Is there any action or inaction the government can do to go on the right path and prevent hyperinflation from occurring or have we already crossed the line of no return here in the United States.
Increase the interest rate dramatically and destroy nearly all government programs. Though the former would have a major impact on the market-seeing as it would not be the real time preference of the people, just as how neither is keeping unrealistically low.
There are three things that need to be done, and two of them have been mentioned already. Cut government spending and debt, recall all of the money that has been printed and sent to the financial institutions, and raise interest rates which will also reduce the money in circulation.
In reality those three things are not going to happen, so the real answer is that we are past the point of no return. We are just waiting for hyperinflation to kick in.
Hyperinflation can always be stopped by politicians acting counter to the incentives of their office.
The fallacies of intellectual communism, a compilation - On the nature of power
Just increasing reserve rates for banks would work too, right? What would be the possible bad side effects of that decision.
Well, nature was originally gold and blue; Gold then created silver and red; however, the combined force of the state turned the world into an AG (alternating agrarian) indivdiual.
I imagine Nature's god, whoever it is, did it; sounds like Satan and Goad could "only battle each other to a draw." Or, perhaps it was Reharl and Agito from the kingdom of Oasis.
Hyperinflation is not a given as of this moment, though it is certainly a possibility.
Hyperinflation is the ultimate limit to credit expansion. It is the market's way of stopping credit expansion(inflation) by the government by destroying the currency.
The other limits to credit expansion are bank failures caused by bank runs and bank failures caused by other banks seeking redemptions. With the FDIC and a central bank with control over the currency, both of these limits are effectively gone.
Credit expansion could be halted and hyperinflation avoided by tomorrow if the FDIC and Federal Reserve were dissolved and banks were allowed to fail as they did during the Depression.
By not allowing banks to fail, insuring deposits, and continuing to expand the monetary base, the US government and Federal Reserve continues to make hyperinflation a possibility.
nandnor:Just increasing reserve rates for banks would work too, right? What would be the possible bad side effects of that decision.
Banks now use sweep programs to basically avoid reserve requirements.
See this paper: http://mises.org/journals/scholar/hatch.pdf
Let's suppose they did not, though.
Increasing reserve ratios can be done in two ways.
1. Having banks "unwind" their assets and liabilites until they have the requisite amount of cash. (contraction of credit)
2. Having the Fed print enough money so that the banks do not have to unwind their assets and liabilities. (Zero net contraction of credit)
The first case only works if banks are solvent (assets>liabilities). If banks now, in their insolvent state, were to use this method to increase their reserve ratio, their reserve ratio would actually shrink as they would have to use their cash reserves to pay off the difference between assets and liabilities. The Fed would then have to step in which leads to option 2.
In the second case, increasing the money supply is necessary to raise the reserve ratio, so essentially net credit contraction is basically zero. Actually, if banks ever revert back to lower reserve ratios, price inflation would likely ensue as a result of the increased money supply.
In sum, banks have basically ignored reserve requirements for the past 15 years, and raising reserve requirements most likely would do nothing or possibly increase the chance of future inflation.
Hyperinflation has already occurred. Inflation is simply an increase in the quantity of money and bank credit. The effects just aren't evident yet.
What if banks(not including the fed) see the light and increase interest rates themselves and minimize the practice of fractional reserve while halting the practice of giving out risky loans that rely on the fact that government is backing them?.
Also say the banks were out of the equation. Would the government money to pay for the trillions in government projects and social programs in itself cause inflation? Say the banks gave out 0 loans but the government was building bridges to nowhere and handing out welfare checks.
What does everyone here think of this piece by Robert E. Hall?
Extract:
The Fed’s astoundingly large increase in reserves has many worried about future inflation and wringing their hands over exit strategies. This column argues that the Fed can control inflation by varying the interest rate it pays (or charges) banks on their reserve holding. Consequently, the Fed’s exit strategy need not be constrained by concerns about inflation – reserve interest-rate policy can take care of inflation, but the Fed should publically announce this policy.
