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Author Topic: Why don't we see US$ hyperinflation?  (Read 14437 times)
Swordsoffreedom
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April 01, 2014, 05:19:16 AM
 #41

It's happening as other countries try to reduce their dependance on the US dollar and switch to other currency baskets
Also why the Chinese do not want more American debt but want commodities instead

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April 01, 2014, 06:26:48 AM
 #42

USD is too big too fail
many countries around the world using USD as their currency pegging and using USD for export-import trade
if USD fail, many countries will get its effect too
Economic Crisis everywhere  Grin
A good policy when goverment (in another country) reducing dependence on the dollar

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April 01, 2014, 06:44:46 AM
 #43

Almost anybody surfing these forums is familiar with Austrian economic school views and the drill that goes along following lines:

- massive US debt
- even bigger unfunded liabilites
- massive FED printing of money
- mismanagement, debasing of currency has led (across space and time) to one thing and one thing only which is hyperinflation

Sitload of books predict the financial doomsday - some of them now almost a decade old.

So how come US and it's counterfeited dollar are still afloat? Why isn't it happening?



Inflation is caused by an increase in BOTH the money supply AND the velocity of money.  Your points only address supply.

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April 01, 2014, 08:19:25 AM
 #44

I don't think any of the answers given so far are the reason there's not rampant inflation.

The reason is that the fed offers a competitive interest rate on excess reserves to serve as a magnet to "suck" all the new money back onto its own balance sheets as soon as the bond purchases are made, so that it doesn't get out into the economy.

Look - all the money (mainly in the form of US T-Bonds), is sitting backed up on the feds balance sheet... http://qz.com/157198/the-federal-reserves-balance-sheet-will-hit-a-mind-boggling-4-trillion-any-day-now/

Read this wiki article which states how the law was changed in 2008 to allow the fed to do this. The express purpose was so that they could start doing QE without it causing rampant inflation. http://en.wikipedia.org/wiki/Excess_reserves#In_the_United_States_.282008-.29


(Actually, this poster is saying the same thing)

When we say the govt is printing money, we are not really talking about the paper notes in circulation, rather electronic money (digits in a computer screen) that exists in bank accounts.

Yes, of course. They are not doing that either though.

an excerpt from some quick google search result:
Quote
When the Fed creates $85 billion, it uses this money to buy bonds - typically split 50/50 between US Treasuries and Mortgage Backed Securities (MBS). Here is what's important: When the Fed creates and gives $85 billion in reserves to its member banks, it removes $85 billion worth of assets (bonds) from the balance sheets of those same member banks. The result is that no new net financial assets enter the economy.
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April 01, 2014, 02:38:28 PM
 #45

Inflation, regardless of the rate, and no matter how extreme, is an economic problem.

Hyperinflation is a socio-economic problem. What I mean is, hyperinflation is in the minds of the people. When massive amounts of currency are injected into the money supply, you have massive inflation. When people lose faith in their currency, then you have hyperinflation.

Currently, we are seeing effects of inflation. Prices are rising across the board. I certainly have notice it over the past few years. However, prices are not rising as fast as the money is being created. I believe this is in part because there is also deflation offsetting the effects of the money infusion. And also because this money is being used to prop up banks' balance sheets and not really getting in the system ---- yet. This is not good economic policy in the long run, but it kicks the can down the road until they figure out how to kick it again. One other thing that I think is slowing the perceived rate of price increase is that companies are challenged to keep their prices as low as possible or risk losing their business altogether. They all work together, not necessarily on purpose, to keep prices as stable as they can. They are losing profits for fear of losing customers. But when one large company such as Walmart or McDonald's raises their prices, the smaller companies will quickly get in line.

So the question is: why has the population been so stupid to keep faith in their currency and stave off hyperinflation so far? Maybe it's because they know of no alternative. Maybe because, in general, people really are that stupid. I've been studying this since 2007 and never thought we'd make it this far. Everyday I am amazed at the stupidity of the common man and, at the same time, thankful for every day of this "normal" life that we have left.
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April 01, 2014, 02:59:41 PM
 #46

So the question is: why has the population been so stupid to keep faith in their currency and stave off hyperinflation so far? Maybe it's because they know of no alternative. Maybe because, in general, people really are that stupid. I've been studying this since 2007 and never thought we'd make it this far. Everyday I am amazed at the stupidity of the common man and, at the same time, thankful for every day of this "normal" life that we have left.

