How The Fed Is Hiding Hyperinflation

Watcher of Worldlings ^ | 3/5/2010 | Chris van Avery

[SolitarySaint]

And last, but certainly not least, an analyst at ZeroHedge notes how the Federal Reserve is cooking the money supply books to hide what appears to be hyperinflation:

From December 2002 until the collapse of Lehman Brothers in September 2008, the quantity of deposit currency created by the Fed averaged $11.8 billion, an amount that is relatively insignificant compared to total M1. Presently, it stands at a record high of $1,246.2 billion, which of course is highly significant.

More to the point, none of this deposit currency is captured in the traditional definition of the Ms. The quantity of dollar currency is therefore significantly underreported, which is illustrated by the following chart.

[arthurus]

Inflation is increase in the money supply. People who don’t understand that or who are more interested in manipulation have many ad hoc and mutable definitions of inflation/deflation and mostly either do not understand economics(this includes many who make their livings as “economists”) or are pushing ideologies or just want people to think they are smart.

[autumnraine]

We are on a well in the mountains. When we do venture into a large town and they drink water that is from a fountain or a tap, the look on their faces is hysterical. They can’t believe people drink that all the time!

[autumnraine]

Actually, the more mineral filled the water is, the better the coffee. I think it has to do with the ‘crap’ clinging to the coffee grounds for longer and making a richer cup of coffee.

[Southack]

Yes, but the **MONEY SUPPLY** is all cash plus all credit. Here we are in the largest credit-based economy in world history, and some people still forget the entire *credit* half of the money supply when checking to see if the money supply grew (inflation) or shrank (deflation).

Hey, the cash grew! Oops, the credit shrank. Which event was larger?

[autumnraine]

“I don’t know whether to pay off my debts or get a loan! ;-)”

I don’t think anyone else knows either. They just throw a dart and guess.

[arthurus]

Not credit. Credit is gas. It is not inflation. It is not part of the money supply and counting credit just obfuscates the whole thing and makes it impossible to forecast or analyze anything based on the money supply. It is a straw man.

[Southack]

Nope. We have a credit-based economy. So does Japan. Japan has printed vastly more money than has the U.S., yet Japan has been stuck with deflation since 1989.

Japan has lost 21 straight years to deflation. Why? Credit destruction.

[Pining_4_TX]

“Inflation is increase in the money supply.”

I know, but that still doesn’t answer my question...

Should I pay off my debts or take out a loan? ;-)

Might as well have a bit of fun with this - better than crying.

[ClearCase_guy]

I don't consider myself a Bernanke fan, but my understanding is that he is an expert on the Great Depression and that his conclusion has been that deflation is the worst possible problem -- and that FDR failed to sufficiently inflate the money supply to combat deflation. As far as I can see, Bernanke is pushing hard in the direction of inflation and hoping that he can thereby achieve stability (deflation and inflation canceling each other).

I don't know if it's possible, but it seems like this is what he's trying -- so we have signs of deflation and inflation simultaneously.

[Southack]

Debt is deflationary.

[ClearCase_guy]

Not my field, so let me ask:

If the printing presses at the US Mint run constantly and we issue lots of greenbacks, that would tend to be inflationary, right?

And if we sell $800B in US bonds to China, that is a debt and is deflationary, right?

[Southack]

Yup.

Printing money is inflationary.
Going into debt is deflationary.

[arthurus]

If you have income that you know will increase in nominal value along with inflation, get a big loan. The interest payments will not rise and the loan will get smaller in real value as inflation proceeds. If you income does not increase with inflation then no loan. My daughter has a mortgage that decreased as a share of her income because her income was outpacing inflation and did not pay it off when she could have because she felt she was “making money” with it. Then she lost her job and is reduced to part time work with a slowly declining number of hours and no chance of any sort of nominal pay raise. The mortgage is a huge burden now.