Irish Liberty Forum
MatthewWilliam: What does everyone here think of this piece by Robert E. Hall? Extract: The Fed’s astoundingly large increase in reserves has many worried about future inflation and wringing their hands over exit strategies. This column argues that the Fed can control inflation by varying the interest rate it pays (or charges) banks on their reserve holding. Consequently, the Fed’s exit strategy need not be constrained by concerns about inflation – reserve interest-rate policy can take care of inflation, but the Fed should publically announce this policy.
That article is complete B.S. Once the money is out of the bottle, there is no bringing it back.
Here's why:
The US economy is bogus - we all know that. The current economic crash is because we had created an unsustainable economy based on debt and overspending. But, instead of allowing the markets to clear out this unsustainable economy, the US government is trying to prop it up and increase our addiction to easy money and money printing.
If our economy begins to make a slight recovery anytime soon, it will be because of all this money printing - NOT because of fundamentals. Bringing the money back by raising interest rates or anything else will make the economy collapse immediately once again. Politicians will not allow this to happen.
The longer the government keeps this bubble going, the worse our economic fundamentals will get, and the harder the potential economic downturn will be. This will make it increasingly difficult for politicians to even consider reigning in inflation and allowing the bubble to burst.
Hyperinflation will end up being the politically expedient choice. As long as we print money, things look good from the outside, but the imbalances within the structure of production continue to get worse. Any time the government wants to, it can slam on those brakes, and let the economy correct itself. However, that choice comes with an increasingly painful correction (depression) the longer it is put off.
On the other hand, if you just keep on inflating, you get a couple of boom years, Obama gets re-elected, and then the whole thing goes out of control like it did in Germany. In the end, all value stored in money and in debt (which are two sides of the same coin) are vaporized along with the dollar. That means no more national debt, and no more Social Security crisis. It's like hitting the economic reset button (without lube).
The Rev
Lifes a piece of shit, when you look at it
Life's a laugh and death's a joke, it's true
Just remember it's all a show, keep em laughing as you go
Just remember that the last laugh is on you
The Federal Reserve would have to mandate a huge increase in the reserve ratio to prevent hyperinflation and the federal government would have to default on its debt. That's the only solution. Otherwise, we'd have to print about $13 trillion simply to pay off the debt we have accumulated.
Political Atheists Blog
Even on the topic of just severe inflation or stagflation, right now that pretty much seems like a given despite what any economist will say. It will be like the seventies but worse because we will have high unemployment and high inflation. Our government does have powers to manage inflation right now, its just that it would cause other problems for the government. If the Fed stopped monetizing the debt than we would have to find other ways to pay our huge debt, and economic stimulus packages, and contracting credit and the like will further push the collapse on unsound businesses and keep people unemployed. That is not politically good. Our government's current fetish right now is to keep rates low and the money pump spewing in order to entice consumers and businesses again. The Fed will see through it that this happens, and once they are "sure" of economic recovery inflation will rear its head. What do they do now? The so called "Phillips Curve" will bite people in the ass.
Hi,
I'm new here!
I don't see hyperinflation yet. We don't have a mechanism in place for it. What we have so far is a stimulus plan and a banking bailout. The stimulus plan amounts to an increase in spending at 3% of GDP. The bailout is only shoring the reserves of the banking system and does not promote the creation of new money. If anything, it will have the opposite effect by allowing the banking system to retain non performing debt on their books. We are still in a highly deflationary condition.
Here is a chart of total credit market debt to GDP going back one hundered years:
We don't operate with a fiat system. Our money is 'credit money'. It basically comes into existence with new borrowing. This makes deflations hideous. There is no impetus to borrow and that feeds on itself. Banking is reluctant to lend and borrowers have no need for new money. So far, talk of Bernanke's helicopters is just that. And it will likely stay just that. We don't have another asset class to make a bubble from.
Best, Dan.
Dan Bloomquist:I don't see hyperinflation yet. We don't have a mechanism in place for it. What we have so far is a stimulus plan and a banking bailout. The stimulus plan amounts to an increase in spending at 3% of GDP. The bailout is only shoring the reserves of the banking system and does not promote the creation of new money. If anything, it will have the opposite effect by allowing the banking system to retain non performing debt on their books. We are still in a highly deflationary condition.
