POLL: How Much Time Does America Really Have Left?

[shadow]

#6 from above reminds me of what Brigham Young said-

Let the people build good houses, plant good vineyards and orchards, make good roads, build beautiful cities in which may be found magnificent edifices for the convenience of the public, handsome streets skirted with shade trees, fountains of water, crystal streams, and every tree, shrub and flower that will flourish in this climate, to make our mountain home a paradise and our hearts wells of gratitude to the God of Joseph, enjoying it all with thankful hearts, saying constantly, “not mine but thy will be done, O Father” (DBY, 302).

In an ideal world all this could be accomplished by freely donating (consecrating) our time, talents and possessions/resources. Since we've failed to do so socialism (my definition!) has crept in as a false way to accomplish these tasks allowing ourselves to be lazy in our duties. Thus force rules the day diminishing our agency.

[Jason]

Now you might at this point believe that the government can save the day by borrowing....but this also is impossible as every dollar borrowed by the government still comes with an obligation via the people....which ultimately means every dollar borrowed by the government only robs a dollar (or more with interest and plenty of middlemen hands) from the private side. We see evidence of this from 2008 to the present in which the government borrowed over roughly $3 trillion but the total debt collapsed by over $2 trillion meaning the private side took a loss of over $5 trillion.

As I've stated numerous times before....we are in deflation. I also think a massive deflationary spiral will be our endpoint. I will change my opinion when I see evidence of vast amounts of debt-free money being given to the masses.....or vast scale of debt forgiveness (releasing people from debt obligations while letting them keep ownership of their productive assets).

From the debt default perspective I agree with you Jason, we are experiencing deflation. Private debt load in the USA is going down, some due to default and some due to paying down, and that certainly reduces the money supply.

What if government debt is increasing faster than private debt is going down? Wouldn't that mean the money supply is still growing (even if though an unproductive organization that reduces instead of increases standard of living)?

Every dollar on the government side means at least a dollar of decline on the private side. Government isn't separate from the people...but is as an organization representative of the people (whether literal or not). Government doesn't produce....it consumes. The private side has to produce everything government consumes. If government consumes more then there is less for the private side. Its overhead. Increase the overhead and the contribution margin shrinks....and the less profit for reinvestment. Push it too far and it consumes the ability to produce thus creating a downward spiral until there is nothing left. Of course it never goes to zero because it spits out people (layoffs) and eventually those people get really hungry and everyone turns on each other.

[jonesde]

Every dollar on the government side means at least a dollar of decline on the private side. Government isn't separate from the people...but is as an organization representative of the people (whether literal or not). Government doesn't produce....it consumes. The private side has to produce everything government consumes. If government consumes more then there is less for the private side. Its overhead. Increase the overhead and the contribution margin shrinks....and the less profit for reinvestment. Push it too far and it consumes the ability to produce thus creating a downward spiral until there is nothing left. Of course it never goes to zero because it spits out people (layoffs) and eventually those people get really hungry and everyone turns on each other.

That's another interesting point. As government (and the financial sector, public and private interest payments alone account for about 25% of GDP) gain more of a share of GDP the productive economy reduces in size (currently at most 30% since govt is about 45% of GDP and interest 25% of GDP). As more people work for or are funded through government programs fewer people are working for goods and services that people would voluntarily pay for (which is maybe a good requirement for "productivity", along with certain other things).

Anyway, if the number of people producing desired goods and services reduces, and the money supply does not reduce accordingly, that would also produce price inflation, wouldn't it?

[Jason]

Every dollar on the government side means at least a dollar of decline on the private side. Government isn't separate from the people...but is as an organization representative of the people (whether literal or not). Government doesn't produce....it consumes. The private side has to produce everything government consumes. If government consumes more then there is less for the private side. Its overhead. Increase the overhead and the contribution margin shrinks....and the less profit for reinvestment. Push it too far and it consumes the ability to produce thus creating a downward spiral until there is nothing left. Of course it never goes to zero because it spits out people (layoffs) and eventually those people get really hungry and everyone turns on each other.

That's another interesting point. As government (and the financial sector, public and private interest payments alone account for about 25% of GDP) gain more of a share of GDP the productive economy reduces in size (currently at most 30% since govt is about 45% of GDP and interest 25% of GDP). As more people work for or are funded through government programs fewer people are working for goods and services that people would voluntarily pay for (which is maybe a good requirement for "productivity", along with certain other things).

