What a great idea. Nobody ever thought of printing money as the solution to a nation's economic problems.
If all this bailout money is being used for our sake, why can't the government disclose what it is doing with it?
Posted on 12/06/2008 10:17:42 AM PST by rabscuttle385
Stow the red wheelbarrow back in the shed. Despite forebodings by Texas Rep. Ron Paul and other gold bugs about hyperinflation, your wallet will be sufficient to hold your spending money for the foreseeable future.
Paul and other inflation hawks correctly note that the Fed's printing presses are running full tilt. Nevertheless, some economic experts argue that we won't require wagonloads of debased currency to buy a stick of butter, mirroring Germany's 1923 nightmare. Reason: Deflation still hangs like a low, dark cloud over our sinking economy. Too few dollars are chasing too many goods, and this will worsen as unemployment hits 9% or more sometime next year. People fearful of losing their jobs are hoarding cash. Banks have become careful, stingy lenders. The danger is that, despite all the government stimulus, demand will stay weak.
Paul doesn't believe this. He argues that an estimated $8 trillion in bailout commitments by the Treasury and Federal Reserve and other government units has increased the monetary base by 75% over the past two months. "If something that is used as money becomes too plentiful, it loses value," writes Paul in a recent article. "That is how inflation and hyperinflation happens. Giving the central bank the power to create fiat money out of thin air creates the tremendous risk of eventual hyperinflation." He favors a return to the gold standard.
(Excerpt) Read more at online.barrons.com ...
“At some point after the recession is over, we may have inflationary pressures, but there is a lot of time to reel in the money supply between now and then, if it becomes a problem.”
The political pain of the high interest rates necessary to reel in the inflation will be too great. Politicians and the Federal Reserve will just bend over and watch the dollar tank.
When pigs fly. They want a new bubble. They want soaring GDP growth and don't give a damn if it comes from funny money. They'll let the "next guy" clean up the even BIGGER mess. They will keep this up until it ends in a depression. The only question is, is it depression time now? Who knows? But they will keep these fictitious boom cycles going until the economy pukes up all the debt with no hope of reflation. Again, the question is, are we at that point now?
Yep..one of the reasons I don’t come to this board as much as I used to. Too many Big government GOP cheerleaders on this board. We need another Republican Revolution IMO or a 3rd party. It amazes me that government increased drastically more under Bush than it did Clinton and we now have the biggest socialism in US history occuring under a Republican president.
>but my guess is that if prices rise too quickly, they’ll reduce the money supply and/or increase interest rates.<
I haven’t seen anything done by government that has an immediate effect. Printer Bernacke will see the inflation and by the time he gets his secretary to call everyone into the room for a meeting on the subject, we’ll be in up to our ears.
That’s my forecast. Sorry it wasn’t more calming and soothing to the nerves in your wallet.
That’s a pretty good idea.
The government (the FED in particular) doesn’t “print” money as such. They have to borrow it like everybody else, and pay interest. Historically in order to get T-bills, ya gotta pay cash. To “print” cash, ya gotta sell a T-bill, etc. Now the balance sheet looks a lot different, the FED having exchanged a good chunk of their T-bills for mortgage backed securities and I don’t know what all...
The Federal Reserve Banks issue the fiat notes. Happy now?
“Happy now?”
Hell no, and I wasn’t happy then either, and don’t expect to be happy anytime soon. Maybe it’s time to buy?
The only question remaining for me is, after this economic catastrophe is over, what will remain in America? Will we have representative government and the rule of law? I’m doubtful, unless many more become educated about economics, law, constitution and history. God help us.
Thanks for the ping.
“They are trying to make up for a year of tight money they imposed just prior to the collapse in October. “
A year of tight money growth isn’t what they are countering. They are trying to make up for the money that vanishes when huge numbers of mortgages and other loans go bad leaving banks with gaping holes where their assets used to be.
There’s not going to be inflation unless velocity picks up significantly and the evidence has been pointing the other way- ergo the complaints that the banks aren’t lending the bailout funds and are “hoarding”. What is happening is banks are trying to rebuild their battered balance sheets. When banks are able to freely lend and monetary velocity picks up then we may begin to see inflation, but that prospect isn’t in sight.
“How does the Fed expect to reel in this money that they are currently printing when inflation sticks her head up”
They sell bonds in the open market.
What a great idea. Nobody ever thought of printing money as the solution to a nation's economic problems.
If all this bailout money is being used for our sake, why can't the government disclose what it is doing with it?
>>>But they aren’t actually increasing the money supply.
The St. Louis Fed’s measure of M2 is:
12.9 per cent (over 2 months, annualized for one year)
7.4 per cent (over 12 monhts)
The increase in the one year money supply of 7.4 percent is higher than before and the most recent 2 month trend is up. Also, M-2 is greater than expected GDP growth rate and greater than inflation.
I believe Milton Friedman suggested that one follow M2 as a measure of true money supply and that it’s one year increase was a rough measure of inflation several years out. There have been periods where this has not been true. But over time, it is expected to be a good proxy.
He advocated that some green eye-shaded functionary in the bowels of the Treasury Dept. should keep M-2 expanding ONLY by the increase in productivity in the economy.
Here’s a direct link to St. Louis’ weekly graph/numbers on M2:
http://research.stlouisfed.org/publications/usfd/page6.pdf
The unwinding global derivatives ponzi scheme is still in effect as to influence deflationary forces to some degree, but, the inflation monster is gonna wake up in 9-18 months really p.o.'d.
I personally think it is an error in the definition of money. If the money is stuck in the banks, it should not be counted.
What you’re looking at is the monetary base, otherwise known as “high powered money.” But that does not tell the full story.
I agree. And if the velocity does pick up, there is nothing to prevent the fed from reigning in the monetary base. Worry about that when it happens.
But IMO "the full story" should give us great concern. In past years there have been so many examples of governments finding excuses to inflate their currency, with disastrous results.
I predict that the Dems will use the bailout as an excuse to go on their own gigantic spending spree.
Paradoxically, the US dollar went up a little during the bailout frenzy, but who knows if at some point it will fall off a cliff. Maybe at this point Europe is worse off than we are.
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