Skip to comments.Monetary Inflation is Our Future
Posted on 03/27/2009 11:16:31 AM PDT by Lorianne
Hong Kong, China Last week, Mr. Bernanke announced that the Federal Reserve would buy $300 billion worth of U.S. Treasuries and another $700 billion worth of government-agency mortgage debt. In order to finance these purchases, the Federal Reserve would simply create this money out of thin air.
It is worth noting, that the Federal Reserve has already dropped the Fed funds rate to a historically low range of 0-0.25% and now it is desperately trying to use other unconventional methods (quantitative easing) to stimulate the economy. In my view, this latest development of the Federal Reserve monetizing debt is inflationary and confirmation that the Federal Reserve wants to debase the U.S. dollar. It is worth noting that the total debt in the United States now exceeds $60 trillion, and its economy is around $14 trillion. So, the United States is already bankrupt, and the only way it can ever hope to repay this gigantic sum is through monetary inflation and debasement.
(Excerpt) Read more at dailyreckoning.com ...
I just don’t see how we can avoid a hyper-inflationary depression at some point. We may have selective deflation now in some categories of products and services, but the Fed and Treasury will keep flinging more fiat money into the pot until they quash all signes of deflationary pressure that will cause the pendulum to swing violently the other way.
signes = signs
I don't think it will be hyper inflation because credit is decreasing as new money is being printed. I do see inflation coming, but that will compound the problem because social security and medicare will grow to keep pace with the inflation.
Total debt is around $60 trillion? What is that person smoking? Surely this author is smarter than using unfunded liability numbers and projecting that current entitlements and economic conditions will be identical every year for the next however many years...that would lack serious academic rigor and open this person to the rightful label of fool.
And regarding inflation...uh...our necks are being crushed against the zero bound....monetary policy is now reduced to alchemy with treasuries. Why would inflation be a bad word?
I guess it is time to buy more silver and gold.
Here’s how I think 0bama is destroying America. The world economic model was to make stuff to sell to Americans. In exchange for selling us stuff, the state banks of these producer/exporter nations propped up the American government by buying treasury notes. Our money came back to finance our government debt.
Where this has broken down is that the American consumer is not buying stuff, so the producer nations don’t have the incentive to send the money back to finance the government debt. But 0bama is now running that debt through the roof.
In effect, 0bama has rendered the world’s economic model invalid, and now the world will have to painfully de-couple from the American consumer and American government. It will be painful for them in the short run, but in the long run they will prosper and we will be bankrupt.
Maybe I missed something. The forecasted debt is based on spending that goes into the future. As inflation snowballs, the debt grows with the spending on forecasts that underestimated inflation, right?
Thank GOPJ who pinged me on this. Back in January the FR deflationist trolls used to swarm my Schiff, Farber, Rogers, Beck threads calling them stupid for predicting inflation under Obama. They all disappeared. I never could understand their reasoning.
I’ve always said deflation first followed by hyper-inflation that will turn on a dime. No telling when it will hit it can’t be far off now.
A common misunderstanding. Unfunded liabilities are not yet due. Comparing the such total "outyears" costs to one year's GDP is disingenuous or ignorant.
Just around the corner, my FRiend....like nothing we’ve seen.
Just look for metals that have something that verifies their content and purity. Try local dealers also.
The theory was (by deflation trolls) that the recession caused such a large contraction in private credit that the government could fill that void with government/federal reserve spending with NO increase in prices. Of course as Peter Schiff says, if you have large job losses and economic contraction then lower prices is the best stimulus, not trying to raise them.
the fed currently believes that deflation is the biggest problem since lending is way down. that means the velocity of money is way slow. to make up for loss of velocity the fed is flooding the system in an attempt to spark inflation.
So far they have not succeeded.
imho they are monitoring the situation very carefully as they are looking for the first signs of success.
when they do see that deflation has ended and inflation has begun — then they will start pulling money out of the system.
but right now real estate is still falling and banks are not lending much.
I buy 10 vac bags of WalMart coffee every two weeks. It will be great barter stuff, and tastes great, too. ($2.07 per bag.) It'll probably be good for a tank of gas, or something.
Do I think it's going to be necessary? We're in the weeds!