Anyway, if the number of people producing desired goods and services reduces, and the money supply does not reduce accordingly, that would also produce price inflation, wouldn't it?

Not necessarily because the system isn't sealed. In other words production comes from external sources as well as internal. Our politicians over the past couple of decades have actually stimulated this...and its gone to the point of no return (reliant upon external production in order to sustain ourselves - food, clothes, shelter, etc). So while government took on more employees and paid higher and higher salaries....additional production continued to come online via other sources around the globe. This would have created a monetary phenomenon (your price inflation).....but the politicians and control factors were able to mask the effects of production destruction through increased levels of debt. Unfortunately in 2008 that came to an end with the achievement of debt saturation.

A short point to note is that none of this occurs in absolutes....but is related to tipping points...or points at which the majority push it over the edge and the minority is stuck for the ride. For example debt. Many Americans are out of debt and a 1/3 of homeowners own their home outright....but the other 2/3 have pushed it over the edge and 1/3 are completely underwater (negative equity).

Also to go back to your inflation/deflation point (what you were getting at really - correct?)....the money is created by debt. How do you accumulate more debt (create more money) if you are jobless and your main asset (home) is rapidly depreciating (if not already maxed)? The money has to be paid back (destroyed in the repayment process) so reduced production only exacerbates the problem - i.e. I lose my job (production) but my debt doesn't go away and those that are able to pay debts continue to shrink the money pool thus ensuring demand will continue to collapse (my job won't come back).

What helps produce price inflation or price support is the transfer of production to other sources. For example US gasoline demand is now at decades low as a result of the stagnant economy. But instead of seeing price deflation we are seeing gasoline exports to Brazil, Mexico, and other countries which are flush with US dollars they accumulated via the debt splurge and their production that was imported into this country. Now we are hit with a double whammy - our production is reduced (job lost) but prices remain high (due to exports). The value of the dollar bounces back as all those debts to the world come due and have to be paid back causing the value of the dollar to retrace its descent as the debts went out.

But poor Americans on the bottom can't take advantage of the rising dollar....and ultimately its to their demise....as they try to pack back debts with more expensive dollars (losing jobs, selling assets, losing assets, selling PMs, etc). Americans eat less and China eats more. Of course if global destruction occurs (for example that precious perishable commodity called food) then of course we will see price inflation....although we will have a declining supply of money to purchase it (not inflation). Same with oil (gasoline) and other commodities.

Massive wealth transfer in record time.

[sbsion]

Obamanation is followed by DESOLATION

[LateOutOfBed]

Obamanation is followed by DESOLATION

Sadly, I feel very strongly this is true. With all the stuff that recently passed congress I have this overwhelming feeling that martial law will be declared sometime in our VERY near future.

[jonesde]

Every dollar on the government side means at least a dollar of decline on the private side. Government isn't separate from the people...but is as an organization representative of the people (whether literal or not). Government doesn't produce....it consumes. The private side has to produce everything government consumes. If government consumes more then there is less for the private side. Its overhead. Increase the overhead and the contribution margin shrinks....and the less profit for reinvestment. Push it too far and it consumes the ability to produce thus creating a downward spiral until there is nothing left. Of course it never goes to zero because it spits out people (layoffs) and eventually those people get really hungry and everyone turns on each other.

That's another interesting point. As government (and the financial sector, public and private interest payments alone account for about 25% of GDP) gain more of a share of GDP the productive economy reduces in size (currently at most 30% since govt is about 45% of GDP and interest 25% of GDP). As more people work for or are funded through government programs fewer people are working for goods and services that people would voluntarily pay for (which is maybe a good requirement for "productivity", along with certain other things).

Anyway, if the number of people producing desired goods and services reduces, and the money supply does not reduce accordingly, that would also produce price inflation, wouldn't it?