The Federal Reserve is currently expanding its balance sheet through monetizing of $1.75 trillion of debt. Historically. this is the mechanism by which money supply increases and hyperinflation occurs.
Granted, it is only a first step, but as interest rates continue to rise, the Fed will be forced to monetize larger and larger amounts of debt in order to suppress interest rates.
Dan Bloomquist:Here is a chart of total credit market debt to GDP going back one hundered years:
If total debt somehow prevented hyperinflation and ensured deflation, why did Weimar Germany, which had massive amounts of debt , still enter hyperinflation? The amount of debt in the economy does not act to prevent hyperinflation. In fact, one could argue, from past evidence, that hyperinflation is more likely to occur in countries with large total and external debts.
Dan Bloomquist:We don't operate with a fiat system. Our money is 'credit money'. It basically comes into existence with new borrowing. This makes deflations hideous. There is no impetus to borrow and that feeds on itself. Banking is reluctant to lend and borrowers have no need for new money. So far, talk of Bernanke's helicopters is just that.
I'm not sure where this notion of fiat money versus credit money comes from. It is irrelevant to what is currently happening. If the Fed so desired, it could monetize all government bonds tomorrow. The money supply would be vastly increased and hyperinflation would likely follow. In the case of monetization, there is no "borrowing into existence." The debt was already outstanding.
If I am holding a $1000 bond, and the Fed comes to me with $1000 of printed money(could be digital), I will gladly sell it to them. Their balance sheet will increase by $1000 and the money supply will increase by $1000.
Borrowing and lending only needed to occur in the past so that I could have the bond which the Fed can then monetize. In the present transaction, there is no new borrowing, and yet the money supply has increased by $1000.
Again, no borrowing is necessary for hyperinflation and no new asset bubble is needed for hyperinflation. All that is needed is determined monetization of debt by the Fed.
debtus:The Federal Reserve is currently expanding its balance sheet through monetizing of $1.75 trillion of debt. Historically. this is the mechanism by which money supply increases and hyperinflation occurs. Granted, it is only a first step, but as interest rates continue to rise, the Fed will be forced to monetize larger and larger amounts of debt in order to suppress interest rates.
This 'monetizing' is only going into the reserves of the banking system. It does not create new money.
debtus:If total debt somehow prevented hyperinflation and ensured deflation, why did Weimar Germany, which had massive amounts of debt , still enter hyperinflation?
The German government directly created notes. Ours can't do that, yet...
debtus: The amount of debt in the economy does not act to prevent hyperinflation. In fact, one could argue, from past evidence, that hyperinflation is more likely to occur in countries with large total and external debts.
Look at the per capita column:
http://en.wikipedia.org/wiki/List_of_countries_by_external_debt
So, I'm not sure what evidence you are citing...
debtus:I'm not sure where this notion of fiat money versus credit money comes from. It is irrelevant to what is currently happening. If the Fed so desired, it could monetize all government bonds tomorrow. The money supply would be vastly increased and hyperinflation would likely follow. In the case of monetization, there is no "borrowing into existence." The debt was already outstanding. If I am holding a $1000 bond, and the Fed comes to me with $1000 of printed money(could be digital), I will gladly sell it to them. Their balance sheet will increase by $1000 and the money supply will increase by $1000.
There is a vast difference between fiat and credit money. If I hold credit money it is not mine, I owe it 'back', with interest. As far as your 'what if', it has nothing to do with our current condition. That the fed 'could' does not mean they will. BTW, the bond market doesn't see hyperinflation, yet. In fact, even with the recent pop, it still sees less than 4%.
The type of money, whether it be fiat, credit-based, or gold-backed, makes no difference where the volume of money is concerned. Spain saw a great deal of price inflation as a result of the influx of gold brought back from the New World. As for the increase in the monetary base, it is already out of the bottle. The M1 money supply is increasing at an annualized rate of greater than 20% at the present time; a significant acceleration over growth before the massive base buildup.
