Help me out here. I know that bank reserves have gone from $40 billion to $800 billion from September 2008 to December 2008 due the Fed's generosity in creating new money, but those newly created dollars are just sitting there.
I also know that the effects of inflation and additional inflation (money multiplier) will only take place if that newly created money is borrowed, i.e., debt.
It seems that Americans are tapped out with debt and cannot take on anymore, which would indicate that deflation will continue because the newly created debt won't be borrowed.
Thus, is hyperinflation possible at this point? Wouldn't it require massive amounts of new debt? Can we take on any more debt than we have?
Your thoughts are appreciated.
What is needed is privatization of the currency.
At most, I think only 5% of the adult population would need to stop cooperating to have real change.
Spideynw: What is needed is privatization of the currency.
I agree, but I'm just wondering how massive inflation will take place (again) when no one can borrow because they are already overloaded with debt.
inflation could happen in an economy with zero borrowing; it just requires the money supply to rise faster than the rate of production of goods. borrowing in fractional reserve economics amplify the inflationary effect of an increasing money supply, but even without amplification it can happen.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
My understanding is that loans are only one way to get money into circulation. The Fed could also monetarize the country's outstanding debt as well. And that's up to what, $10 trillion? Also, things like the stimulus bill could be paid for directly with new money, taking the debt issuing completely out of the equation.
nirgrahamUK:inflation could happen in an economy with zero borrowing; it just requires the money supply to rise faster than the rate of production of goods. borrowing in fractional reserve economics amplify the inflationary effect of an increasing money supply, but even without amplification it can happen.
I think he was asking what the actual method would be for increasing the money supply without loans.
http://en.wikipedia.org/wiki/Quantitative_easing
nirgrahamUK: http://en.wikipedia.org/wiki/Quantitative_easing
Quantitative Easing or the Fed's open market operations, all require borrowing to get the money circulating.
Stolz25:I think he was asking what the actual method would be for increasing the money supply without loans.
Is there a method for doing so in the U.S.? I believe our entire system is based on monetizing debt. There is no money unless it is borrowed. Thus the original question. Are we tapped out? Are we at the end of our ropes in taking on more debt? If so, then deflation, not inflation would result. Right?
reid, it doesnt require borrowing. If i sell you some useless junk and you give me millions of fiat money for me to spend on real goods out there; then your the fed and i've been quantatively eased. and no borrowing
The process the Fed uses requires borrowing, whether it be government borrowing or private borrowing.
if you know so much about it, why are you asking?
nirgrahamUK: if you know so much about it, why are you asking?
I ask because many Austrians say that we are experiencing deflation because of the forced liquidation that has resulted from the bursting of the inflationary bubble of the Greenspan era. I agree. Austrians also say that we will experience massive inflation due to the Fed's policies in dealing with this "credit crisis." What I have not heard them explain is how the inflation will take place, because people must increase their debt load in order to get the currency running through the system and put the money multiplier effect into play.
So, again, does anyone know?
The seeds of hyperinflation have definitely been planted, but I'm just wondering how they will sprout.
please offer an explanation why people must increase their debt load in order 'to get the currency running through the system' ?
Stolz25:The Fed could also monetarize the country's outstanding debt as well.
The federal debt was monetized upon issuance, so I don't know what you mean by this. They can't re-monetize it.
Stolz25:Also, things like the stimulus bill could be paid for directly with new money, taking the debt issuing completely out of the equation.
The fed issues debt to pay for the stimulus and that debt is monetized by the Fed upon redemption. I suppose the Fed theoretically could just print the money without the federal government issuing corresponding debt, but that isn't what happens. Debt has to be issued.