Not necessarily because the system isn't sealed. In other words production comes from external sources as well as internal. Our politicians over the past couple of decades have actually stimulated this...and its gone to the point of no return (reliant upon external production in order to sustain ourselves - food, clothes, shelter, etc). So while government took on more employees and paid higher and higher salaries....additional production continued to come online via other sources around the globe. This would have created a monetary phenomenon (your price inflation).....but the politicians and control factors were able to mask the effects of production destruction through increased levels of debt. Unfortunately in 2008 that came to an end with the achievement of debt saturation.

A short point to note is that none of this occurs in absolutes....but is related to tipping points...or points at which the majority push it over the edge and the minority is stuck for the ride. For example debt. Many Americans are out of debt and a 1/3 of homeowners own their home outright....but the other 2/3 have pushed it over the edge and 1/3 are completely underwater (negative equity).

Also to go back to your inflation/deflation point (what you were getting at really - correct?)....the money is created by debt. How do you accumulate more debt (create more money) if you are jobless and your main asset (home) is rapidly depreciating (if not already maxed)? The money has to be paid back (destroyed in the repayment process) so reduced production only exacerbates the problem - i.e. I lose my job (production) but my debt doesn't go away and those that are able to pay debts continue to shrink the money pool thus ensuring demand will continue to collapse (my job won't come back).

What helps produce price inflation or price support is the transfer of production to other sources. For example US gasoline demand is now at decades low as a result of the stagnant economy. But instead of seeing price deflation we are seeing gasoline exports to Brazil, Mexico, and other countries which are flush with US dollars they accumulated via the debt splurge and their production that was imported into this country. Now we are hit with a double whammy - our production is reduced (job lost) but prices remain high (due to exports). The value of the dollar bounces back as all those debts to the world come due and have to be paid back causing the value of the dollar to retrace its descent as the debts went out.

But poor Americans on the bottom can't take advantage of the rising dollar....and ultimately its to their demise....as they try to pack back debts with more expensive dollars (losing jobs, selling assets, losing assets, selling PMs, etc). Americans eat less and China eats more. Of course if global destruction occurs (for example that precious perishable commodity called food) then of course we will see price inflation....although we will have a declining supply of money to purchase it (not inflation). Same with oil (gasoline) and other commodities.

Massive wealth transfer in record time.

Sorry, I still don't buy deflation as the ultimate outcome or the general trend.

There are various nations around the world that have a lot of dollars to spend (the natural result of a trade imbalance). When dollars flow back into the USA it increases the local money supply and aggravates price inflation.

As for debt, there is wide scale default on debt, both public and private. The consistent response to that default by central banks (especially US, EU, and Japan... with more approaching that... even in China) is to increase funding for certain banks and investors so that they remain solvent. If this extra money was not pushed into those institutions their balance sheets would flop over and the institutions would break down. The new reserve requirements for banks around the world are little more than central banks announcing that they intend to keep doing this so that banks remain solvent.

The result, as you say, is massive transfer of wealth... and not paper wealth either... actual real estate and physical assets (as well as political influence, economic control, cultural influence, etc... even religious influence).

For us personally the result is we can count on our savings and real estate assets reducing in value and prices on necessities increasing.

In other words, price deflation for certain assets and price inflation for other physical goods. This is the result of these economic corruptions. Overall the result is a decrease in standard of living, or increase in work required to maintain a standard of living... or failing that a sudden and rapid decrease in the standard of living AKA TEOTWAKI...

[Jason]

Every dollar on the government side means at least a dollar of decline on the private side. Government isn't separate from the people...but is as an organization representative of the people (whether literal or not). Government doesn't produce....it consumes. The private side has to produce everything government consumes. If government consumes more then there is less for the private side. Its overhead. Increase the overhead and the contribution margin shrinks....and the less profit for reinvestment. Push it too far and it consumes the ability to produce thus creating a downward spiral until there is nothing left. Of course it never goes to zero because it spits out people (layoffs) and eventually those people get really hungry and everyone turns on each other.

That's another interesting point. As government (and the financial sector, public and private interest payments alone account for about 25% of GDP) gain more of a share of GDP the productive economy reduces in size (currently at most 30% since govt is about 45% of GDP and interest 25% of GDP). As more people work for or are funded through government programs fewer people are working for goods and services that people would voluntarily pay for (which is maybe a good requirement for "productivity", along with certain other things).

Anyway, if the number of people producing desired goods and services reduces, and the money supply does not reduce accordingly, that would also produce price inflation, wouldn't it?

