Accelerating Deposit Flight In Ireland Forces Irish Central Bank To Print Money Independent Of ECB

Tyler Durden's picture

It appears that Irish savers are sufficiently smart to realize that their money is no longer safe in a banking system whose existence is now only backstopped merely from referendum to referendum. As it is very unclear what will happen to the IMF/ECB rescue mechanism once the Irish election is held in March, with a material possibility that the whole plan will be unwound, leaving the country's financial system in the wind, a behind the scenes bank run is accelerating. Incidentally while this was the topic of the December letter by Guggenheim's Scott Minerd, which we discussed in a post titled "Scott Minerd's Detailed Pre-Mortem On What Europe's Bank Run Will Look Like, And Other Observations", his just released January missive deals with precisely the same topic (see chart below). So faced with the prospect of accelerating deposit redemptions, what does the Irish Central Bank go ahead and do? According to the Independent it has gone ahead and proceeded with that traditional recourse to all regimes in the bring: print money. "The Irish Independent learnt last night that the Central Bank of Ireland is financing €51bn of an emergency loan programme by printing its own money." In other words, whereas Ben Bernanke may be 100% confident that US inflation courtesy of POMO and inflation printing will be absorbed by the "massive" excess slack in the economy (oddly enough it wasn't in Tunisia, as food prices hit records despite surging unemployment), we wonder if he feels the same way about other countries in the world, which are already part of a monetary union, yet which have decided to boost the "other assets" line in their balance sheets.

More from The Independent:

ECB lending to banks in Ireland fell from €136.4bn in November to €132bn at the end of December, according to the figures released by the Irish Central Bank yesterday.

At the same time, the bank increased its emergency lending by €6.4bn, bringing the total it is owed to €51bn.

The latest data does show a levelling off in demand for the loans. Emergency lending to banks shot up €16bn in November, but overall demand for the loans only increased by €2bn in December when ECB and Irish Central Bank figures are combined.

However, the figures also provide the latest evidence that responsibility for funding Ireland's broken banks is being pushed increasingly back on to Irish taxpayers. The loans are recorded by the Irish Central Bank under the heading "other assets".

A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.

News that money is being created in Ireland will feed fears already voiced this week by ECB president Jean-Claude Trichet that inflation is a potential concern for the eurozone.

What is the ECB's response to learning that its own member countries have essentially detached themselves from the ECB monetary mechanism?

A source at the ECB said the European bank is comfortable that the amounts involved are small enough not to be systemically significant. The ECB has been lending money to banks in Ireland at just 1pc, as long as the banks can put up acceptable collateral.

The volume of those loans surged from €95bn in August 2010 to €136.4bn in November, as Irish banks repaid their bondholders without being able to refinance in the private sector. The ECB loans prevented banks that could not raise funds from the private sector running out of cash after repaying their own lenders and meeting deposit withdrawals.

So let's do the math: ICB "money printing" has increased by €40 billion. For a country whose GDP is about €160 billion, this means that Ireland has printing the equivalent of 25% of its GDP. Put in American terms, this would be the equivalent of about $3.5 trillion in 3 months... In this context we wonder just what the ECB considers "systemically significant."

Tangentially, speaking of "other assets" we can't help by note what we observed during our last comment of the Fed's balance sheet. At $114.480 billion, it may behoove someone to inquire just how the Fed has well over $100 billion in "Other Assets" and what is contained in there. The chart below shows how this number has grown. Frankly, for all we know this could be shares of Amazon and Netflix stock. After all, these are "assets" and they most certainly are "other."

But back to Ireland. We would like to end with a chart created by Scott Minerd showing the wholesale abdication of Irish banks by its depositors:

And his comment on the one trend that the ECB has been unable to reverse yet in any of the distressed countries:

There is a plethora of proof that the crisis isn’t abating. Greece’s long-term issuer default rating was just cut to junk by Fitch with a negative outlook. In addition, the problems in the Irish banking system continue to expand. In November alone, 27 billion euros of domestic deposits (5.4 percent of the total deposit base) fled Irish banks. Total deposits were down 15.1 percent year-over-year and deposits from non-Irish residents declined 28.6 percent. Keep in mind that the crisis in Ireland didn’t broadly surface until late in November. I realize that I said the same thing last month about the situation in Ireland, but with data trending like this I cringe thinking about what the next set of monthly data may reveal.