Inflation is already here, and I suspect that the latest upsurge in not only the stock market, but the commodity and bond markets, as well, may be the first portent of things to come.
Dan Bloomquist:This 'monetizing' is only going into the reserves of the banking system. It does not create new money.
Fed can only expand its balance sheet through increasing the money supply. Whether the money stays with the banks or people hoard it, it does not matter. The money supply is still increased through monetization.
Dan Bloomquist:The German government directly created notes. Ours can't do that, yet...
The Federal Reserve can most definitely print notes. To argue that the Fed and US government are separate is splitting hairs.
Dan Bloomquist: Look at the per capita column: http://en.wikipedia.org/wiki/List_of_countries_by_external_debt So, I'm not sure what evidence you are citing...
External debt of US/ US exports + US net investment income = ~9x
External debt of Japan/ Japan exports + Net investment income = ~2x
Looking at per capita debt is ignorant. The income of a country (or person) is necessary to find the relative debt burden.
There is no doubt that the debt burden of the US is very large. With US exports continuing to fall, net investment income unlikely to remain positive, and external debt increasing due to the massive amount of government debt, the external debt burden of the US will only get worse.
Again, the US has massive total and external debt. To argue that massive amounts of debt somehow protect against hyperinflation and ensure deflation is to ignore not only economic principles but also historical evidence.
Dan Bloomquist:There is a vast difference between fiat and credit money. If I hold credit money it is not mine, I owe it 'back', with interest. As far as your 'what if', it has nothing to do with our current condition. That the fed 'could' does not mean they will. BTW, the bond market doesn't see hyperinflation, yet. In fact, even with the recent pop, it still sees less than 4%.
The Fed monetizing bonds has nothing to do with credit money. The Fed prints money and buys a bond, increasing the money supply. The money did not need to be borrowed into existence. Credit money may have previously increased the money supply, but it is not necessary for new money to borrowed into existence.
BTW, using markets to tell the future is not a great strategy. For example, banks were insolvent far before the market capitalizations fell to reflect their insolvency. The market couldnt "see" that banks were insolvent for many months.
I could ask you why rates are rising at all. If we are entering a deflationary period similar to Japan's, shouldn't interest rates be at 1.5-2% and stay there? The fact that interest rates are rising at all is an ugly problem for deflationists.
The Rev: The type of money, whether it be fiat, credit-based, or gold-backed, makes no difference where the volume of money is concerned. Spain saw a great deal of price inflation as a result of the influx of gold brought back from the New World. As for the increase in the monetary base, it is already out of the bottle. The M1 money supply is increasing at an annualized rate of greater than 20% at the present time; a significant acceleration over growth before the massive base buildup.
Percent change at seasonally adjusted annual rates M1 M2 ---------------------------------------------------------------------------------------------------------------------------------------------------- 3 Months from Dec. 2008 TO Mar. 2009 -8.3 9.5 6 Months from Sep. 2008 TO Mar. 2009 15.2 13.7 12 Months from Mar. 2008 TO Mar. 2009 13.8 9.5http://www.federalreserve.gov/releases/h6/Current/
As you can see, M1 is up 13.8% year over year and down 8.3% in the last three months. 200 billion compared to a total credit market of 52 trillion dollars.
The Rev:Inflation is already here, and I suspect that the latest upsurge in not only the stock market, but the commodity and bond markets, as well, may be the first portent of things to come.
The topic was 'hyperinflation'. And all of your examples are down severly year over year.
Dan Bloomquist: As you can see, M1 is up 13.8% year over year and down 8.3% in the last three months. 200 billion compared to a total credit market of 52 trillion dollars. The Rev:Inflation is already here, and I suspect that the latest upsurge in not only the stock market, but the commodity and bond markets, as well, may be the first portent of things to come. The topic was 'hyperinflation'. And all of your examples are down severly year over year. Best, Dan.
Obviously, with your view that total amount of debt outstanding = money supply, you are not an Austrian. In case you were wondering, though, the Austrian measure of money supply, the true money supply, is definitely up and has not fallen since this crisis began.