Not necessarily because the system isn't sealed. In other words production comes from external sources as well as internal. Our politicians over the past couple of decades have actually stimulated this...and its gone to the point of no return (reliant upon external production in order to sustain ourselves - food, clothes, shelter, etc). So while government took on more employees and paid higher and higher salaries....additional production continued to come online via other sources around the globe. This would have created a monetary phenomenon (your price inflation).....but the politicians and control factors were able to mask the effects of production destruction through increased levels of debt. Unfortunately in 2008 that came to an end with the achievement of debt saturation.

A short point to note is that none of this occurs in absolutes....but is related to tipping points...or points at which the majority push it over the edge and the minority is stuck for the ride. For example debt. Many Americans are out of debt and a 1/3 of homeowners own their home outright....but the other 2/3 have pushed it over the edge and 1/3 are completely underwater (negative equity).

Also to go back to your inflation/deflation point (what you were getting at really - correct?)....the money is created by debt. How do you accumulate more debt (create more money) if you are jobless and your main asset (home) is rapidly depreciating (if not already maxed)? The money has to be paid back (destroyed in the repayment process) so reduced production only exacerbates the problem - i.e. I lose my job (production) but my debt doesn't go away and those that are able to pay debts continue to shrink the money pool thus ensuring demand will continue to collapse (my job won't come back).

What helps produce price inflation or price support is the transfer of production to other sources. For example US gasoline demand is now at decades low as a result of the stagnant economy. But instead of seeing price deflation we are seeing gasoline exports to Brazil, Mexico, and other countries which are flush with US dollars they accumulated via the debt splurge and their production that was imported into this country. Now we are hit with a double whammy - our production is reduced (job lost) but prices remain high (due to exports). The value of the dollar bounces back as all those debts to the world come due and have to be paid back causing the value of the dollar to retrace its descent as the debts went out.

But poor Americans on the bottom can't take advantage of the rising dollar....and ultimately its to their demise....as they try to pack back debts with more expensive dollars (losing jobs, selling assets, losing assets, selling PMs, etc). Americans eat less and China eats more. Of course if global destruction occurs (for example that precious perishable commodity called food) then of course we will see price inflation....although we will have a declining supply of money to purchase it (not inflation). Same with oil (gasoline) and other commodities.

Massive wealth transfer in record time.

Sorry, I still don't buy deflation as the ultimate outcome or the general trend.

There are various nations around the world that have a lot of dollars to spend (the natural result of a trade imbalance). When dollars flow back into the USA it increases the local money supply and aggravates price inflation.

As for debt, there is wide scale default on debt, both public and private. The consistent response to that default by central banks (especially US, EU, and Japan... with more approaching that... even in China) is to increase funding for certain banks and investors so that they remain solvent. If this extra money was not pushed into those institutions their balance sheets would flop over and the institutions would break down. The new reserve requirements for banks around the world are little more than central banks announcing that they intend to keep doing this so that banks remain solvent.

The result, as you say, is massive transfer of wealth... and not paper wealth either... actual real estate and physical assets (as well as political influence, economic control, cultural influence, etc... even religious influence).

For us personally the result is we can count on our savings and real estate assets reducing in value and prices on necessities increasing.

In other words, price deflation for certain assets and price inflation for other physical goods. This is the result of these economic corruptions. Overall the result is a decrease in standard of living, or increase in work required to maintain a standard of living... or failing that a sudden and rapid decrease in the standard of living AKA TEOTWAKI...

Well deflation (shrinking money/credit supply) is certainly the general trend....unless you can provide information that states otherwise. Prices are another matter and related to a multitude of components like trade imbalances, speculation, dumping, legislation or government subsidies, etc.

When the dollars flow back to the US....they go to global corporations and banks (note - which pay very little in the way of taxes)....not you and I. We see no benefit to it. Also with respect to the loans (when paid back that money is destroyed). Whatever is created...is as you state....to keep the insiders solvent so they can gobble up more assets. Check into the ownership of the ratings agencies...which are lowering credit ratings...and thus raising the cost of debt (interest rate) up. That's ultimately a deflationary move as well.

As for the wide scale default....what is ultimately occurring there is the transfer of ownership of assets. Most of that isn't flaunted in public. They are getting their pound of flesh...hence the riots and protests.