In other words, just like investors in US stocks, so depositors in European banks refuse to be lied to again. And the more money printed by the ECB (or regional banks as we now learn) as a response to deal with this capital shortfall, the greater the inflation threats will be across Europe. Of course, these will merely reinforce already validated inflation in Africa, and most certainly Asia. And somehow the US government and Ben Bernanke is expecting anyone to believe that just because the highly irrelevant Core CPI is flat that America will not be next?

h/t Ciaran

 

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traderjoe's picture

But, but Harry had a record Q4! And Robo posted a chart of a stock going up after the fact. All is well, all is well... /s

More Critical Thinking Wanted's picture

And somehow the US government and Ben Bernanke is expecting anyone to believe that just because the highly irrelevant Core CPI is flat that America will not be next?

LOL!

Paleomonetarists have been predicting "hyperinflation, real soon!" since the end of 2008. They have been predicting it for Japan since 1998 but somehow the exact opposite happened (as predicted by non-monetarist economic models).

Make up your mind: which year will it be, or, at least, which decade?

 

Tyler Durden's picture

Paleomonetarists have had a sudden rise in popularity in Tunisia. Soon everywhere else.

Chappaquiddick's picture

Well said.

However, it isn't at all obvious which way it'll tip:

[http://theautomaticearth.blogspot.com/

FRIDAY, JANUARY 14, 2011  Zombie Money Kills Real People

2: Inflation]

And for the record I totally respect these guy's.

 

Oh and BTW - have a look at this gem:

https://marketforceanalysis.com/article/latest_article_011511.html

 

JW n FL's picture
by Chappaquiddick
on Sun, 01/16/2011 - 12:21
#880024

 

Well said.

However, it isn't at all obvious which way it'll tip:

[http://theautomaticearth.blogspot.com/

 

FRIDAY, JANUARY 14, 2011  Zombie Money Kills Real People

2: Inflation]

And for the record I totally respect these guy's.

 

Oh and BTW - have a look at this gem:

https://marketforceanalysis.com/article/latest_article_011511.html

*****************************************************************************

Tip? like tip the water / bar tender in Ireland with the new money? The people won, rebelion quelled.

Popo's picture

The people won?    I missed that part.

Chappaquiddick's picture

Tip:

As in see-saw, nodding-donkey, your hat.

NOT as in a waiter, a refuse depot, of a pencil, the end of my middle finger as it moves first vertically up then down, in your face for several hours.

http://en.wikipedia.org/wiki/Middle_finger

JW n FL's picture
by Chappaquiddick
on Sun, 01/16/2011 - 15:38
#880295

 

Tip:

As in see-saw, nodding-donkey, your hat.

NOT as in a waiter, a refuse depot, of a pencil, the end of my middle finger as it moves first vertically up then down, in your face for several hours.

http://en.wikipedia.org/wiki/Middle_finger

********************************************************************************

I am still laughing... Thank You Kind Sir...

But as to the point, that you skipped...

Now that the people have been satisfied, now that this will run 24 hours a day as a win for the Irish people... whats next? nada... as in nothing.... nada, nothing, zip, zilcho!

Ireland has been saved but its leadership. or the masses have been appeased, to be wholey accurate and correct.

Chappaquiddick's picture

JW - you've lost me.

What I was referring to was either the US system tipping into inflation or deflation and I think its obvious that we really don't know yet which way it will go.  For many countries outside the US inflation is most definitely the big issue.  It has lead directly to the coup in Tunisia.  It will prompt others into civil unrest too.

 

As for Ireland you need clarify what you mean.  I thought the Irish were just sold down the river into the arms of the IMF.  That does not sound like a victory or something with which the people would be satisfied.

Dr. Sandi's picture

When you're getting fucked, it's not as important whether it's missionary position or doggie style as whether it's consensual.

Or, to make it a date rape analogy, if she didn't jump out of his car when it slowed down, the bitch was just beggin' for it.