Here the chart from Mises.org
http://mises.org/content/nofed/chart.aspx?series=TMS
It hasn't been updated since the end of 2008. I went to the Fed website and calculated it to now be close to $6000 billion, a 9% increase in the past 5 months.
Debt outstanding is obviously not the true money supply. If I buy a corporate bond, $1000 from my bank account will go the corporation's bank account. Total debt will increase by $1000, but the money supply is the same.
The Austrian measure of the money supply contracted strongly during the Depression because bank failures wiped out people's savings deposits and demand deposits. The money was there one day and gone the next. This has not happened thus far and the FDIC is likely not going to allow it to happen to any significant extent.
I would be a deflationist if the FDIC and Fed did not exist. Then bank failures and bank runs would cause a contraction in the money supply.
debtus:Obviously, with your view that total amount of debt outstanding = money supply, you are not an Austrian. In case you were wondering, though, the Austrian measure of money supply, the true money supply, is definitely up and has not fallen since this crisis began.
Whoa there cowboy. You're appeal to authority and claiming 'I'm not' may make you feel good. Even John's shadow stats don't see hyperinflation...
http://www.shadowstats.com/
And if you think the FDIC changes the game, tell it to all the folks that owe a great deal more than their homes are worth and where they can get more of that easy 'home atm' money. How about the savings that gets wiped out from medical bills? The guy out of work and the guy that owns the mall the other guy worked at.
And as this is about me now, I have no faith in this system. My savings are in silver. But that is because I think the whole system is doomed as credit money can not survive in a world with limited resources and going on 7 billion people. I don't see this as a failure of 'just' the U.S. dollar.
Perhaps you could define 'hyperinflation' in your own words...
Dan Bloomquist:Whoa there cowboy. You're appeal to authority and claiming 'I'm not' may make you feel good. Even John's shadow stats don't see hyperinflation...
What authority did I appeal to? I merely showed you that the money supply is still increasing. It's a fact, not an argument.
Of course, the bond markets, shadow stats, and any indicators will not indicate that hyperinflation is occurring right now because obviously hyperinflation is not occurring right now. What I thought we were debating was whether it is possible and whether it is likely in the future.
Similarly, the fact that my pulse shows that I am alive right now doesn't mean I will always be alive in the future.
Also, I find it amusing that you believe I was appealing to authority and then you proceed to trot out shadow stats. A blatant appeal to authority.
Dan Bloomquist:And if you think the FDIC changes the game, tell it to all the folks that owe a great deal more than their homes are worth and where they can get more of that easy 'home atm' money. How about the savings that gets wiped out from medical bills? The guy out of work and the guy that owns the mall the other guy worked at.
Let's start with your medical bills example. I have $10000 in my savings account. I suffer an injury and must pay the hospital $10000. My savings is depleted by $10000, but the hospitals accounts rise by $10000. No change in the money supply. My $10000 in savings will eventually pay some doctor or nurse who will deposit the money in their bank account.
As well, unemployment does not cause monetary deflation. No change in the money supply would come about if we were all to be unemployed tomorrow. If unemployment caused deflation then Zimbabwe would never have been able to hyperinflate. Their hyperinflation occurred at around 20% unemployment and increased throughout the hyperinflation to 70-80%.
Finally, debt defaults alone do not decrease money supply. The bank loans me $100 to buy a widget. I pay $100 to the widget maker and his accounts increase by $100. I lose my job and I cannot sell the widget for any money. The bank forgives my debt as a result, but the original $100 is still in the widget maker's accounts. The bank may lend more conservatively or not at all in the future as a result of their decreased capital, but the increase in money supply remains.
Banks are currently massively insolvent. If the Fed was not propping them up and the FDIC did not exist, they would fail and billions, possibly trillions of deposits would be wiped out. That would be monetary deflation. Like I said before, we would definitely be going through deflation if the Fed and FDIC did not exist.
Dan Bloomquist:Perhaps you could define 'hyperinflation' in your own words...
