Hyperinflation

[Random.Capital]

Quote from scriabinop23:

The fed is a lender of infinite capacity...

This is only true for a fully closed, self-contained economy. Unfortunately, there is no such thing. In the case of the US, it is *extremely* "no such thing" due to insane trade and fiscal deficits.

Bottom line: the US cannot pay for imported oil with money created by this"infinite capacity" unless the rest of the world (effectively) acts as a lender to create this "infinite capacity". And that's why there will be no hyperinflation in the US for a long, long time - the rest of the world won't eat the cost.

 

[Daal]

the 'helicopter' people talk about is not quite a helicopter. Bernanke was talking about a tax cut financed by newly created money, this would almost surely lead to positive inflation. So even if the banks are scared and holding into reserves if the US consumer gets a $1000 rebate they are likely to spend it. if they pay down their debt the fed could keep financing tax cuts till the CPI turned, then they would slow down

 

[jprad]

Quote from Random.Capital:

It's ALREADY happening.

Okay prove it. Where's the evidence that the government has monetized debt directly into a foreign currency.

 

[scriabinop23]

Quote from jprad:

There are two separate parts to the money supply. There's the narrow, which is tied to the national debt and impacts the value of the dollar. And, there's the broad, which is what commercial banks use via fractional banking to make loans.

The Fed only has absolute control over the narrow money supply, they DO NOT have direct control over the broad money supply.

The Fed can only indirectly influence it by providing banks with additional reserves. It's the banks, through lending, that grows the broad money supply.

It's also why the broad money supply has no impact on the value of the dollar because the broad money supply does not raise or lower the national debt. As loans are paid back that money ceases to exist.

I was never arguing the fact that credit expansion, debt monetization, and money creation all serve as seperate facets to expand money supply. You are preaching to the choir. But money creation through any of these methods is still money creation (and thus dilution of the currency). Right now you aren't seeing inflation because the credit destruction is occuring faster than the fed's printing presses are working.

But that doesn't change the trend and writing on the wall that is the Fed's method of problem solving. The problem is deflation, one that is unacceptable in a debt-laden society (that makes 1930s depressionary obligations look very managable), and the only way out is money printing. I am saying the fed will (and perhaps they view they must) offset any credit destruction (practically multiplier shrinkage) with their money creation measures in the end to get the economy performing back to trend. And there will be no sterilization since they need capital flowing back the way it was. The only way to that goal is simply more money in the system.

Your assertions that the national debt is somehow ONLY correlated to M0 supply are just plain wrong. As I've pointed out, you don't need to physically print currency (as in send an order to the mints and order paper) to monetize new debt. In the end you increase total supply, and the market eventually shows disdain for it, and exchange rates fall.

 

[scriabinop23]

Quote from jprad:

There's two types of inflation.

One is price inflation, which is a result of supply and demand. This is the kind of inflation the Fed tries to control via influence of the broad money supply.

The other is monetary inflation, which refers to the narrow money supply. As the government monetizes additional debt the new dollars that are added will devalue the dollars that are already in existence.

Again you are wrong. It is all the same. There are no two seperate planes you refer to. Money supply has many components, and credit fuels one part of it differently (creating a multiplier) than the other, but in the end increases in both have the same effect of diluting the currency.

Right now there is more demand for dollars than there is supply. Supply is restrained because banks are lending at a slower rate than the fed is creating (to offset). Thus the dollar up, treasuries up, etc.

 

[jprad]

Quote from scriabinop23:

But money creation through any of these methods is still money creation (and thus dilution of the currency).

Not all money is equal.

The reason we have narrow and broad components to the money supply is due to the fact that while all currency is money, not all money is currency.

The money the Fed requires a bank to keep in it's reserves must be in some form of currency.

But, the money created when a bank makes a loan based on it's reserves is not currency, it's credit.

Currency cannot be diluted by creating credit because credit isn't currency.

 

[Daal]

jprad what are you trying to say. I dont get what side of the issue you are on

 

[Random.Capital]

Quote from scriabinop23:

...and the only way out is money printing.

Nobody is arguing against that. The problem is that the traditional way out is a cul-de-sac - which means there really is no way out.

In all the posts you have made on this topic, you have not explained how this vast new supply of money enters the system. Saying "print more" is not an explanation - it's a wish. I would be most interested in hearing your detailed explanation on the mechanics of this. What exactly does the Fed do, what exactly does Treasury do, is there a role for Congress, what do foreign lenders need to do, etc?

Cheers.

 

[slacker]

Quote from jprad:

Not all money is equal.

Currency cannot be diluted by creating credit because credit isn't currency.

But credit has a 'promise to repay' and that repayment must take place in currency. So extending more credit means at some point there must be currency to repay. If the currency does not exist today then it must be printed. jprad, is this an incorrect view of your opinion?

Thank you

 

[Daal]

Heres a simple way the fed can create inflation. bernanke along with the treasury creates the 'Patriot American Credit Card Facility', treasury gets the authority to create credit cards that can only be used for goods purchases(to avoid saving) for $1000 per citizen, they issue treasury bonds to fund it which the fed buys it(with new electronic money)