Inflation, deflation, biflation, reflation. It really doesn't matter. We're all getting fucked without our expressed consent. Because it's being done with such force, it's going to hurt, no matter which way we're facing.

Hold the gold and be especially nice to family and friends. No matter what 'flation sweeps the nation, they're the ones who will get us through this. And they'll do it consensually because they love us and because it's in their best interest too.

I KNOW that's how the Irish keep doing it, crisis after crisis.

JW n FL's picture

JW - you've lost me.

What I was referring to was either the US system tipping into inflation or deflation and I think its obvious that we really don't know yet which way it will go.  For many countries outside the US inflation is most definitely the big issue.  It has lead directly to the coup in Tunisia.  It will prompt others into civil unrest too.

 

As for Ireland you need clarify what you mean.  I thought the Irish were just sold down the river into the arms of the IMF.  That does not sound like a victory or something with which the people would be satisfied.

********************************************************************************

Sorry Bro my bad... I was punning the Irish people winning with the new print series... that was my hole gag! sorry my bad... it did not translate and I lack a copy editor.

I dont know about de-flation... we have a real de-flation in the value of our currency, thats just plain ole' 1 + 1 or in this case... 30% in new currency ='s 30% less value too that same currency.. in real plain ole' 1 +1 terms.

as for inflation... is it inflation or cost adjustment? due to the new dollars?

I would like to see someone with talent chart that out.

sorry about my puns, I was reaching for funny and only got funny looking.

hooligan2009's picture

Thanks chappaquiddick that blogspot at auto earth was an excellent piece.

I am "gobsmacked" that no-one has picked up on this one referded to the article below:

http://blogs.forbes.com/robertlenzner/2011/01/12/us-banks-reporting-phantom-income-on-1-4-trillion-delinquent-mortgages/

Missiondweller's picture

Thanks for posting this. This is unbeleivable. And banks are leading the way up on the S&P?

Arkadaba's picture

I read that article as well and found it thought provoking. They seem to be saying what we have now and for some time is deflation and the rising prices in food and energy are due mostly to speculation. The argument is that you can't have inflation in one sector and deflation in another sector. Any opinions on that argument?

Chappaquiddick's picture

I'm no expert - which probably gives me a head start - but I'd suggest that the US is in a deflationary death spiral.  As inflation can be considered a tax on the people, the Benancke doctrine of print, print, print is resulting in taxation of the rest of the world. Unfortunately, the hole is so deep that all the money in the world won't fill it and try as he might Benny can't contain the deflationary beast.

EscapeKey's picture

I get really bored with this.

So, rising energy prices is allegedly down to an OPEC supply squeeze. Rising food prices is because of short supply. Rising equity prices is because of an "improving" economy. Rising precious metal prices is speculation. And I forget which one is rising because of "political instability". 5 different explanations for essentially the same phenomenon.

Alternatively, they could ALL be explained due to monetary expansion.

But, hey, keep piling up more excuses. I can't wait to hear what's next.

Chappaquiddick's picture

EscapeKey you're on the right path, but there is a bigger broader canvas on which this monetary expansion is taking place - in EW parlance it's one degree higher.

The deflationary argument is based on the collapse of the hyper-bubble (my term) that got expanded by our exploitation of our hydrocarbon inheritance.  As we tip over the energy cliff, which is happening right now, then (and this is my take on the economic glide path - or more accurately economic climb, stall, nose dive path) prices of food and energy are going to explode higher which will cause a systemic collapse.  This could be a one time event or it could be a series of downward steps.  In essence its money versus energy and energy or lack therefore will win.  Therefore I think inflation first then deflation.  That's my assessment. (Look at 2007-present, then repeat) Automatic earth present it slightly differently (and I'm paraphrasing here, please see their excellent site for what they actually say).   They have over arching deflation - associated with the the decrease of energy in the system, manifesting itself as the housing bubble bursting and debt delinquency destroying credit based money, while all these other price surges are speculative.  I can believe that for the metals (except silver) - I don't believe that for oil/energy or for the grains.  Apart from that I think my take is all most the same as theirs.  I think that the deflationary energy boundary concept is correct.  As energy diminishes within the system the bubble will deflate and the economic reaction to the loss of energy in the system will be much more rapid than the loss of energy from the system.  Unless we get a viable and widely available energy source rolled out very quickly we run the risk that the system simply falls apart, even with a trillion barrels of oil still in the ground.

