http://www.shadowstats.com/alternate_data/money-supply-charts
How can it be possible with record deficits and stimulus spending that money supply is contracting? And what does it mean for prices going forward? Deflationary environment? I just can't make sense of this.
@ Smiling Dave:
if printing money always causes price inflation, why are the unprecedented bank bailouts not resulting in unprecedented price inflation? In fact, we're even seeing deflation in the CPI now:
The Consumer Price Index declined 0.1 percent last month, following a 0.2 percent fall in May and a 0.1 percent drop in April. This suggests that the Fed hasn't completely removed deflation risks.
By Mark Trumbull, Staff writer posted July 16, 2010 at 2:46 pm EDT
Deflation remains a threat for the struggling US economy, despite massive efforts by the Federal Reserve over the past two years to mitigate that risk.
That's the message coming from the Consumer Price Index (CPI), which posted a decline in June for the third straight month, according to a Labor Department report released Friday.
The price index declined 0.1 percent last month, following a 0.2 percent fall in May and a 0.1 percent drop in April.
The index, designed as an overall gauge of price pressures from the grocery store to college tuition, is still higher than it was a year ago. But the recent trend suggests that the Fed hasn't completely removed deflation risks.
http://www.csmonitor.com/layout/set/print/content/view/print/314603
Certainly our fiat money does not indicate that anyone owes anything to anyone. What are you talking about?
All of our fiat money indicates debt. New money is created in two ways; 1. Federal borrowing and 2. private borrowing. "The government" creates money when it borrows money from the Federal Reserve, which itself creates the loan out of nothing. But either way, every dollar is backed by a public or private debt.
It can't all be repaid though because more $ is always owed back than is lent out. Under our system, either the money supply grows every year or lots of institutions and individuals have to go bankrupt and in a short time the system will impl0de.
1. Central banks generally earn money by issuing currency notes and "selling" them to the public for interest-bearing assets, such as government bonds. Since currency usually pays no interest, the difference in interest generates income, called seigniorage. In most central banking systems, this income is remitted to the government.
http://en.wikipedia.org/wiki/Central_bank#Currency_issuance
2. The mainstream economics theory of monetary creation is that commercial bank money is created by commercial banks re-lending central bank money: the central bank (an institution that can be characterised as a partnership between the government and a private corporation) lends money to another commercial bank, which re-loans part of it, due to fractional reserves, and this portion is in turn itself re-lent (it is re-re-lent central bank money).
http://en.wikipedia.org/wiki/Money_creation#Money_creation_through_the_fractional_reserve_system
ravochol: @ Smiling Dave: if printing money always causes price inflation, why are the unprecedented bank bailouts not resulting in unprecedented price inflation? You left out the key word, "eventually". Printing money always causes price inflation, eventually. Give it time. As you yourself said, the banks are sitting on a lot of the money, so that is a temporary reason why price inflation is not as awful as it will be. In fact, we're even seeing deflation in the CPI now: Surely you know that the CPI is one big fraud. With unemployment at Great Depression levels, surely prices should have dropped drastically. But they haven't, have they? Inflation.
if printing money always causes price inflation, why are the unprecedented bank bailouts not resulting in unprecedented price inflation?
You left out the key word, "eventually". Printing money always causes price inflation, eventually. Give it time. As you yourself said, the banks are sitting on a lot of the money, so that is a temporary reason why price inflation is not as awful as it will be.
In fact, we're even seeing deflation in the CPI now:
Surely you know that the CPI is one big fraud.
With unemployment at Great Depression levels, surely prices should have dropped drastically. But they haven't, have they? Inflation.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Weimar Deflation
All of our fiat money indicates debt.
Every time a baby is born a placenta comes with it. Even if the baby dies, the placenta stays.
What I'm saying is, that even when the debt is repaid, the dollar doesn't go away. The banker spends it. Am I wrong about that? If so, explain why.
My understanding is that when someone repays the dollar, it goes onto the asset side of the bank's balance sheet, replacing the value of the 'promise to pay' on the balance sheet with cash - but whether that cash re-enters the economy depends on whether (1) the bank is willing to loan it - they might need to hoard it to offset losses, and (2) whether anyone will take out a loan - a lot of people are maxed out and can't handle more debt.
So as long as people/corporations/other banks are defaulting on 'promises to pay' and thereby destroying the bank's balance sheets, and people/corporations/other banks are also strongly favoring using new money to pay down debt instead of spending or saving or using it as collateral for new loans, the Fed could conceivably drop a lot of money on the American people (throw it out of helicopters) and it would never enter the real economy -because it's first being used to pay down debt to banks and second getting sucked into black holes on the banks balance sheets.