It's not about me or my definition. I subscribe to the Austrian view of the runaway boom (hyperinflation)
http://mises.org/rothbard/mes/chap12g.asp#11F._The_Ultimate_Limit
See section F for a description of the process of hyperinflation.
debtus: Dan Bloomquist:Whoa there cowboy. You're appeal to authority and claiming 'I'm not' may make you feel good. Even John's shadow stats don't see hyperinflation... What authority did I appeal to?
What authority did I appeal to?
You wrote, 'Obviously ... you are not an Austrian', and 'the Austrian measure of money supply, the true money supply'.
debtus:I merely showed you that the money supply is still increasing. It's a fact, not an argument.
That chart is historical. And duh, that is the way the 'credit money' system works.
debtus:Of course, the bond markets, shadow stats, and any indicators will not indicate that hyperinflation is occurring right now because obviously hyperinflation is not occurring right now. What I thought we were debating was whether it is possible and whether it is likely in the future.
That was what my first post was about. So, no more tangents? Your first retort to my post was, 'The Federal Reserve is currently expanding its balance sheet through monetizing of $1.75 trillion of debt. Historically. this is the mechanism by which money supply increases and hyperinflation occurs.'
Can you qualify this?
debtus:Also, I find it amusing that you believe I was appealing to authority and then you proceed to trot out shadow stats. A blatant appeal to authority.
Big difference, I didn't say, 'You are obviously not of the shadow school.'
debtus: Dan Bloomquist:And if you think the FDIC changes the game, tell it to all the folks that owe a great deal more than their homes are worth and where they can get more of that easy 'home atm' money. How about the savings that gets wiped out from medical bills? The guy out of work and the guy that owns the mall the other guy worked at. Let's start with your medical bills example. I have $10000 in my savings account. I suffer an injury and must pay the hospital $10000. My savings is depleted by $10000, but the hospitals accounts rise by $10000. No change in the money supply....
Let's start with your medical bills example. I have $10000 in my savings account. I suffer an injury and must pay the hospital $10000. My savings is depleted by $10000, but the hospitals accounts rise by $10000. No change in the money supply....
You have made the assumption they don't use this money to service debt.
debtus:As well, unemployment does not cause monetary deflation. No change in the money supply would come about if we were all to be unemployed tomorrow. If unemployment caused deflation then Zimbabwe would never have been able to hyperinflate. Their hyperinflation occurred at around 20% unemployment and increased throughout the hyperinflation to 70-80%.
I have already addressed this. The government of Zimbabwe cranked up a printing press, the U.S. government can not do that. If the factory that employed workers cuts back, the service debt instead of borrowing for new production and the money supply goes down.
debtus:Finally, debt defaults alone do not decrease money supply. The bank loans me $100 to buy a widget. I pay $100 to the widget maker and his accounts increase by $100. I lose my job and I cannot sell the widget for any money. The bank forgives my debt as a result, but the original $100 is still in the widget maker's accounts. The bank may lend more conservatively or not at all in the future as a result of their decreased capital, but the increase in money supply remains.
You keep going on as if the same mechanism that creates new money can't suck it back. Well, it most certainly can.
debtus:Banks are currently massively insolvent. If the Fed was not propping them up and the FDIC did not exist, they would fail and billions, possibly trillions of deposits would be wiped out. That would be monetary deflation. Like I said before, we would definitely be going through deflation if the Fed and FDIC did not exist.
You really need to re-read my first post. Now you are preaching to the choir.
debtus: Dan Bloomquist:Perhaps you could define 'hyperinflation' in your own words... It's not about me or my definition. I subscribe to the Austrian view of the runaway boom (hyperinflation) http://mises.org/rothbard/mes/chap12g.asp#11F._The_Ultimate_Limit See section F for a description of the process of hyperinflation.
What does this have to do with our present condition?
Dan Bloomquist: That was what my first post was about. So, no more tangents? Your first retort to my post was, 'The Federal Reserve is currently expanding its balance sheet through monetizing of $1.75 trillion of debt. Historically. this is the mechanism by which money supply increases and hyperinflation occurs.' Can you qualify this?