Hubberts Peak can therefore be seen as a joy ride up and a sky dive (without parachute) down on the otherside - we are simply not prepared for that decent. 

Zero Govt's picture

Chappa'

If by 'EW' you mean Elliott Wave then i agree with the (hyper) deflationary scenario. I think their economic insights are spot on, it's just their waves are absolute bollocks (have you ever made money, their Index, Gold and Silver advise last year had a 100% failure rate!).

 

Regards energy shortage do your research. The globe is awash with energy, it's coming out of our bloody ears, seriously! Energy prices i can't explain however outside of awash with speculative - counterfeit - Fed money.  

 

Chappaquiddick's picture

By EW I did not mean EWI.  And its from the Automatic Earth that the hyper-bubble is detailed, not some fictional wave dancing mysteriously through the eons - (total fucking wankers!) 

Regards energy I am researching this - Peak this, peak that and peak the fuckin' other.  So I am keen to see where you think we are awash with energy and how much longer you see that deluge lasting going forward.

Thanks

Zero Govt's picture

1. Oil is made by the Earths lower crust (abiotic theory) it's not a fossil fuel. No Dead Dinos or forests on Titan the moon, so why does she have millions of tons of hydrocarbons eh!

2. Global annual oil consumption is 30bn barrels of oil, Saudis unofficial estimates are 1.3Tn (about 100 years global supply). 3.5Tn barrels of easily extractable oil soak the clay in the Orinoco basin in Venezuela, and the Athabasca tar sands in Alberta, Canada. Then there's an estimated 6Tn barrels of oil in the US Oil-Shale. 

3. If you want to know why Americas got oil coming out of its ears but its home production has dropped for 40 years and imports have increased ask your politicians. They've been banning their own US production for 40 years. The fukers strangle every free market and shut down free competition (it's a corruption thing) 

So yes we're looking at over 1,000 years of oil just on the above, we're swimming in the good stuff, but it doesn't do to say so if you're in the biz if know what i mean

EscapeKey's picture

Scarce a single credible scientist pushes the "abiotic oil" theory, and the North Sea and other largely tapped resources do not suddenly spring back to life.

And even IF abiotic theory was true, what sort of evidence do you have of the replenishing factor being sufficient to quell demand?

As for the rest of your post with regards to OOIP figures, ultimately recoverable figures don't equal OOIP, and extraction rate is ultimately what matters.

Furthermore, Orinoco and Athabasca don't classify as "easily extractable", and Orinoco won't even be a considerable factor for years, especially considering none of the (considerable required amount of) base infrastructure currently exist.

Chappaquiddick's picture

@Zero

Sorry Buddy - I thought you were serious.  You're a troll.  Go home.

http://www.elliottwave.com/

http://en.wikipedia.org/wiki/Finger_(gesture)

More Critical Thinking Wanted's picture

Paleomonetarists have had a sudden rise in popularity in Tunisia. Soon everywhere else.

So a developing nation's economy ran into ground by decades of dictatorship is proof for palemonetarism exactly how?

 

JLee2027's picture

That's what fiat money does. It runs economies into the ground. The dictatorships blow up first because they are weakest. 

You'll have your "proof" soon enough in the rest of the world.

More Critical Thinking Wanted's picture

 

Okay, do you mean I can fairly bring up Somalia and Afghanistan as shining examples of how libertarianism and paleomonetarism works out in practice? :-)

[Sadly we have no better examples as no developed nation in recent history has tried that particular social experiment yet.]

 

Ricky Bobby's picture

Yes and we have some shining examples of how wonderful state socialism is too. Let's see body count over 100 million. Now give me the lawless tribal lands any day. Yes some warlords and murder but nothing like you fucking statest can deliver.

More Critical Thinking Wanted's picture

 

Well as far I'm concerned, when it comes to the place to live in I'll pick the fascist Sweden, the socialist Switzerland or the absolutely disgusting state-run France.

