Re: More Money = Higher Inflation
back2basicz
8/18/2012 6:28:44 AM
PC,
If you follow the Deflationary Crisis in Japan(30 years and counting);you could be waiting a long-long time for Inflation here in the US.
The reason why Banks are not lending the Money out if because their Balance Sheets are in very very bad shape(primarily because of all the Underwater Mortgages and Properties they hold).
They would rather work on Strengtening their Balance Sheets than on lending any of this cash out.
And besides when you get 3%+ Reliably by lending to the Treasury ;why Take a credit Risk lending it to a proper Business?
Its not easy and we could be stuck here for atleast a Decade(if not more).Especially as the Baby Boomers downsize their expectations and lifestyle and heading into Retirment.
Regards
Ashish.
Re: The Deflation Threat: Global vs. US?
back2basicz
8/18/2012 6:18:04 AM
Streetex
Its a Good article.
Unfortunately nothing new there to anyone who reads Hyman Minsky's work or Steve Keen or Mike Shedlocks Blog posts.
Mike Shedlock in particular is very good at explaining the role of Credit in explaining of Inflation,Money supply,etc
Do read.
http://globaleconomicanalysis.blogspot.com/2011/08/yes-virginia-us-back-in-deflation.html
http://globaleconomicanalysis.blogspot.com/2011/09/shilling-sees-evidence-of-deflation-in.html
The one issue where we is unable/account for effectively to identify/explain Deflation effectively is Rising Food Prices.
Which is often caused by Either Government Intervention/Mandates[Like the Ethanol Mandate];increased demand for HIgh Quality Food [Milk,Eggs,Meat,etc] in Emerging Markets and Decreased Availibility of Arable Land because of Excessive Cultivation ,Climate Change and pollution.
Regards
Ashish.
Re: The Deflation Threat: Global vs. US?
driven
8/16/2012 9:27:43 AM
Nice link Street Smart. Thanks for sharing. It makes some very valid points.
The Deflation Threat: Global vs. US?
Street Smart
8/15/2012 5:23:56 PM
@back2basicz, I agree with your analysis, except that I think the trigger for deflation will likely come from Europe or China rather than the US.
Good blog post by James Saft of Reuters that helped me formulate that perspective. See what you think...
Noreen,
Its not that simple.
The reason why the Fed is increasing Money Supply;so sharply is to stave off the threat of debt Deflation.
The fact is that we have too much Debt in the American(&by extension) World Economy.
To prevent that Debt from simply collapsing on itself thereby killing the Existing Financial System;the Fed has to increase Money Supply and Print Money.
What happens if the Fed stops printing today?
Debt Burden for most of America wndill become unsustainable leading to Bank Runs and Corporate Bond Defaults.
I agree;that Banks have benefitted enormously from this printing which has simply shifted the Debt burden from them to the shoulders of the Taxpayer(in the form of Higher Inflation).
But we should go ahead and break up the Banks then and ensure there is more competition(and less concentration of assets in the Too Big to Fail Banks) in the Banking Sector.
This will ensure more competition and less chances of a repeat of a 2008.
If we could do that with Standard Oil and Bell Labs in 1930s;why can't we do it with JP Morgan ,BoFA,Wells Fargo and Citi today?
Regards
Ashish.
I dont see cheap imports as having a big impact on prices, not ther there are many things you can buy that are not imports.....
@Noreen,
Your dead on with this one. The more money chasing the same goods, the higher the prices will be. It may take some time, but the connection is real. Gold is a good benchmark. It's been up nicely over recent years.
And I'm afraid we may have more rapidly increasing prices in the future. At the moment, for reasons I don't understand; much of the new money seems to be stuck with the banks. At some point, it will break loose and we'll see significantly higher inflation.
PC
How accurate do you find the information about imports? Are cheap imports really having minimal effect on prices?
I think things are getting better, its just that so many things are still a mess it can be hard to see in what direction things are going.
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