09:49:12 am »

It's an important point.  One can certainly protect oneself by prepping and stockpiling goods.  But there are hard limits on what and how much can be purchased and stored.

Prosperity requires production, not just stockpiling and consumption.  Recently I bought a tablet computer; when I was into the heaviest phase of my prepping, those barely existed, and I certainly didn't want one.  There's no way one can stockpile newly developed products and services.

Canned goods don't last forever and need to be replenished.  Gasoline starts degrading in 6 months in is pretty much gone in a year even with fuel stabilizers.  Greens and leafy vegetables are good in season and basically can't be stored in a form that is even close to the same nutritional and esthetic values. 

That's why I plan for both good and bad future scenarios.  Hyperinflation seems to be our fate, but it may be some time before it hits, and perhaps we'll dodge that particular cannon ball.  I certainly hope so, and I continue to live and enjoy life every day.  I have my metals and beans and such, but I also have a garden, friends, family, hobbies, fine food, and a life to live.

Peace,

Silver
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DiabloLoco

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Re: Where's the link to inflation broken?
« Reply #11 on: June 09, 2014, 04:40:18 pm »

It's an important point.  One can certainly protect oneself by prepping and stockpiling goods.  But there are hard limits on what and how much can be purchased and stored.

Prosperity requires production, not just stockpiling and consumption.  Recently I bought a tablet computer; when I was into the heaviest phase of my prepping, those barely existed, and I certainly didn't want one.  There's no way one can stockpile newly developed products and services.

Canned goods don't last forever and need to be replenished.  Gasoline starts degrading in 6 months in is pretty much gone in a year even with fuel stabilizers.  Greens and leafy vegetables are good in season and basically can't be stored in a form that is even close to the same nutritional and esthetic values. 

That's why I plan for both good and bad future scenarios.  Hyperinflation seems to be our fate, but it may be some time before it hits, and perhaps we'll dodge that particular cannon ball.  I certainly hope so, and I continue to live and enjoy life every day.  I have my metals and beans and such, but I also have a garden, friends, family, hobbies, fine food, and a life to live.

Peace,

Silver
Hear, Hear!! Ditto for me!  :thumbsup:
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