You can certainly have Somalia and enjoy the fruits of a libertarian heaven of no government, no taxes (and no infrastructure nor any security, mind you). There's a few gold mines in Somalia as well, so they say.

Good luck! :-)

 

Terminus C's picture

The thing is, no one can know what the future will bring... if you do not believe there will be hyper (or even significant) inflation, prepare accordingly... if someone does, they will prepare accordingly.  Coming in here and basically calling people stupid because they don't interpret data as you do is annoying and childish. 

Report you data and analysis and leave the ad hominem attacks at the door.

Yes, this is fight club, but it should not be fight club for middle schoolers calling each other names.

More Critical Thinking Wanted's picture

 

No one can know what the weather will be tomorrow or next week.

But there are people who work hard to predict the weather, they are called meteorologists. There are good models and bad models - meteorologists tend to use the ones that work in practice. Astrology can predict the weather as well, but it has an astonishingly bad track record so very few meteorologists use it to explain the weather. Some do - there's always the odd one out.

No one can know what the economy will be next month or next year.

But there are people who work hard to predict the economy, they are called economists. There are good models and bad models - economists tend to use the ones that work in practice. Paleomonetarism can predict the economy as well, but it has an astonishingly bad track record so very few economists use it to explain the economy. Some do - there's always the odd one out.

 

Eternal Student's picture

That's not quite correct. Meteorologists and their models are pretty darn good out to 3 days. After 3 days, their accuracy falls to 50%, which means it's just a guess.

Pardon the quibble. Your point about the complexity is still quite valid.

Zero Govt's picture

Eternal. "..after 3 days, their accuracy falls to 50%.."

So a coin toss! Before 3 days would a 3 sided coin beat the Meteorologists?


More Critical Thinking Wanted's picture

 

It really depends on the area and depends on the weather systems in place.

There are geographical areas with stable, long-term weather patterns where predictions can be very accurate up to a week or two. For example consider the D-day long-term forecast that the US/UK had about the Channel and which the germans did not have - it went beyond 3 days and turned out to be accurate. Sometimes you have such weather scenarios - and they did not have today's supercomputers.

Also, even in volatile regions there are weather patterns that are predictable over 3 days.

What matters is how chaotic the current scenario is: is there an unstable equilibrium in some important weather system which could go either way, controlling the outcome in a big way? If yes then it's very hard to predict things beyond that point.

Of course TV viewers always want that next-week long term outlook on the screen, and "right now we dont really know beyond Wednesday" is not taken as an answer :-)

So meteorologists will print those graphs even when they know it's probably no good.

Something similar is happening with economic forecasts as well.

 

MayIMommaDogFace2theBananaPatch's picture

Paleomonetarism can predict the economy as well, but it has an astonishingly bad track record so very few economists use it to explain the economy

Do you think you're up to the task of defining your new play-word that you overheard Paul Krugman utter last month?

Good. We'd appreciate it. 

When you're finished with that, why don't you whip up some analysis on:

Paleomonetarism and its Astonishlying Bad Track Record

With your remarkable insight and just a few charts you could be fucking famous RSN. 

OOOOOH.  One more thing.  Be sure to add lots of quotes from all the Paleomonetarism Zealots and Extremists throughout history.  Damn!  This shit will practically write itself.

If *anybody* tries to call bullshit on your new play-word, you can just get a quote from Krugman who will surely say:

I used that term — it’s probably not original, but who knows?

More Critical Thinking Wanted's picture

 

Well, monetarists first need to explain why, contrary to their predictions, Japan did not experience hyperinflation but instead experienced the exact opposite: deflation.

I mean, when it comes to the credibility of a scientific theory it does not get any worse than getting your predictions exactly the other way around from how the real world played out. It does not bode well for making economic decisions based on such a theory, such as the direction of trades, etc.

It's a big FAIL of monetarism and it repeated with 2008 and the monetarist prediction of hyperinflation in the US as well. The monetary base increased in size, drastically, still, against the basic monetarist axiom there was no hyperinflation - in fact there was disinflation and the US was on the verge of outright deflation.

An explanation for all that would be nice, preferably one that does not involve a worldwide anti-monetarist conspiracy, black helicopters and the like.

