How can it be otherwise than hyperinflation?

[Jacobus]

This plot is getting thrown around quite a bit on the gold-bug and Austrian econ forums:



This plot is published by the Fed itself.  What it shows is the sum of all currency that is either in wallets or in commercial banks. 

Now the longer I look at this plot, the more I feel the urge to take every last cent I have and buy silver and gold.  But then, I am a simpleton when it comes to the machinations of the Fed and macro-economics.

So my question is this: given this data, which indicates to me that they are printing money like crazy, how can we not get hyperinflation as the result? 

[John Edward Mercier]

Imagine that a large sum of money was moved from equities to commercial banks... and from investment banks to commercial banks. The graph would have that as a result.

[Jacobus]

Imagine that a large sum of money was moved from equities to commercial banks... and from investment banks to commercial banks. The graph would have that as a result.

That seems plausible.  So do you think this spike is caused by those failing investment banks being morphed into "bank-holding companies", so that this is not actually new money but just reclassified money?

Is there any way to break down that spike according to amount that is new and amount that is reclassified?

[John Edward Mercier]

You'd have to go into the actual balance sheet.

Another item you can look to is the DX Index. Its doesn't show actual quantitative expansion (which comes on fairly quickly when the FedRes does it), but gives a relative strength of the USD.

[William]

The economy is currently hyperinflated and will become more so. You're not yet seeing the results because banks are hoarding the cash, not making loans etc. It should begin to become apparent by mid 09 when the bama money really hits the streets in earnest.

Oil is currently selling below the cost of production. Think about it. Gold, silver and wheat along with oil should be through the roof by this time next year.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3526645/Citigroup-says-gold-could-rise-above-2000-next-year-as-world-unravels.html

[John Edward Mercier]

I betting more toward a second tier credit deflation.
There is an awful lot of unsecured personal debt in credit cards and a lot of announcements of lay-offs that have the 90 day federal notice period.

I'm thinking we, and the banks, are getting a short reprieve before the bottom really falls out.

[dalebert]

I agree, Jon. I think we should expect a pretty serious deflationary cycle before the inflation sets in. There are so many things causing a collapse of the money supply right now. Also, as businesses go out of business, they'll have a lot of stock to sell off like Circuit City. We touched on this briefly on FTL last night. BTW, did everyone listen when I co-hosted last night? 

[Lloyd Danforth]

Buy stuff  now or soon!

[bigmike]

I think it will be summer before we see any hyper-inflation...unless the Messiah addresses it, which is not likely. Natural resources that are based on our need for warmth will continue to rise because of the season, but I'm thinking it'll be Spring when we start seeing food prices go up.

I'm not sure the exact numbers, but the FED was pumping in 2-5 billion dollars per day every day for almost two weeks before the "Bailout Bill"(sorry, Rescue Plan) failed in October for the first time. That money was likely going to repay/repurchase/buyout certificate holders of asset backed securities that realized they were defrauded when they invested in Special Purpose Vehicles backed by mortgage loans.

The SPV's were set up as ponzi-schemes, the foreign investors found out, the Government paid for their silence. http://money.cnn.com/video/#/video/news/2008/07/31/news.073108.tavoli.cnnmoney. Notice how the Madoff thing is the "biggest ponzi-scheme" in history? It's a distraction story.

Between the "Rescue Plan" and Obama's plan to fix things, we're close to $2 trillion in new money being created. That doesn't include the mysterious $10-$25 trillion the FED loaned out before any laws were passed or the FDIC's plan to insure this new "money" is taken into account.

The real problem, to me, is the derivatives market. It's one thing to sell our debt...that's capitalism. It's another to base our capitalism off of a gamble. The U.S. government has lost its AAA credit rating. Nobody's buying our debt except for private American Banks and they're buying from the FED. I have a feeling this will be reported in the Mainstream Media around the time the bond market begins to crash.

