Posted on 06/21/2021 8:06:47 AM PDT by Browns Ultra Fan
With The Federal Reserve’s prodigious asset purchases and rate suppression (not to mention Biden’s record spending), inflation is a concern. But now there is another problem on the horizon … deflation.
If we look at commercial and industrial lending at commercial banks divided by bank deposits, we see the ratio is the lowest since the 1970s.
How about loan and leases at commercial banks divided by deposits? Also the lowest since the 1970s.
Why is this possibly deflationary? Because commercial banks are the primary transmission mechanism for Fed policy, this bodes ill unless the economy roars back from government Covid shutdowns.
(Excerpt) Read more at confoundedinterest.net ...
The question then is: what will government/leftist response be to deflation?
They can’t have deflation. NO WAY - not with $30 trillion in government debt, and economy-wide debt at 300% of GDP. It will be helicopter money, from fire-hoses. They will start universal basic income, they will throw money at “stimulus,” they will cancel all student debt, no government spending program will be denied. The Leftists and statists who control washington DC will absolutely demand it.
Deflation? Huh?
They have lost the one way to control inflation because the gubermint has run up a debt that can not be sustained.
They claimed since the currency is no longer needed to be backed by commodities, that they could control the value of currency by control of interest rates.
Well..we all know that they cant raise interest rates because the interest payment on the gubermint debt will control most of the budget.
Oh, different type of inflation. Never mind.
> we all know that they cant raise interest rates because the interest payment on the gubermint debt will control most of the budget <
Yep. Inflation is obviously bad for us peasants. But it’s very good for the Federal government.. Because they can pay back borrowed money with worthless stacks of paper. And you can bet their salaries will keep pace with inflation. So what’s not to like?
Measuring velocity of money via banking mechanisms is irrelevant now that fiat money is sent directly to the people. Time to redo any analysis about velocity of money via lending activity. Hyperinflation is coming, bet the farm on it.
Exactly, with GDP as the numerator and massive helicopter money as the denominator, the ratio is bound to be low.
It not as clear to me what all this means. The velocity of money (GDP/M2) is the lowest its been in 70 years. To me, that means that M2 is greater than it needs to be to support the GDP number. I don’t see how too much money chasing too little output is deflationary.
Stagflation?
If/when velocity collapses Fed policy becomes useless—the more money they print, the more people hoard, etc. If the surge in inflation is just temporary, we’re back to worrying about deflation.
So the banks lessen inflation by hoarding all the money (not loaning to the peasants)?!?!
Is that why commodity prices (gold, silver, oil, lumber, copper, etc.) crashed after the Fed announcement last week?
Individuals are hoarding, too. Balances in checking/savings/money market went from $15 trillion to $19 trillion. People haven’t been spending, and have been paying down debt—classic deflationary spiral starting to form?
As long as you pay off the creditors wuth newly printed dollars, problem solved!
"Bodes ill" = My local bank will no longer give away household appliances when I open up a $100 savings account?
Regards,
And none of this will mean anything if they decide to reset to a global digital currency. In that case...who wins?
To me, the biggest indicator of deflation is the underlying reality of stagnant population growth coupled with negative productivity growth. This is not a good combination for long-term growth in our economy at all.
Exactly. They have finally painted themselves in the corner. The have no bullets left, and no control.
This ends badly. Man I wish I had a stockpile of gold.
To all those replying that it is good for the federal government they seem to forget one thing.
The peasants are armed and will revolt.
Germany in the early 1920s.
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