Amen on the influence and control!

Hardly anyone has savings anymore...and those will likely be confiscated (oops, sorry we lost it...its all gone...our bag!) if left under the control of those with big greedy thumbs. Yes I think we'll see rising prices on necessities...most especially food. But that isn't the result of inflation....but rather speculation or global destruction of the food supply or destruction of the supply chain for those who critically rely on it.

I see you are mostly concerned with prices (probably rightly so as that's where the rubber meets the road)....but I would suggest temperance in associating the cause to inflation. In the macro we have deflation (collapsing money/credit) which is causing a drop in demand for all but the most basic necessities along with the corresponding production destruction (job losses) associated with reduced demand. This has been the prevalent trend since 2008. It is evidenced by unemployment in both scale and duration as well as the decline large asset values and other non-essentials. We already experienced the inflationary component (rapidly increasing debt and asset values) in the run up from the mid 90's to 2008 that was most evident in housing and unemployment...where if you had a pulse you could sign an exotic debt instrument and print money to buy McMansions, SUVs, and big screen TVs. Those days are over and the corresponding deflationary price is now coming due....

[dlbww]

.

[Jason]

Here is Zerohedge's latest article on inflation/deflation: http://www.zerohedge.com/news/guest-pos ... -christmas" onclick="window.open(this.href);return false;

Yeah they are goldbugs....although at times they give deflation some service. Funny that all this money is being printed....but no one seems to have any...

[jonesde]

Here is Zerohedge's latest article on inflation/deflation: http://www.zerohedge.com/news/guest-pos ... -christmas" onclick="window.open(this.href);return false;

Yeah they are goldbugs....although at times they give deflation some service. Funny that all this money is being printed....but no one seems to have any...

The diagram in that article from the Mises Institute is interesting:

http://www.cobdencentre.org/wp-content/ ... .00.57.png" onclick="window.open(this.href);return false;

You can see increase in money supply through the early 00s before the recession that seems to have largely gone out into the economy (real estate loans, consumer debt, etc). In the last few years of the "recession" the money supply continues to increase, but it is not going into the economy to produce the artificial lift we've seen in recent years.

This is probably the beginning of the derivatives crash. For a long time the real estate explosion made it clear that a crash would happen sooner or later, and in recent years the same has become clear for the derivatives market.

As the derivatives market crashes the banks and investment institutions take on more liabilities and their balance sheets are getting destroyed. All of this new cash is just to help the banks keep afloat, and I'm sure a lot of it is going to those who hold derivatives, ie many of the already super-wealthy.

The money is getting out... but we will likely not see any of it either ever, or at least until the currency is devalued to the point that it doesn't matter any more.

The derivatives market is around $700 trillion, and as that falls apart huge cash injections will be needed to keep the pet institutions of the powers that be alive. They won't kill their cash cows for a long time.

[Jason]

Here is Zerohedge's latest article on inflation/deflation: http://www.zerohedge.com/news/guest-pos ... -christmas" onclick="window.open(this.href);return false;

Yeah they are goldbugs....although at times they give deflation some service. Funny that all this money is being printed....but no one seems to have any...

The diagram in that article from the Mises Institute is interesting:

http://www.cobdencentre.org/wp-content/ ... .00.57.png" onclick="window.open(this.href);return false;

You can see increase in money supply through the early 00s before the recession that seems to have largely gone out into the economy (real estate loans, consumer debt, etc). In the last few years of the "recession" the money supply continues to increase, but it is not going into the economy to produce the artificial lift we've seen in recent years.

This is probably the beginning of the derivatives crash. For a long time the real estate explosion made it clear that a crash would happen sooner or later, and in recent years the same has become clear for the derivatives market.

As the derivatives market crashes the banks and investment institutions take on more liabilities and their balance sheets are getting destroyed. All of this new cash is just to help the banks keep afloat, and I'm sure a lot of it is going to those who hold derivatives, ie many of the already super-wealthy.

The money is getting out... but we will likely not see any of it either ever, or at least until the currency is devalued to the point that it doesn't matter any more.

The derivatives market is around $700 trillion, and as that falls apart huge cash injections will be needed to keep the pet institutions of the powers that be alive. They won't kill their cash cows for a long time.