In the past 10 years, through derivatives, we have leveraged our assets by at least $2.8 quadrillion...not a typo. I'm no economist, but to me the derivative market is almost the same as fractional-reserve banking.

Is hyper-inflation coming? Yes. When? I'm not quite sure, but I'd say you'll begin noticing price increases in utilities and food around March and April.

Retail goods won't begin spiking until there is a noticeable increase in commercial foreclosures which is starting to take place, but not yet being reported as big of problem as it will turn out to be.

After commercial foreclosures will probably come huge waves of credit card defaults. Don't worry about the credit card companies, they'll get their TARP funds:)

Then I think you'll hear stories about how "student loans backed by the government" are starting to default resulting in....you guessed it, less money for college tuition. I can't wait to see the Obama supporters get pissed about this, but it probably won't be reported in the Mainstream Media until the holidays next year, before the spring college semesters begin in 2010.

http://www.liveontenthousand.com/

[William]

I betting more toward a second tier credit deflation.
There is an awful lot of unsecured personal debt in credit cards and a lot of announcements of lay-offs that have the 90 day federal notice period.

I'm thinking we, and the banks, are getting a short reprieve before the bottom really falls out.

I agree though I think it will be very short. Looking for it to start next week, market rebound possibly surpassing 10k by the end of summer then down from there. Maybe 600 gold, oil is already bottomed out. I've heard some people talking 25 but don't believe it. It would be tough for it to get much below 35.

[bigmike]

I betting more toward a second tier credit deflation.
There is an awful lot of unsecured personal debt in credit cards and a lot of announcements of lay-offs that have the 90 day federal notice period.

I'm thinking we, and the banks, are getting a short reprieve before the bottom really falls out.

Keep in mind also that any FannyMae, FreddieMac, GinnieMae loans are being forced into "re-modification". This will delay the true foreclosure numbers for three to six months.

I think more credit card companies will be asking for TARP funds soon (or TARP 2), but watch for the commercial mortgage defaults.

It won't mean as much to homeowners but will likely drag stock prices lower. Commercial mortgage defaults will be the MSM story to cover up credit card defaults and student loan defaults.

I know it's not a hot topic of conversation around here but credit card defaults fall under the same fraudulent acts that mortgages do. If you found out that the person that invested in your debt was paid in full TWICE would you still want to pay the debt?

[John Edward Mercier]

Not sure I understand that.

But what I am talking about is reduced consumption due to lower/lack of income and tighter credit.
When the average person first gets laid off... they begin using their revolving credit to keep the same, or nearly the same, consumption pattern. Once the credit begins to max, they cut dramatically and go for asset liquidation.

[Russell Kanning]

http://blogmaverick.com/2009/02/20/a-little-video-comedy/

p.r.i.n.t. money

[Dan]

It was my understanding that large banks are at, or above, 100% reserve ratios.  Austrian's have been cheering for that since it's inception... but not like this.

The Fed. Reserve is currently paying out 1% or something for money the banks give it 'in reserve'.  See above.  This is where all the money is right now.  That they aren't lending it out, aka "credit crises", is what is terrifying.

You see, they aren't making money on a 1% payout when they are simultaneously paying 2-5% to checking and savings account holders.  ( It's so twisted... it's the same money.  Grrrr. )

So what Congress and business is screaming for: Save The Credit Crisis!, will be devastating to the dollar right now.  If they actually lend out that money the fractional reserve process will cause the explosion of dollars we fear.  Some as yet unheard of accounting trick of biblical proportions will be needed to avoid it.  Like the Fed agreeing with Ron in a house finance session and abolishing itself on the spot.

How can the bubble of money, now in reserve at the Fed, be moved back into the markets/equity/business without the intervening banks charging lending fees for it?  They don't give out money, they lend money.  Except now, they aren't, and if they do:  Boom.

I'm honestly looking for a discussion.  Is anything I presented here wrong?

[Russell Kanning]

they can and have charged very little interest