Posted on 08/16/2009 9:48:06 AM PDT by anonsquared
In recent weeks and months, there’s been much public debate in the financial press whether we’re going to hyper-inflate or suffer a deflationary collapse? I know this to be the case because I field many questions about this topic from readers around the world on a regular basis.
To better understand which of these two competing forces will ultimately win the day, let’s consider the following observable basics:
* In a hyper-inflation, the value of currency [in this case, fiat money] is driven toward zero as prices rise. * In a deflationary collapse, the value of currency increases as prices collapse.
But above all, folks need to understand that inflation and deflation are BOTH monetary events which manifest themselves as a result of changes in the SUPPLY OF MONEY.
snip~ worth the read and check out the charts
(Excerpt) Read more at financialsense.com ...
History tells us that hyperinflation is always and without exception caused by the government [acting in concert with a Central Bank] and never by consumers, unions or companies, which is apparently understood only by few people.
The effect of the one TRILLION increase in the monetary base depicted above, was recently analyzed by Mike Whitney in his article, Bernanke's Shell Game, where he explained,
…Former hedge fund manager Andy Kessler sums it up in a recent Wall Street Journal article, "The Bernanke Market". Here's a clip:
"By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market."
And here’s what this really means,
“It means the revered professor Bernanke figured out a way to circumvent Congress and dump more than a trillion dollars into the stock market by laundering the money through the big banks and other failing financial institutions. As Kessler suggests, Bernanke knew the liquidity would pop up in the equities market, thus, building the equity position of the banks so they wouldn't have to grovel to Congress for another TARP-like bailout. Bernanke's actions demonstrate his contempt for the democratic process. The Fed sees itself as a government-unto-itself.
Over at Zero Hedge, Tyler Durden did the math and figured that the recent 45 per cent surge in the S&P 500 had nothing to do with the fictional economic "recovery", but was just more of the Fed's hanky panky. Durden noticed that the money that's been sluicing into stocks hasn't (correspondingly) depleted the money markets. That's the clue that led him to the truth about Bernanke's 6 month stock rally.
Zero Hedge: "Most interesting is the correlation between Money Market totals and the listed stock value since the March lows: a $2.7 trillion move in equities was accompanied by a less than $400 billion reduction in Money Market accounts!”
Where, may we ask, did the balance of $2.3 trillion in purchasing power come from? Why the Federal Reserve of course, which directly and indirectly subsidized U.S. banks (and foreign ones through liquidity swaps) for roughly that amount. Apparently these banks promptly went on a buying spree to raise the all important equity market, so that the U.S. consumer whose net equity was almost negative on March 31, could regain some semblance of confidence and would go ahead and max out his credit card. Alas, as one can see in the money multiplier and velocity of money metrics, U.S. consumers couldn't care less about leveraging themselves any more."
So, you see folks, all the talk we’ve heard of “green-shoots” and “recovery” are little more than high-stakes sleight of hand on the part of Mr. Bernanke’s Federal Reserve and his captive, agent-banks. ~snip
Here's the link to Bernanke's Shell Game: http://www.counterpunch.org/whitney08042009.html
Check out the info on the shell game going on by scrolling down to "The Fed Buys Last Week's Treasury Notes." If you still have any money in the market, now would be a good time to take it off the table. It may take a month or a few months, but eventually this market has to have its RENDEZVOUS WITH REALITY.
Zero Hedge: "Most interesting is the correlation between Money Market totals and the listed stock value since the March lows: a $2.7 trillion move in equities was accompanied by a less than $400 billion reduction in Money Market accounts!”
NVDave - what do you think?
Duh, the government is the creator of money ~ of course it’s easy to blame the government.
The S&P price is a “bid/ask” situation ~ it simply does not directly reflect the value of the underlying assets.
Government should value its citizens' hard work by not running deficits and consuming all the capital in the country. If only our government had concentrated on paying down its debt as the Australian government has for many years and then using stimulus money to create REAL JOBS THAT PRODUCE A PRODUCT THAT OTHERS WANT TO BUY instead of worthless, capital sucking government jobs, then we would be in the midst of a recovery as they are.
Probably both inflation and deflation at the same time.
Inflation on imported goods, because of the drop in the value of the dollar on exchange. But that will be restricted by drying up of demand.
Deflation in wages, due to shortage of jobs.
Deflation on price of domestically produced products due to soft demand and job cuts.
BUT, all of this depends on how long Obozo can stay in office. If he is removed, this could turn around quickly.
Isn’t that stagflation?
The Palin / Bolton ticket will shoot that down.
SO WHO WERE THE PRIMARY BUYERS?
Who's in on this deal? Goldman? Soros?
Yep. Frankly I see it this way: Prices skyrocket while wages remain flat. We are in for the greatest drop in the standard of living of any first world nation since the USSR overrun Berlin in 1945.
Meanwhile, I just closed on my 13 acres in central Kentucky, and my calf is getting fat.
>>Check out the info on the shell game going on by scrolling down to “The Fed Buys Last Week’s Treasury Notes.” If you still have any money in the market, now would be a good time to take it off the table. It may take a month or a few months, but eventually this market has to have its RENDEZVOUS WITH REALITY. <<
Interesting. I am literally doing my Investools training as I read this. (investools.com)
>>Check out the info on the shell game going on by scrolling down to “The Fed Buys Last Week’s Treasury Notes.” If you still have any money in the market, now would be a good time to take it off the table. It may take a month or a few months, but eventually this market has to have its RENDEZVOUS WITH REALITY. <<
If we end up with wild inflation, would that not very much be reflected in stock prices?
Not necessarily. Ask yourself, how are the baby boomers holding their assets? Their homes, which when there are not enough buyers, plummet in value. And their retirement accounts.
Enter inflation - the cost of food, fuel, and all the necessities - skyrocket. The shiftless and lazy squeal to the government for more freebies. Government eyes the assets of anyone who has played by the rules, worked hard, and saved for a rainy day. Because you have a home and retirement accounts, you will now be means tested and have your access to Medicare and Social Security severely curtailed. All the baby boomers rush to the exit at once trying to dump all their stocks to get their hands on cash to pay for the inflated food, fuel, etc. Stock market plummets - bad for boomers, great for their kids and grandkids who can now buy stocks at fire sale prices. That is if the government lets them keep any of their paycheck.
>>All the baby boomers rush to the exit at once trying to dump all their stocks to get their hands on cash to pay for the inflated food, fuel, etc. Stock market plummets<<
So you are saying the products the companies produce will skyrocket in price, while the companies stock prices plummet?
When I think of inflation (as defined withing the current discussion), I think of a general increase of the price of all consumables and tradeables - including stocks. More money chasing less stuff means stuff - even stocks - will be worth “more”.
But this is all just my semi-ignorant take on the issue.
I've read that exactly the same has happened in China with their stimulus money...it's all being 'gambled' in the stock market.
No one will be buying the “products” because they can’t afford them. Wages are stagnant. When inflation hits people won’t be buying “products”, they will buy necessaties, food and fuel.
There has been a huge increase in Americans growing their own food and making everything from food to cleaning products cheaper from scratch. When you’re unemployed with a lot of time on your hands and/or broke, “products” are not on the must have list.
Have you been to the grocery store lately? The middle aisles with all the “products” are vacant. I have been witnessing shoppers cruise the veggies on one side of the store, head to the back for milk products, then hit the meat aisle on the opposite end of the store then head out the door.
THIS BUBBLE CANNOT BE RE-INFLATED NO MATTER HOW MANY TRILLIONS THE GOVERNMENT PRINTS OUT OF THIN AIR.
Don't tell them where you are!
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