Well for starters one has to figure out if their TZM is truly correct or not - i.e. what are the measurements?

Money is far more than cash....the vast majority just 1s and 0s on a computer somewhere created against an IOU (both collateralized and un-collateralized). I personally use US Total Debt as my measurement....although the reality is the dollar is a global currency and that reflects a vastly smaller portion of all the 1s and 0s in US dollar denomination in circulation.

Another key statistic not taken into account with the graph above is the velocity of money - i.e. how fast it changes hands. This is sometimes expressed as the multiplier or turnover rate....although the multiplier is usually referenced with respect to the reserve ratio (in a fractional reserve banking system).

We can have the same amount of money in the system....but if it changes hands 10X faster....the effect is multiplied 10 fold in terms of the what the amount of money in the system feels like. California has historically had a high velocity of money. The manual linked to below does a fairly decent job in describing the terminology and its effects on a community (some older material but excellent reading imo) -

Community Economic Analysis - A How To Manual
http://epa.gov/greenkit/pdfs/howto.pdf" onclick="window.open(this.href);return false;

....more commentary -

M2 is used to determine inflation when coupled with the ‘velocity of money’, how fast that one single dollar in your wallet with that unique serial number changes hands for goods and services over time. (Velocity times M2) gives us a good indication of coming inflation or deflation. If there is no or low velocity, there is no or low economic activity, so even with a high M2, there might not be inflation, in fact, there is an argument for coming deflation at that point.

Basically, 1 Gajillion dollars sitting in a bank not moving wont cause inflation, its only when each of these dollars gets used then there is inflation. the faster each individual dollar changes hand, the higher the inflation. So we have tons of money flying into the banks and just sitting there.

http://www.theblogmocracy.com/2011/08/2 ... lating-m2/" onclick="window.open(this.href);return false;

Definition of 'Multiplier Effect'
The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves. In other words, it is money used to create more money and is calculated by dividing total bank deposits by the reserve requirement.

Investopedia explains 'Multiplier Effect'
The multiplier effect depends on the set reserve requirement. So, to calculate the impact of the multiplier effect on the money supply, we start with the amount banks initially take in through deposits and divide this by the reserve ratio. If, for example, the reserve requirement is 20%, for every $100 a customer deposits into a bank, $20 must be kept in reserve. However, the remaining $80 can be loaned out to other bank customers. This $80 is then deposited by these customers into another bank, which in turn must also keep 20%, or $16, in reserve but can lend out the remaining $64. This cycle continues - as more people deposit money and more banks continue lending it - until finally the $100 initially deposited creates a total of $500 ($100 / 0.2) in deposits. This creation of deposits is the multiplier effect.

The higher the reserve requirement, the tighter the money supply, which results in a lower multiplier effect for every dollar deposited. The lower the reserve requirement, the larger the money supply, which means more money is being created for every dollar deposited.

http://www.investopedia.com/terms/m/mul ... effect.asp" onclick="window.open(this.href);return false;

....so again we get back to the reality of what is actually in circulation (not held by the banks in a vault) and how fast it is changing hands.

As of November 17, 2011 the Federal Reserve reported that the U.S. dollar monetary base is $2,150,000,000,000. This is an increase of 28% in 2 years.[25] The monetary base is only one component of money supply, however. M2, the broadest measure of money supply, has increased from approximately $8.48 trillion to $9.61 trillion from November 2009 to October 2011, the latest month-data available. This is a 2-year increase in U.S. M2 of approximately 12.9%.

http://en.wikipedia.org/wiki/Money_supply" onclick="window.open(this.href);return false;

M2 velocity is not stable and correlates with the Employment-Population ratio (blue), an indicator of economic vitality. Both M2 velocity and the Employment-Population Ratio decline in periods of recession (represented with gray bars). The pattern conflicts with the quantity theory of money, which assumes that money velocity will be stable and only loosely correlated with economic conditions.

http://en.wikipedia.org/wiki/Velocity_of_money" onclick="window.open(this.href);return false;

I've been emphasizing that the U.S. Federal Reserve has not been printing money in the conventional sense of creating new dollar bills that have ended up in anybody's wallets. Instead, the Fed has been creating new reserves by crediting the accounts that banks maintain with the Fed.