 

dlmaniac's picture

Japan didn't have hyperinflation (yet) b/c they have had a strong industrial output behind their currency to offer certain strength but as debt keeps growing the outcome is written on the wall: default or hyperinflation.

Giving US' industrial output being almost non-existent (certainly not enough to offset that 70% consumerism economy at least) you can bet US will not have a cushion of two decades Japan had.

Then again keep sticking your head in the sand if it works for you to believe Ben can magically defy the law of economics.

More Critical Thinking Wanted's picture

 

But you are now thinking outside the monetarist box.

Monetarist dogma stipulates that an inflated monetary base is coupled to prices directly. That is why it's called "monetarism": money is the main parameter and markets adjust to the money supply quickly and efficiently - the efficient market hypothesis and other monetarist assumptions.

That was the main idea behind the Friedman "the central bank is all we need to control the economy" money supply side concept - which looked nice and simple 30 years ago and which the political right picked up quickly, because it gave them the excuse to resist those types of government spending that they did not like.

Reality is that as Japan has shown it that the money supply is not everything, that there are other, very strong factors that play a role in macro trajectory of a country.

If you have to bring in "strong industrial output" and other keynesian concepts such as sticky prices/wages or psychological/human factors then it's not monetarism anymore.

But thinking logically is not a strong aspect of the right :-)

default or hyperinflation.

Oh, Japan's policy makers (including the central bank) truly strive for some amount of inflation - but price expectations got embedded and it's very hard to escape those kinds of deflationary forces once they got settled in.

 

scaleindependent's picture

More Critical T: Last week you were criticizing ZH because they were overly negative on the 270K employment ADP print, even though they told you that it was mostly BS. Then a couple of days later we hear that the economy LOST over 700,000 jobs.

How do you respond to that since it seems ZH had it right and you had it way wrong?

I am starting to wonder on your secret agenda here. Please be open because you are starting to sound like Harry Wanger's alter ego.

More Critical Thinking Wanted's picture

 

Not sure where you got the -700K from, the ADP data was +297K, while the NFP data two days after that was +103K:

http://www.bls.gov/news.release/empsit.nr0.htm

Note that there was an upwards revision of past data:

The change in total nonfarm payroll employment for October was revised
from +172,000 to +210,000, and the change for November was revised
from +39,000 to +71,000.

While the popular ZH meme is that revisions are only done to reduce overly optimistic government numbers.

Note that the NFP data was indeed weaker than expected.

So my criticism of ZH is still valid: bearish news is being hyped just like CBS is hyping bullish news. That aspect of ZH is not particularly helpful to anyone who is interested in the truth.

 

Eally Ucked's picture

Lay man answer to your question. When all world around US experiences price inflation for energy (not only energy but oil derevatives), food and materials how it's possible that US producing corn, armaments and junk movies can escape it? Everybody will deliver their products at loss to US?

Caviar Emptor's picture

Feeling confused? Don't worry, Ben will make it all right as rain. See he's satisfying both sides of your brain by creating inflation and deflation simultaneously to give you the illusion that he has a steady hand on the tiller and we're cruising in the right direction. The numbers cancel, so everything seems fine! Read this: 

http://seekingalpha.com/article/246814-on-unemployment-inflation-and-flawed-fed-logic?source=feed

66Sexy's picture

"The expectation is the manipulation; therefore the opposite of the expectation will be the hindsight realization."

66Sexy, 2011.

terranstyler's picture

Be patient.

Japan has its pension funds forced to buy their debt.

This delays the ultimate outcome predicted by paleomonetary theory.

tmosley's picture

Deflation is not the opposite of hyperinflation, any more than getting shot (someing entering your body) is the opposite of bleeding (something leaving your body).  One causes the other.

But hey, feel free to trust your government, which has never lied, never stolen, and belongs to a class of organizations that has never collapsed from monetary excess.  Christ, just because things have been getting continuously worse for two years, but it hasn't exploded yet doesn't mean that it won't.  Once again, more critical thinking needed.

DoctoRx's picture

Tmosley

You are being too kind to limit the "things getting continuously worse" statement to only 2 years.

