Posted on 09/01/2009 5:18:23 PM PDT by fishingking
If they are printing the cash like they are, why aren't we seeing inflation now?
A big portion of the reason, depressions cause deflation. The inflation and deflation are temporarily offseting each other, partially.
That's the GOOD news, that you're back? LOL, indeed.
Sure, you had to bring Jimma' Carter into it didn't you!
One reason why the velocity of money is so low right now (and hence inflation is not yet a problem) is that the U.S. Treasury is floating debt at very low interest rates -- and U.S. banks are buying a lot of that debt to prop up their balance sheets.
The banks take in deposits and pay 1% to their customers, they buy U.S. Treasury debt that pays 3% to 4%, and then extend mortgages at 5% to 6% as well.
We have effectively nationalized our entire banking system without much fanfare at all.
A better idea for posting is to find an article exposing your point-of-view. Google or any other search engine can help.
I looked and found this one. You could then post an article, with your question in the post...
There is about an 18 month lag between monetary policy actions by the government and the effect on the economy. The slow down of the economy also limits the velocity of money which offsets the effect of increasing the money supply.
Inflation is the relative increase of money supply and credit. Credit is being destroyed faster than the money supply is increased. Banks are hoarding cash and are afraid to loan it out.
“The banks take in deposits and pay 1% to their customers, they buy U.S. Treasury debt that pays 3% to 4%, and then extend mortgages at 5% to 6% as well.”
There have always been those spreads - that’s nothing new.
That U.S. Treasury debt is also crowding out commercial debt. Is 5% return worth it for a risky mortgage when the bank can get 3-4% guaranteed from Uncle Sugar? The Fed is keeping its rates too low, which is resulting in this distortion that crowds out commercial lending.
Have you noticed the price of canned good?
Milk prices are down because the chinese aren’t buying it.
It sounds like we are screwed either way. Thanks for the clear explaination all
We are a society that inflated a big credit bubble which popped late last year. Much of the money in the system came from big banks who were handing it out like candy to trick-or-treaters. There is way more credit in the system than what we are printing now. Liquidity is the problem. The cash isn’t flowing because banks aren’t loaning money like they did during the bubble because they don’t have as much to loan and if they did, they’ve tightened their lending standards to a great degree.
With that liquidity gone, we can run the presses 24/7 and not cause too much inflation. During the height of the bubble, this is, in essence what we were doing anyway, only the money made it’s way down to us. Once credit gets rolling again, though, we are in for a ride. With all them newly printed greenbacks, it’s going to unprecedented.
Fasten your seat belt.
Inflation occurs when the money supply grows faster than the demand for money. In a stable economy, money demand is relatively stable growing slowly and thus the money supply should only grow moderately.
However when the financial markets have problems as in the early 1930s and last year, the demand for money can increase rapidly. In such cases the central bank should increase the money supply to match the jump in money demand. The Fed was criticized for not increasing the money supply enough in the 1930s and has not fallen into that trap this time.
The trick is that when the financial markets return to normal, the Fed can not keep letting the money supply grow this fast. That is when money demand stablizes, then money growth must return to normal. But this leads to people worrying about inflation as they did in the 1930s eventhough the price level dramatically declined and now eventhough over the last 12 months the producer price index has fallen.
So the inflation will surely come, if the Fed does not rein in the money growth at the correct moment. That is of course the trick.
Because they’re not printing cash as you think/imply.
They’re creating debt, which is different.
We don’t have a fiat currency.
We have a debt currency.
“If history is any indicator... you won’t have to wait too much longer.”
If history is any indicator you may have to wait twenty years... and counting. Take a look at Japan’s history over the past 20 years... essentially zero inflation, and they pumped way more money into the economy than we have so far.
I personally don’t think that we’re going to see inflation any time soon - yes the fed may be printing money, but the fed isn’t the only thing that prints money.
When your house was “appreciating” 20,30 50% a year for 5 years in a row, you think that wasn’t a printing press? Well, that printing press has turned into a shredder, and so far it’s shredded a few TRILLION dollars. The fed’s press has a way to go to catch up with that shredder.
Explain
In the past, this type of excessive government borrowing would drive interest rates up because investors (mostly foreign investors and institutional U.S. investors) would demand a higher interest rate as protection against inflation.
We haven't seen that demand for higher rates because the U.S. government is basically borrowing from itself through its nationalized banks.
Because so many people are fired that they aren’t buying stuff.
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