I'm not sure what I'm supposed to qualify here.
Here's the information about the Federal Reserve expanding its balance sheet.
http://www.calculatedriskblog.com/2009/03/fomc-buy-300-billion-in-long-term.html
Maybe I was unclear. I did not mean that monetizing debt is always how the money supply increases. I meant to say that, during hyperinflation, the money supply increases through monetization.
Hyperinflationists expected the Fed to begin monetizing and they did. Deflationists need the Fed to stop monetizing for their thesis to be correct.
Dan Bloomquist:I have already addressed this. The government of Zimbabwe cranked up a printing press, the U.S. government can not do that. If the factory that employed workers cuts back, the service debt instead of borrowing for new production and the money supply goes down.
The Fed, by monetizing over $1 trillion of debt, is starting the printing presses. The Fed can most definitely use the printing press and they are. How else would the Fed expand its balance sheet?
It's not necessary that the US government prints the money. And actually, it was not the Zimbabwean government that printed the money, it was the Zimbabwean Central Bank. In both cases, the government's demand for funds caused their respective banks to monetize (use the printing press).
If what you argue is true that all new money will go towards paying off debt and cause no increase in the money supply, then the Fed should just ramp up monetization and print enough money so that Americans and the US government can get out of debt. I mean, in your view, since servicing debt reduces the money supply, then all of the printed money will be sterilized.
Dan Bloomquist:You really need to re-read my first post. Now you are preaching to the choir.
So you agree that the Fed and FDIC are preventing credit contraction and deflation?
Banks runs and bank failures are one method of credit contraction that results in deflation, while hyperinflation acts as the ultimate limit to credit expansion that is only reached if the other methods of credit contraction are prevented from working (by the Fed and FDIC). The passage from MES was supposed to highlight this.
debtus: Dan Bloomquist:That was what my first post was about. So, no more tangents? Your first retort to my post was, 'The Federal Reserve is currently expanding its balance sheet through monetizing of $1.75 trillion of debt. Historically. this is the mechanism by which money supply increases and hyperinflation occurs.'Can you qualify this?I'm not sure what I'm supposed to qualify here.Here's the information about the Federal Reserve expanding its balance sheet.http://www.calculatedriskblog.com/2009/03/fomc-buy-300-billion-in-long-term.htmlMaybe I was unclear. I did not mean that monetizing debt is always how the money supply increases. I meant to say that, during hyperinflation, the money supply increases through monetization.
Dan Bloomquist:That was what my first post was about. So, no more tangents? Your first retort to my post was, 'The Federal Reserve is currently expanding its balance sheet through monetizing of $1.75 trillion of debt. Historically. this is the mechanism by which money supply increases and hyperinflation occurs.'Can you qualify this?
debtus:Hyperinflationists expected the Fed to begin monetizing and they did. Deflationists need the Fed to stop monetizing for their thesis to be correct.
debtus: Dan Bloomquist:I have already addressed this. The government of Zimbabwe cranked up a printing press, the U.S. government can not do that. If the factory that employed workers cuts back, the service debt instead of borrowing for new production and the money supply goes down.The Fed, by monetizing over $1 trillion of debt, is starting the printing presses. The Fed can most definitely use the printing press and they are. How else would the Fed expand its balance sheet?
debtus:It's not necessary that the US government prints the money. And actually, it was not the Zimbabwean government that printed the money, it was the Zimbabwean Central Bank. In both cases, the government's demand for funds caused their respective banks to monetize (use the printing press).
debtus:If what you argue is true that all new money will go towards paying off debt and cause no increase in the money supply, then the Fed should just ramp up monetization and print enough money so that Americans and the US government can get out of debt. I mean, in your view, since servicing debt reduces the money supply, then all of the printed money will be sterilized.
debtus: Dan Bloomquist:You really need to re-read my first post. Now you are preaching to the choir.So you agree that the Fed and FDIC are preventing credit contraction and deflation?
debtus:Banks runs and bank failures are one method of credit contraction that results in deflation, while hyperinflation acts as the ultimate limit to credit expansion that is only reached if the other methods of credit contraction are prevented from working (by the Fed and FDIC). The passage from MES was supposed to highlight this.