So for the last 7 years, the 'stupid' people have been right, and you've been wrong?
Perhaps they aren't so stupid after all?

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April 01, 2014, 06:50:00 PM
 #47


Interestingly, it doesn't matter whether by write offs or repayments. Either case is deflationary. This is due to the fact that money is created when credit/debt is created. When the debt is paid off, or the credit repaid, the money is then destroyed. The same occurs in write off.

The sad part about write offs is who ends up with the real property. It usually ends up in the hands of the bank. That's the same people who loaned out nothing and called it money, in exchange for a claim on real property.


Exactly, to be more precise, money and debt is not created at the same time, before FED lend out the money, they must have the ownership of those money (You can not lend others something that does not belong to you)

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April 01, 2014, 06:53:46 PM
 #48

So for the last 7 years, the 'stupid' people have been right, and you've been wrong?
Perhaps they aren't so stupid after all?

Wow! You really got me thinking there. I guess I am the idiot here. I don't know why I thought Bitcoin would be the solution to the world's problems. I suppose I'll go back to trusting the government and the banks with my money and hope, while I look the other way, that my hard earned money doesn't evaporate through inflation. Thanks for pointing that out!
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April 01, 2014, 07:27:01 PM
 #49

So for the last 7 years, the 'stupid' people have been right, and you've been wrong?
Perhaps they aren't so stupid after all?

Wow! You really got me thinking there. I guess I am the idiot here. I don't know why I thought Bitcoin would be the solution to the world's problems. I suppose I'll go back to trusting the government and the banks with my money and hope, while I look the other way, that my hard earned money doesn't evaporate through inflation. Thanks for pointing that out!

No you can go on and trust an algorithm by a guy who prefered to stay anonymous Tongue
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April 01, 2014, 07:30:53 PM
 #50


So the short answer is actually two-fold: government spending as a percent of total GDP is low and household debt has been declining, which is deflationary.


Household debt declined by writeoffs not by repayments, hence money supply was destroyed correct?

Interestingly, it doesn't matter whether by write offs or repayments. Either case is deflationary. This is due to the fact that money is created when credit/debt is created. When the debt is paid off, or the credit repaid, the money is then destroyed. The same occurs in write off.

there is the factor of the fractional reserve though involved here, as by writeoff the bank cannot lend the money that would get by repayment again.
 
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April 01, 2014, 07:36:02 PM
Last edit: April 01, 2014, 08:30:48 PM by twiifm
 #51

I don't think any of the answers given so far are the reason there's not rampant inflation.

The reason is that the fed offers a competitive interest rate on excess reserves to serve as a magnet to "suck" all the new money back onto its own balance sheets as soon as the bond purchases are made, so that it doesn't get out into the economy.

Look - all the money (mainly in the form of US T-Bonds), is sitting backed up on the feds balance sheet... http://qz.com/157198/the-federal-reserves-balance-sheet-will-hit-a-mind-boggling-4-trillion-any-day-now/

Read this wiki article which states how the law was changed in 2008 to allow the fed to do this. The express purpose was so that they could start doing QE without it causing rampant inflation. http://en.wikipedia.org/wiki/Excess_reserves#In_the_United_States_.282008-.29


(Actually, this poster is saying the same thing)

When we say the govt is printing money, we are not really talking about the paper notes in circulation, rather electronic money (digits in a computer screen) that exists in bank accounts.

Yes, of course. They are not doing that either though.

an excerpt from some quick google search result:
Quote
When the Fed creates $85 billion, it uses this money to buy bonds - typically split 50/50 between US Treasuries and Mortgage Backed Securities (MBS). Here is what's important: When the Fed creates and gives $85 billion in reserves to its member banks, it removes $85 billion worth of assets (bonds) from the balance sheets of those same member banks. The result is that no new net financial assets enter the economy.


I agree.  Some of us here is looking at the issues at the macro level.  While most bitbugs are looking at it from a micro level.  The purpose for QE is for liquidity.  Inflation doesn't matter as much as long as production levels increase and that debt can be paid off (money destroyed).