Most people haven't a clue that we as a nation are on a razor's edge with hyperinflation staring right at us. China has already mentioned on 3 separate occasions that they are no longer confident in the USD...they are buying up oil wells, gas wells, mines, etc., with US Treasury debt notes and bonds.
Zer0 and the liberal elitist New World Order power brokers are on schedule to completely destroy the US middle class.
They haven’t disappeared .... they are busy rewriting FR history. Keep good records if you care about keeping score.
In theory no, in practice yes.
I think the Feds are counting on inflation erasing a certain chunk of that debt (note: I don’t distinguish between curent and future debt).
In fairness to Obama, it is not Obama who “has rendered the worlds economic model invalid”. It was already invalid and unsustainable.
He’s making things worse while we finally get our heads out of the sand and understand this (some of us), but he didn’t single-handedly invalidate the model.
Smoking nothing. If the government went by real accounting principals they made everyone else use, this figure would represent "off balance sheet" obligations. This is Social Security benefits, Medicare payments and other obligations the congress has made without the ability to pay.
I should probably re-state what I wrote because I agree with you. Yes, in the long run, the model was not sustainable. We couldn’t keep running twin deficits forever. Everyone else in the producing nations should have realized this too, but there was money to be made.
0bama’s policies are not only bringing matters to a head, it seems he’s doing everything he can to tear down the existing world economic order, and make the calamity as bad as he possibly can. I don’t know whether he envisions building some “new world order” out of the ashes like Stalin, or whether, like Hitler from 1943 to 1945, he lusts after destruction for it’s own sake.
There are certain commonalities with Germany in the 1920’s. Germany’s hyperinflation of the 1920’s was caused by the internalization of their war debt. Britain was able to externalize all of the allied war debt by financing the allied war effort in America. We held their Exchequer notes. We thus had a “stake” in keeping the UK propped up to get our ROI.
Germany just printed notes for themselves because they didn’t have access to American credit markets. And they made the mistake of making the notes short-term debt, requiring continuous re-issuance. Without any external props to their economy to get ROI, the currency quickly ran out of control.
America, like the UK, was able to keep the game going as long as we could externalize our debt. However, now that China, Japan and Saudi Arabia aren’t getting the flow of American dollars for goods and commodities, they aren’t going to externalize our debt. The Treasury department is left with the German recourse of internalizing it by printing money.
Yep, we are heading for inflation like we’ve not seen in this country.
RE :”They havent disappeared .... they are busy rewriting FR history. Keep good records if you care about keeping score.’
Normally I am not that organized but in this case I keep a menu of all those posts so it’s just a matter of scanning through those threads. Some of them were down right insulting so I may do it.
For one troll I had to go back to September where he was predicting an easy win for McCain based on high gasoline prices and re-post his prediction, and then he stopped ‘deflation trolling’ my posts, calling others stupid.
I've been buying coffee in the vacuum packed metal (not plastic) cans. Coffee in metal cans will taste fresher, longer.
It took almost 100 years to make our dollar worthless. Considering how politicians love to spend money, cause inflation and devalue the dollar that is not too bad.
But at the rate we are now spending, the dollars we have today could become almost worthless tomorrow. Think about that, you have $250.000 in net worth today and tomorrow it is only worth $25,000 or less. And this has a very high probability.
Indeed, inflation is the solution for governments that borrow too much. If I can borrow $100 in 2009 and pay you back with $100 in 2014 dollars that are worth only $70 or $60 in 2009 dollars, it's a good deal, right?
Zimbabwe resident who can't afford a wheelbarrow:
But... I suppose the government could get around that by printing bills with lots of zeroes.
Or whether he’s like the dog who caught the car, and is now going “Oh crap! Now what do I do!?”
Not that I think your alternatives are unlikely, I just think this one belongs in the mix as well.
” Back in January the FR deflationist trolls used to swarm my Schiff, Farber, Rogers, Beck threads calling them stupid for predicting inflation under Obama. They all disappeared. I never could understand their reasoning. “
I don’t know what their reasoning was, but I do know the rationale for predicting deflation- it’s massive debt default. An inflation bet hinges on whether the Fed’s monetary expansion can overwhelm the collapse occurring in the credit markets.
Japan wasn’t able to overcome the deflationary forces that hit their economy when their bubble popped, and they used policies similar to what is being done here. A trillion dollars of expansion may get swallowed up by tens of trillions of dollars of collapsing debt.