Dan Bloomquist:Yes, they are primarily in the market buying assets from the banking system. As I said in my first post, this action was to shore the reserves of the banking system. It does not create new money. You said that historically it does, (creates hyperinflation). That is what I'd like you to qualify.
Bank has $100 of treasury bonds. Fed gives them $100 in exchange for treasury bonds. Bank may add it as reserves. It could just as easily buy another government bond. The new money is now in the hands of the government. You are assuming the banks will hold onto their reserves and not try to get any kind of return above the 0.25% rate the Fed currently pays on reserves.
The opposite of monetizing bonds is the Fed selling back treasury bonds to the banks. This obviously decreases the money supply. To argue that the Fed's buying and selling of bonds in the market never affects the money supply is ridiculous.
Dan Bloomquist:The solvent point is that this 'printing' is not being piled into helicopters as it was in Zimbabwe. Until massive monetization occurs of the type you expect, it is not happening. The fed has the ability to mop excess liquidity up as fast as they created it. Now, unless you have a crystal ball and know what they will do in the future, you can not claim our present condition is hyperinflationary. If anything the fed is still behind the credit crunch curve.
It was never piled into helicopters in Zimbabwe. It was government spending of the printed money that caused hyperinflation. Likewise, presently, the Fed buys bonds, the banks receive money, the banks buy newly issued bonds, the government receives and spends the new money. It can happen here just as it has in other countries that have monetized government debt.
Again, I have never claimed that hyperinflation was occurring right now. I have only argued that it remains a possibility. An increasing likely one, in my opinion.
Dan Bloomquist:What you wrote did not make a lot of sense. And I'll ask again, what does your reference have to do with our current condition?
I'd like to counter by saying - what you wrote makes no sense.
This discussion has become less and less constructive. If you'd like to give me an article or book that describes and elucidates your viewpoint, I'd be happy to read it. But I'd rather not continue this back and forth.
debtus: Dan Bloomquist:Yes, they are primarily in the market buying assets from the banking system. As I said in my first post, this action was to shore the reserves of the banking system. It does not create new money. You said that historically it does, (creates hyperinflation). That is what I'd like you to qualify.Bank has $100 of treasury bonds. Fed gives them $100 in exchange for treasury bonds. Bank may add it as reserves. It could just as easily buy another government bond. The new money is now in the hands of the government.
debtus:You are assuming the banks will hold onto their reserves and not try to get any kind of return above the 0.25% rate the Fed currently pays on reserves.
debtus:The opposite of monetizing bonds is the Fed selling back treasury bonds to the banks. This obviously decreases the money supply. To argue that the Fed's buying and selling of bonds in the market never affects the money supply is ridiculous.
debtus: Dan Bloomquist:The solvent point is that this 'printing' is not being piled into helicopters as it was in Zimbabwe. Until massive monetization occurs of the type you expect, it is not happening. The fed has the ability to mop excess liquidity up as fast as they created it. Now, unless you have a crystal ball and know what they will do in the future, you can not claim our present condition is hyperinflationary. If anything the fed is still behind the credit crunch curve.It was never piled into helicopters in Zimbabwe.
debtus:It was government spending of the printed money that caused hyperinflation.
debtus:Likewise, presently, the Fed buys bonds, the banks receive money, the banks buy newly issued bonds, the government receives and spends the new money. It can happen here just as it has in other countries that have monetized government debt.
debtus:Again, I have never claimed that hyperinflation was occurring right now. I have only argued that it remains a possibility. An increasing likely one, in my opinion.
debtus: Dan Bloomquist:What you wrote did not make a lot of sense. And I'll ask again, what does your reference have to do with our current condition?I'd like to counter by saying - what you wrote makes no sense.
debtus:This discussion has become less and less constructive. If you'd like to give me an article or book that describes and elucidates your viewpoint, I'd be happy to read it. But I'd rather not continue this back and forth.