The bigger problem is liquidity trap.  When businesses don't have access to credit they have to downsize.  Then unemployed workers can't consume and the business have to do more downsizing.  When the population saves too much there is no demand for goods & services.  Deflation is bad for economy unless we are trying to counter balance a period of too much inflation.

Most economists recognize this, however, it's not easy to influence the economy merely from monetary policy.  "Pushing on a string" is the term they use
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April 01, 2014, 08:18:55 PM
Last edit: April 01, 2014, 10:17:46 PM by Erdogan
 #52


So the short answer is actually two-fold: government spending as a percent of total GDP is low and household debt has been declining, which is deflationary.


Household debt declined by writeoffs not by repayments, hence money supply was destroyed correct?

Interestingly, it doesn't matter whether by write offs or repayments. Either case is deflationary. This is due to the fact that money is created when credit/debt is created. When the debt is paid off, or the credit repaid, the money is then destroyed. The same occurs in write off.

[...]


That is why they (the masters of the fiat) makes sure nothing is written off. Hence the bad banks, where obviously lost loans are parked ad infinitum.



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April 01, 2014, 09:11:56 PM
 #53

On the issue of the Op, see, for instance, http://en.wikipedia.org/wiki/Liquidity_trap.

My main posts and a few more are reposted here: https://oneskeptic.tumblr.com
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April 01, 2014, 09:24:06 PM
 #54

I think it's just a matter of time. Russia and China both have a lot of USD and by dumping them they could destroy people's trust in USD.
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April 02, 2014, 03:59:19 AM
 #55

This whole situation really just proves why macroeconomics itself needs to go away.

The world can actually endure hardship not because of an actual dearth of resources and productive capacity, but simply because of the side effects of how a bunch of pedantic sophomoric assholes in power decide to organize things.
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April 02, 2014, 07:51:33 AM
 #56

Brief answer: The money "printed" by the Federal Reserve Bank (this is NOT the US government BTW)
can only, for all practical purposes, go to the 12 primary banks. The Federal Reserve is also restricted in
what it can buy, and it buys Mortgage Backed Securities, and it buys Treasury Bonds, from these banks.

There are a few problems - the Fed now owns over 35% of 10-year equivalent Treasuries - the good
stuff, and the toxic stuff is still on someone's books. Besides that the FIRE economy is still trying to
inflate debt by lending to anyone willing to pay high rates of interest so the $53 Trillion of credit market
debt (two thirds of which just keeps funding bonuses) is getting bigger.

A longer explanation is here:
http://www.zerohedge.com/news/2013-09-22/what-shadow-banking-can-tell-us-about-feds-exit-path-dead-end
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April 02, 2014, 09:03:34 AM
Last edit: April 02, 2014, 10:20:10 AM by marcus_of_augustus
 #57

Most of the printed money is ending up in the hands of fewer and fewer people, thus the massive and growing wealth inequality.

A few rich people can't create hyperinflation because they are a tiny percentage of the population and have only a limited net demand for real goods where hyperinflation would be measured (how many steaks can they eat?)

The rest of the printed money is ending up in a continuous string of housing, stock and bond asset bubbles ... or soaked up by banking losses from previous burst asset bubbles.

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April 02, 2014, 10:11:47 AM
 #58

And if we look at the interest rates, I doubt you are going to see inflation any time soon.

http://www.federalreserve.gov/releases/h15/current/default.htm
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April 02, 2014, 05:07:04 PM
 #59


So the short answer is actually two-fold: government spending as a percent of total GDP is low and household debt has been declining, which is deflationary.


Household debt declined by writeoffs not by repayments, hence money supply was destroyed correct?

Interestingly, it doesn't matter whether by write offs or repayments. Either case is deflationary. This is due to the fact that money is created when credit/debt is created. When the debt is paid off, or the credit repaid, the money is then destroyed. The same occurs in write off.

there is the factor of the fractional reserve though involved here, as by writeoff the bank cannot lend the money that would get by repayment again.
 

That's sort of true. Interestingly, banks can lend up to the limits of a certain multiplier of their capital (assets). That's what fractional reserve means. It's a multiplier of assets, above the assets. They never state it that way though. The statement is that capital must be at least 10% of outstanding loans, or that the capital ratio must be at least 10%.