One can also see from the figure how radically differently the system is functioning today. In 2010:Q3, about $2.4 trillion was transferred each day on Fedwire. Compared to over a trillion dollars in reserves outstanding, that implies a velocity of 2.3. In the current setting, a given dollar of reserves is transferred about twice from one bank to another, and then as likely as not just sits there for the rest of the day.

A key reason that the system functions so differently today is that banks really don't see much better use for the funds than just holding on to them as reserves. A bank gets paid 0.25% annual interest for maintaining the reserve balances with the Fed, which is actually substantially better than you'd get from buying a 1-month T-bill. Many banks are still afraid to make any but the very safest of loans. In such a setting, the Fed could create all the reserves it wants, and it's not clear that much if anything has to change as a result.

http://www.econbrowser.com/archives/201 ... f_fed.html" onclick="window.open(this.href);return false;

....unless free money or loan forgiveness occurs....the population will remain in debt saturation and the banks will continue to resist making loans. In an inflationary environment the velocity of money shoots up dramatically as everyone gets rid of their dollars as fast as they accumulate them (increased demand for goods and services) ; whereas in deflation everyone hangs on to their dollars or pays off debt (destroys dollars) and is marked by decreased demand for goods and services.

[sbsion]

if polls speak andy truth, then, we probably will be DEEP INTO IT sometime this year........RUREADY?

[jonesde]

Jason,

It would be more correct to say that one gajillion dollars sitting in banks won't immediately cause price inflation. Monetary inflation and price inflation do not happen in sync, there is always a delay. The question right now is... how long will that delay be.

Money velocity decreases with confidence, until confidence gets below a certain point and then suddenly velocity increases exponentially and inverse to confidence. In other words, all it takes is a sufficient trigger point for a few to panic and start getting out of the dollar... and then more and more do the same as confidence continues to slide and people continue to divest from the currency (ie they buy anything they can). When that happens suddenly there is a huge inflationary spike.

Actually, a bit of price deflation is exactly what you would expect to see before major price inflation. There are a number of graphs of monetary value around the periods of hyperinflation events that show just this effect. It's not a trend of its own, it's part of a bigger trend.

[Fairminded]

I tend to go with the view that the dollars in my pocket are worthless, they just don't know it yet. Sure, I'll use them while they still have value, but I won't be surprised if tomorrow they're not worth the cloth/paper they're printed on. And in the event of a major catastrophe viewing money as worthless is a good viewpoint to have, especially if you can find retailers who haven't realized it yet and buy a few needed things with your remaining money before people start catching on.

[dlbww]

.

[Jason]

Jason,

It would be more correct to say that one gajillion dollars sitting in banks won't immediately cause price inflation. Monetary inflation and price inflation do not happen in sync, there is always a delay. The question right now is... how long will that delay be.

Money velocity decreases with confidence, until confidence gets below a certain point and then suddenly velocity increases exponentially and inverse to confidence. In other words, all it takes is a sufficient trigger point for a few to panic and start getting out of the dollar... and then more and more do the same as confidence continues to slide and people continue to divest from the currency (ie they buy anything they can). When that happens suddenly there is a huge inflationary spike.

Actually, a bit of price deflation is exactly what you would expect to see before major price inflation. There are a number of graphs of monetary value around the periods of hyperinflation events that show just this effect. It's not a trend of its own, it's part of a bigger trend.

Well the delay will end when debt forgiveness occurs or free money is passed out. Until then more debt doesn't cure debt saturation and the banks have no motive to lend.

Agreed....and I think that will happen when the government collapses....or we get free money or debt forgiveness on a macro scale. Until then debt obligations must be satisfied (destruction of money) and deflation is the natural result (dollars get more valuable - which is currently occurring).

I look to specific causes (what specifically caused the reversal) rather than general trends.

[dlbww]

.

[jonesde]

Jason,

It would be more correct to say that one gajillion dollars sitting in banks won't immediately cause price inflation. Monetary inflation and price inflation do not happen in sync, there is always a delay. The question right now is... how long will that delay be.

