I’m completely ignorant here, but how can we have deflation when the government if printing money like crazy?
The money is going down ratholes on bank balance sheets or it is being hoarded by banks and wanna-be “banks.”
It isn’t going into circulation, where you or I could spend it, and it isn’t being lent out so other people can spend it.
It most emphatically IS NOT "printing money like crazy". The 700B bailout, for example, is being financed by borrowing, not printing. Don't be fooled by charts that purport to short growth in the monetary base, but actually show borrowing or transferring. The Fed and Treasury have been very conservative on the printing presses.
The old equation comes into play here P*Q = M*V. As Money is increasing, Velocity of circulation is falling even faster. Prices, and Quantity on the other side are changing as well and can be understood as Total National Income. P = (M*V)/Q gives the rate of price change.
Hey thats my question
Because under the Federal Reserve System new money can only be created by new DEBT and right now nobody wants more debt because we are drowning in it.
So no new money is being created. Old debt is being defaulted upon. Or paid down at a furious rate due to the anticipation of a declining money supply.
Hence deflation.
Inflation (or more properly “DEFLATION of the value of money”) Takes a good while to work into the system. The inflationary times of the 1970s actually took over 5 years to ramp up after years of goosing the money supply. The first “shock” came with the arab oil embargo in 1973, but we had been running a guns and butter economy since 1966.
That is the good part. The bad part is that once inflation gets imbedded in the general flow of the economy, it is extremely difficult to get out.
The fed is absolutely terrified of the deflationary implosion they have seen in Japan for the last 20 years. So much so that they are committed to do the same dumbass stuff the BOJ did and hope that the results will be better.
Three quarters of our problem has been federal reserve policy of goosing money supply. The other fourth comes when they try to “address” the problems they create.
The federal reserve is stupid, corrupt, incompetent, and horribly destructive. They have pissed away over 96% of the value of the dollar in less than 100 years simply by being allowed to ratchet up the money supply far in excess above the rate of growth our economy has experienced. The curve has been practically asymptotic for the last 27 years or so.
I’m completely ignorant here, but how can we have deflation when the government if printing money like crazy?
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The gov’t is printing money like crazy but not as crazily as the lenders (currently receiving the gov’t largess) were doing for the last 8+ years by granting credit to everyone and anyone...