Why is there a dollar shortage in the real US economy

R

RiceRocket

With the federal funds rate at 0-.25%, there should be an ocean of liquidity in the US economy.

There is not, in the real economy. There is a huge amount of liquidity in the US financial markets, but the real economy is experiencing deflation.

My theory is that the federal reserve is printing dollars and sending them abroad to foreign central banks to bail them out of US dollar debt. The fed is also sending money to bail out the largest financial institutions in the US financial system.

But the fed is not targeting directly to small businesses, and consumers.

Therefore, there is a disparity.

The real economy is in a deflationary environment, while the financial markets are in an inflation. So, what will resolve this?


This thread is asking for, what will resolve this.
 
Quote from RiceRocket:

With the federal funds rate at 0-.25%, there should be an ocean of liquidity in the US economy.

There is not, in the real economy. There is a huge amount of liquidity in the US financial markets, but the real economy is experiencing deflation.

My theory is that the federal reserve is printing dollars and sending them abroad to foreign central banks to bail them out of US dollar debt. The fed is also sending money to bail out the largest financial institutions in the US financial system.

But the fed is not targeting directly to small businesses, and consumers.

Therefore, there is a disparity.

The real economy is in a deflationary environment, while the financial markets are in an inflation. So, what will resolve this?


This thread is asking for, what will resolve this.
More...

Rocket, I have to emphatically, but respectfully, disagree. In the "real economy" overall there is inflation; not deflation. There is deflation in a some segments of the economy. Also the media contention that credit is tight is just nuts. Banks have historically high reserves and are falling over themselves to loan to anyone that can pay them back. Well- capitalized businesses can borrow at rock bottom rates, but demand for credit is way down.

If you're having trouble accepting the fact that there is inflation, take a look at the U.S. equities market. (Or just go grocery shopping :D)
 
Yes, that's deflationary; not enough, however, to create actual deflation in the overall economy according to recent data. But those high reserves do speak to the reality that there is plenty of money to loan, and terms are favorable.

In spite of the high level of bank reserves, "real" inflation (not core) as of Sept 16 is running at about 5%. see for example:
http://www.shadowstats.com/alternate_data
 
Quote from piezoe:

You can call it deflationary but that flies in the face of the facts:
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The fact that it'd deflationary derives from the fact that banks were previously lending to anybody who couldn't pay them back.
 
The Dollar shortage is the banks plowing into the equity and debt market. PERIOD. Once TARP is done, then the equity markets will start to tank.

Inflation is in the system buy watching commodities. But, it is hidden with the TARP funds.

That is the biggest secret going on right now.

After TARP...short equity and SHORT bonds.
 
Quote from piezoe:

Rocket, I have to emphatically, but respectfully, disagree. In the "real economy" overall there is inflation; not deflation. There is deflation in a some segments of the economy. Also the media contention that credit is tight is just nuts. Banks have historically high reserves and are falling over themselves to loan to anyone that can pay them back. Well- capitalized businesses can borrow at rock bottom rates, but demand for credit is way down.

If you're having trouble accepting the fact that there is inflation, take a look at the U.S. equities market. (Or just go grocery shopping :D)
More...


Here is Rothbard.. I believe he is very clear. The problem that gets everyone including the FED. Too many look for Inflation.. Inflation occurs the minute you expand the money supply.

Looking for Price increases is too late. Like waiting for a patient to reach room temperature to begin treatment.

Those closet to the newly printed money benefit, like a counterfeiter. Those down the food chain lose, as wealth is redistributed.

This is why even as new money is created prices do not automatically adjust. They cascade out and into areas you can never predict.

Murray N. Rothbard
III.
Government Meddling With Money


2. The Economic Effects of Inflation

To gauge the economic effects of inflation, let us see what happens when a group of counterfeiters set about their work. Suppose the economy has a supply of 10,000 gold ounces, and counterfeiters, so cunning that they cannot be detected, pump in 2000 "ounces" more. What will be the consequences? First, there will be a clear gain to the counterfeiters. They take the newly-created money and use it to buy goods and services. In the words of the famous New Yorker cartoon, showing a group of counterfeiters in sober contemplation of their handiwork: "Retail spending is about to get a needed shot in the arm." Precisely. Local spending, indeed, does get a shot in the arm. The new money works its way, step by step, throughout the economic system. As the new money spreads, it bids prices up--as we have seen, new money can only dilute the effectiveness of each dollar. But this dilution takes time and is therefore uneven; in the meantime, some people gain and other people lose. In short, the counterfeiters and their local retailers have found their incomes increased before any rise in the prices of the things they buy. But, on the other hand, people in remote areas of the economy, who have not yet received the new money, find their buying prices rising before their incomes. Retailers at the other end of the country, for example, will suffer losses. The first receivers of the new money gain most, and at the expense of the latest receivers.
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http://mises.org/money/3s2.asp
 
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