Money velocity decreases with confidence, until confidence gets below a certain point and then suddenly velocity increases exponentially and inverse to confidence. In other words, all it takes is a sufficient trigger point for a few to panic and start getting out of the dollar... and then more and more do the same as confidence continues to slide and people continue to divest from the currency (ie they buy anything they can). When that happens suddenly there is a huge inflationary spike.

Actually, a bit of price deflation is exactly what you would expect to see before major price inflation. There are a number of graphs of monetary value around the periods of hyperinflation events that show just this effect. It's not a trend of its own, it's part of a bigger trend.

"And start getting out of the dollar ..." like this article from zerohedge? http://www.zerohedge.com/news/foreigner ... -concerned" onclick="window.open(this.href);return false;
Market forces tend to react before the crisis arrives.

I'm not nearly connected enough to know what the intended timing is around all of this.

It could be a great time to get into the dollar and out of gold if the deflation will last a while. Or, it could be that we're hitting the bottom of the trough and the dollar's glory days are over.

Economics doesn't help with whens, just with whats.

[Jason]

Jason,

It would be more correct to say that one gajillion dollars sitting in banks won't immediately cause price inflation. Monetary inflation and price inflation do not happen in sync, there is always a delay. The question right now is... how long will that delay be.

Money velocity decreases with confidence, until confidence gets below a certain point and then suddenly velocity increases exponentially and inverse to confidence. In other words, all it takes is a sufficient trigger point for a few to panic and start getting out of the dollar... and then more and more do the same as confidence continues to slide and people continue to divest from the currency (ie they buy anything they can). When that happens suddenly there is a huge inflationary spike.

Actually, a bit of price deflation is exactly what you would expect to see before major price inflation. There are a number of graphs of monetary value around the periods of hyperinflation events that show just this effect. It's not a trend of its own, it's part of a bigger trend.

"And start getting out of the dollar ..." like this article from zerohedge? http://www.zerohedge.com/news/foreigner ... -concerned" onclick="window.open(this.href);return false;
Market forces tend to react before the crisis arrives.

I'm not nearly connected enough to know what the intended timing is around all of this.

It could be a great time to get into the dollar and out of gold if the deflation will last a while. Or, it could be that we're hitting the bottom of the trough and the dollar's glory days are over.

Economics doesn't help with whens, just with whats.

Credit is definitely tightening up.....what just a few years ago was handed out in plentiful quantities unsecured to a pulsating corpse that was capable of providing a signature.....now is carefully metered out in much smaller quantities and requires securitization w/ hard assets.

That is called a deflationary noose....and results in demand destruction (job losses, production declines, etc). Typically this also results in price drops. We aren't seeing that as much this time around. For example gasoline is being exported to third world countries rather than dropping prices here. Energy prices are staying high. Of course most of the major inputs have been monopolized during the past couple decades thus taking away price leverage from the consumer on core staples. The government and its subsidiary structures (as well as the big, mostly secret, private, trading houses - i.e. the trillion dollar trading club....Trafigura, Glencore, Vitol, etc.) effectively control/set prices in the commodity markets.

We are dealing with a different beast this time (depression). Its effectively a double whammy. For example on the currency front the Fed began paying interest on non-reserve assets for the banks. So instead of seeing increasing interest payments to savers for deposits....the money sits at the Fed. Meanwhile loans continue to decline. In other words instead of it being an open and fair market for wealth transfer (from debtors to savers)....it is a government/insider controlled wealth transfer.

In this environment the debt is even weightier.....less income and the same or higher expenses - i.e. faster wealth transfer.

And no one can run away from it. Temporary speculation in precious metals....or even the remotely possible issues of currency confidence....don't change the fundamental problem which is debt in dollars. You either pay the debt in dollars....or you default and lose your assets. If dollars were as plentiful as all the precious metals junkies suggest.....then the debt service wouldn't be as onerous as it is....and we wouldn't be witnessing the demand destruction and resultant production decline (job losses). As long as the debt in dollars remains....there will be demand for dollars to satisfy that debt. Again if you see massive across the board debt forgiveness (or a change in debt denomination or tax obligation denomination)....then by all means run away to precious metals. Until that day arrives.....there will be plenty of inherent demand for dollars to satisfy debt obligations (or we lose our assets).

[Silver Pie]

I think the cleansing has begun, and that it will increase in frequency and pain as time goes on.