The funny thing is that loans on an item with a known market price, say a house, become an asset to them. They have created a contract that gives them access to that asset. So the loaned amount becomes an asset on the books.

So the really nice thing for the bank that can loan at 10x assets is that when you borrow $100.00 from them, they have given you $100, but their asset base now allows them to loan another $900. They love you! They'd like thousands more like you to walk in the door. There is no end!

There is no end that is unless the assets begin to decline in book value. When they decline, for every $1 the assets decline, they must remove $10 from their capital.

The contract only allows them to take the current principal amount plus any interest owed from the asset. So as you pay the loan off, their assets decline slowly, giving them time to recover from that by creating more loans.

When the market place reprices bad assets, like when house values rapidly decline, this affects the bank more drastically. That creates a rapid asset (and capital) decline, which can easily cause a bank to go under, mainly because at the same time, no one is borrowing anymore. It's a crash!

Interestingly, during a crash, the money supply is declining and more of the physical asset is becoming available. If this is allowed to take it's normal course, the normal market system will re-adjust pretty rapidly. Money is able to purchase much more than it did before, so the bad assets will be sold off (although at lower prices). And then the market discovers the real price for the assets, as well as the real price for money (interest rates).

Unfortunately, during this process, many banks might go under. I say unfortunately because most people trust banks for their savings and essential monetary needs. This means that the banks "must be saved" in the minds of country leaders and the very wealthy. You can see where this leads...

What I'm really saying here is that the banking system has the seeds of recession and depression built right into it.

A better answer is free market money. Which is why we are all here.  Cool

-MikeMark

The Path of the Just is as the Shining Light...
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April 02, 2014, 10:47:09 PM
 #60


So the short answer is actually two-fold: government spending as a percent of total GDP is low and household debt has been declining, which is deflationary.


Household debt declined by writeoffs not by repayments, hence money supply was destroyed correct?

Interestingly, it doesn't matter whether by write offs or repayments. Either case is deflationary. This is due to the fact that money is created when credit/debt is created. When the debt is paid off, or the credit repaid, the money is then destroyed. The same occurs in write off.

there is the factor of the fractional reserve though involved here, as by writeoff the bank cannot lend the money that would get by repayment again.
 

That's sort of true. Interestingly, banks can lend up to the limits of a certain multiplier of their capital (assets). That's what fractional reserve means. It's a multiplier of assets, above the assets. They never state it that way though. The statement is that capital must be at least 10% of outstanding loans, or that the capital ratio must be at least 10%.

The funny thing is that loans on an item with a known market price, say a house, become an asset to them. They have created a contract that gives them access to that asset. So the loaned amount becomes an asset on the books.

So the really nice thing for the bank that can loan at 10x assets is that when you borrow $100.00 from them, they have given you $100, but their asset base now allows them to loan another $900. They love you! They'd like thousands more like you to walk in the door. There is no end!

There is no end that is unless the assets begin to decline in book value. When they decline, for every $1 the assets decline, they must remove $10 from their capital.

The contract only allows them to take the current principal amount plus any interest owed from the asset. So as you pay the loan off, their assets decline slowly, giving them time to recover from that by creating more loans.

When the market place reprices bad assets, like when house values rapidly decline, this affects the bank more drastically. That creates a rapid asset (and capital) decline, which can easily cause a bank to go under, mainly because at the same time, no one is borrowing anymore. It's a crash!

Interestingly, during a crash, the money supply is declining and more of the physical asset is becoming available. If this is allowed to take it's normal course, the normal market system will re-adjust pretty rapidly. Money is able to purchase much more than it did before, so the bad assets will be sold off (although at lower prices). And then the market discovers the real price for the assets, as well as the real price for money (interest rates).

Unfortunately, during this process, many banks might go under. I say unfortunately because most people trust banks for their savings and essential monetary needs. This means that the banks "must be saved" in the minds of country leaders and the very wealthy. You can see where this leads...

What I'm really saying here is that the banking system has the seeds of recession and depression built right into it.

A better answer is free market money. Which is why we are all here.  Cool

Hence the need to call upon the FED to absorb it.
I wouldn't count though that there is a system where there is no depression. Optimism and pessimism are intrinsic to humans, regulation or not.
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