Hyperinflation or Deflation that is the billion dollar question

[harryg]

I received this in an email from CNBC - not usually the first port of call, but some points that I think are germane to this discussion. https://www.cnbc.com/2021/11/15/kelly-e ... rates.html

"All in all, the Fed has gone from being a slight net lender to the U.S. financial system in 2007, to a net borrower of almost $6 trillion, Stella notes. That's roughly 25% of GDP! And it means the Fed itself has probably the single biggest exposure of any global financial player to the impact of rate hikes. "

[Budge]

"This is the most powerful drug in the world.

Like most drugs, the first few hits feel incredible. But as you take more, the more addictive it becomes. That feeling of satisfaction soon becomes a feeling of dependance.

And once you’re hooked, it’s no longer about feeling good – it’s about survival.

But I am not talking about heroine or cocaine.

I am talking about something much more addicting and dangerous. I am talking about something no one can escape – not even you.

Over the last decade – and especially over the last two years – central banks and governments have become the biggest dealers of the most powerful drug on earth: money.

So, you may think they’re helping, but they’re not.

You may think they’re here to save you, but they’re not.

In fact, what they’re really doing is just giving you a little taste – just enough so you come back for more.

Eventually, you’ll depend on them for survival – just as addicts depend on their drug dealers."

......"While policymakers have you focused on CPI, they leave out a much more important kind of inflation: asset inflation.

In a moment, you’ll see just how bad things things have become as a result of policymaker decisions and how the elite have used it to build fortunes at the expense of the average citizen."

https://www.equedia.com/the-biggest-dea ... the-world/

[MarkD]

Andrew Jackson knew the root cause of our nations problems, but history teachers have forgotten his timeless lesson.

[Yodean]

https://www.equedia.com/the-biggest-dea ... the-world/

Excellent article. Thumbs up.

[SOL]

https://www.equedia.com/the-biggest-dea ... the-world/

Excellent article. Thumbs up.

It is a very good article, but unfortunately, only 30% will acknowledge the problem and less than 3% will react in a proactive manner. In other words they will nod and say yes it is a problem but take no real action

[harryg]

Sol, you are right, but this article is too esoteric for me - I don't do vague. What is the recommended action in response to money printing? The way I read it, it would be to expose yourself* to assets such as stocks and property and to not get bounced out when things look bad. Or are you referring to something less straightforward?

*I don't mean that, if your mind is going there

[AstuteShift]

Sol, you are right, but this article is too esoteric for me - I don't do vague. What is the recommended action in response to money printing? The way I read it, it would be to expose yourself* to assets such as stocks and property and to not get bounced out when things look bad. Or are you referring to something less straightforward?

*I don't mean that, if your mind is going there

Easy, invest in stocks. Have up to10 percent in precious metals as insurance.

Relax and ride the mega trend. I can easily see Dow at unimaginable levels, the US is the world reserve currency and they can do as they please

[harryg]

Thank you Astute, that I can understand I am on the right track then...

[AstuteShift]

Thank you Astute, that I can understand I am on the right track then...

Let the retarded experts ponder on nonsense, we are here to win.

[outof thebox]

SOL is on the right track when he states that the Velocity of money is at a Multi-decade low, so the chances of hyperinflation in my opinion are as a real as me laying a golden egg.

[Budge]

SOL is on the right track when he states that the Velocity of money is at a Multi-decade low, so the chances of hyperinflation in my opinion are as a real as me laying a golden egg.

hyperinflation occurs when everyone loses faith in government ....hang about, say what!!

[Yodean]

https://www.equedia.com/the-biggest-dea ... the-world/

It is a very good article, but unfortunately, only 30% will acknowledge the problem and less than 3% will react in a proactive manner. In other words they will nod and say yes it is a problem but take no real action

@Sol: hmmm, and I thought I was cynical about human nature, lol ... I would like to think that 1/9 will actively try to do something about the status quo.

The article is quite dense with many salient points that do not lend themselves easily to superficial analysis. The graphs are, simply put, superlative.

The following is a summary of some of the major points of the article, interspersed with some of my own extrapolations:

1) CPI is not historically well-correlated with increases in the money supply, contrary to popular belief. There is constant mainstream media yapping about “money printing” leading to inflation, but this is overly simplistic. In actuality, the Fed buys bonds from commercial banks; these banks then “create” money out of thin air by lending - based on these collateral cash reserves they receive from the Fed in return for selling bonds. Money is not truly “created” or “printed” until the banks lend it to other institutions and individuals.

2) If the banks do not lend, CPI will not increase much, or consistently, even if the money supply increases dramatically, as it did after 2008 (Great Financial Crisis), and at the beginning of cv19. Another way of framing this intellectually is that CPI will not increase consistently for long, if the velocity of money stays low – as it is currently.

3) The Fed, by buying bonds as part of its Quantitative Easing (QE) program, keeps interest rates as low as possible (bond prices are inversely correlated with yields, so through the purchase of bonds, there is downward pressure on yields and consistent support of bond valuations). This has many important consequences. QE keeps borrowing costs low, so this encourages borrowing – the saver of cash is severely punished, in general. Also, it reduces the government’s cost of servicing its debt, and by letting real “inflation” (loss of purchasing power) run higher than official interest rates, the government is able to “inflate” away, over a course of decades, some of its debt – in practical terms, this acts as a “stealth tax” on the average citizen’s income. This is arguably what happened in America between the 1930s and 1980s: the debt-to-GDP ratio went from >100% to 30-something %, if memory serves.

4) However, the Fed cannot directly force banks to lend to specific individuals. A lot of individuals do not meet banks’ lending requirements, so banks end up lending disproportionately to already rich corporations, who then “buy back” their own stock, leading to increased share valuations. So the low cost of borrowing tends to benefit the big companies, rather than the average citizen.

5) QE, and all similar programs by other labels, tend to lead to asset price inflation - instead of CPI increases – and disproportionately benefit Corporate America and the ultra-rich, overall, who take advantage of borrowing at extremely low interest rates to buy more assets that increase in nominal value. In other words, the rich get richer, while the poor get poorer. The middle class is being destroyed. Those who do not have assets that benefit from the “API trend” (Asset Price Inflation) lose purchasing power through the “stealth tax” that is inflation.

6) “The Fed is by far the most powerful organization in the world.” Do not believe the dominant mainstream media sentiment that the Fed has “lost control,” “is stupid,” etc. The Fed answers to no one (at least no one the public knows), yet controls the world’s money, in effect “printing” at will – the buyer and lender of last resort. The financial markets will do as the Fed commands. Another way of putting this is T.I.’s “fight the Fed and you end up dead … dead broke.”

[chippermon]

Nailed it. Excellent summary. Well said.

[Yodean]

Nailed it. Excellent summary. Well said.

Thanks. It's one of the things I do for fun, lol.

[harryg]

Thank you Yodean, very helpful