“All they had to do was look at Germany in the 1920s. Severe depression after Armistice and then with massive stimulative spending to grow GDP... poof! Hyper-inflation. Just like Bernanke & Co.”
That’s not exactly what was going on in Weimar Germany. The German hyperinflation was a consequence of the massive reparations payments forced upon them by the Versailles Treaty, it had nothing to do with an attempted stimulus program. The Germans devalued their currency to pay the nominal value of the money owed in cheaper marks.
Just curious if you were still confident that would happen. The warnings of inflation are now coming from everyplace it seems. The inflation would come once some recovery would take place, and the fed would not contract until it was too late, because of fears of debt and another collapse, like 1970s, by the time they do you have inflation, recession and high interest rates. ala 1980
BTW: Thanks for your opinion. No one has a crystal ball.
” The other scenario is that other countries drop their dollars once some inflation starts and the fed has to contract money supply to combat it, raising interest rates”
Yes, that’s what the Fed will try to do when inflation shows up. They will sell their stock of Treasuries, and maybe even the new “Fed Bond” that they have proposed, in order to soak up the massive amount of dollars now being issued.
One other item that is holding down inflation is that “the velocity of money” is currently very low. Everyone is holding on to the money they have. If this psychology changes and the velocity of money gets high, then we could easily see the inflation you suspect is due us.
This was Schiff on 3/19/09 and 1970s was the example of waiting too long:
"Because the Fed has started down this road of monetizing debt its sending a message to holders of bonds around the world that they better sell now or lose purchasing power if they hold these bonds to maturity. People around the world, individuals and foreign central banks are going to rush to hit the Fed big trying to sell theirs(which would raise interest rates.). The Fed thinks they will buy 300B in treasuries. But they will be overwhelmed with trillions of treasuries offered for sale. As the dollar really starts to lose value and inflation starts to accelerate and the Fed has to monetize more debt there will be a run on our currency and bonds. The only way the fed can stop the collapse is to aggressively raise interest rates. How are they going to that? Rates are at zero. Were too over-leveraged as it is. The more debt we accumulate the harder its going to be and the further out of control inflation gets, the higher rates will have to go. What if they dont have the political courage to reign in the dollar, as they dont have it now?
I think deflation is going to catch many people by surprise. It’s a very rare monetary phenomenon, but we have the right ingredients in place for it. Without huge quantities of dubious loans it wouldn’t happen, but this time we have them in unbelievable numbers.
The psychology of the crowd has taken a severe hit- I’m not sure how soon people will get back to the carefree, spendthrift attitude that inflation feeds upon. Some will depend upon how long this downturn lasts - the longer it lingers, the more that unemployment rises, the more lasting will be the propensity to save. And saving keeps that monetary velocity nice and low.
I’d like to see higher interest rates. I don’t think the ZIRP, the zero interest rate policy, is going to work anyway, and in the meantime it is punishing savers who didn’t contribute to the bubble.
Here’s to the Bond Vigilantes! May they beat the hell out of the Fed’s game of flooding the system with new money!
Coins will be better than cash. The base metal has some industrial value and one could expect that 4 quarters would be more valuable than a $1 Federal Reserve Note. Gold coins are tricky because it will be impossible to make change. Likewise, keep singles and fives. The $100 bill has the same problem with making change. Hope this helps. Better yet, hope you won;t have to worry about this problem.
I bought a house and suddenly my debt was higher than my income. And I wasn't bankrupt.
This idiot should write about something he understands, because this ain't it.
HERE! HERE! You get the idea
It’s not just democrats and Obama. Its the public and the MSM and even many at FNC. Its so called conservatives that claim debt is OK under republicans. America expects Washington to be an endless Santa Claus and the govermnent, including wars, to be free. Blame both party’s. Country wants high wages, cheap high tech goods, low (hidden) taxes , a strict mommy giving us an allowance.
This is not something I like saying, but it may take total economic collapse under democrats to cure this country. It’s Schiff logic but he is right. There is no way out. 1970s disaster, Johnson, Nixon , Ford and Carter ended with stagflation and Reagan.
RE “I think deflation is going to catch many people by surprise”
Thats an understatement. Me too!