 Housing stocks peaked mid-2005.  That followed immed after a senior spokesperson from the Comptroller of the Currency coming on CNBC to say that there was some imprudent mortgage lending going on.  The Ponzi began unravelling from that point onward.  Naturally more time was needed to such the sheeple into stocks at yet higher prices.  So 3-6 years is my range.  And of course the average stock per the Value Line averages peaked in gold terms in or around 1998 when the Asian contagion raged.

66Sexy's picture

Capital borrowed @ low interest rates creates more money: but only if that money buys war, government entitlement programs, nonproductivity, consumables... specifically, non assets.

Capital borrowed to buy stocks (like the fed is allegedly doing) is not inflationary; as money used to purchase hard assets is in fact deflationary; because such act is speculatory, and insures a spike and retraction based economic model.

Is inflation psychological? Could this sentiment of expected inflation be in fact a stealth government propaganda program to create hyperinflation, and cheapen debt? This kind of confidence means the dollar will not disappear; consider that the FED has more power than ever now, it has direct regulatory control over the dollar and even consumer credit; why would it ever give that up for a riskier global currency ambition?

Methinks the dam will hold.

Once the FED controls the debt (they already are the #1 debt holder), who is the creditor? the US taxpayer? isnt the us taxpayer now paralyzed, powerless, stupified, and incompetent>? what threat is the us taxpayer to the fed? nil.

chubbar's picture

"Capital borrowed @ low interest rates creates more money: but only if that money buys war, government entitlement programs, nonproductivity, consumables... specifically, non assets."

What do you think the gov't is buying with the 1.4 trillion/yr in deficit financing (and increasing every year)? Gov't sells bonds, the PD's buy the bonds, the PD's sell the bonds to the fed for a profit, the gov't spends the money into the economy via increased gov't jobs, entitlement programs, war, etc. The FED owns the bonds and interest from the gov't to the FED is paid with more gov't bond sales. A complete circle jerk.

The FED owns the debt and the U.S. taxpayer can never repay this debt even with 100% tax rates unless most, if not all, entitlement programs are completely dismantled in addition to a good chunk of other gov't programs/jobs. Which by the way would completely decimate gov't revenue and require even greater spending cuts. You see any chance of this happening politically prior to a gov't collapse? Are you of the opinion a gov't collapse strengthens the FED and the U.S. dollar?

"Capital borrowed to buy stocks (like the fed is allegedly doing) is not inflationary; as money used to purchase hard assets is in fact deflationary; because such act is speculatory, and insures a spike and retraction based economic model."

The FED doesn't "borrow" anything. If it is buying stocks it is doing so with money it created out of thin air. If the gov't is buying stocks it is doing so with money printed out of thin air but exchanged for gov't bonds. The new money, regardless whether of gov't or FED origin, is now being given to the previous owners of said stock. The previous owner now has money to spend into the economy or on other stocks, thus supporting the economy or stock market. This is not deflationary regardless of whether spikes and retracements happen to the stock price if we are assuming it's the gov't/FED doing the buying.  The  new stock owner (either gov't or FED) will just buy more stocks, if they fall, to support the price with newly created money. If that is in fact their mandate, which I'm not sure is the case.

Inflation EXPECTATIONS are psychological. Actual inflation will affect prices regardless of what the population would like to believe. Expectations are manipulated with a variety of methods. I don't personally think the FED is wanting expectations to spike but that is just an opinion.

66Sexy's picture

imo

Today, "inflation" is a manufactured psychological expectation, reinforced by corporations to justify a rise in prices, while simultaneously reducing wages by encouraging unemployment and eliminating or renegotiating entrenched employee entitlements..

The net result? record corporate profits and a government dependent consumer. This is all part of the process of making corporate private debts into public liabilities, through government regulatory capture. Think Argentina: and it will happen eventually here. However, last i checked, Argentina still exists.

Welcome to the corporate dictatorship.

Hyperinflation, i dont think anyone can dispute, is a psychological loss of faith in a nations currency, resulting in massive demand for goods over demand for future savings.

This is indeed happening when states or countries must create their own currencies and trade them to sustain entitlements and programs (massive money creation), all happening while the public heightens awareness and responds by hoarding currency to spend it immediately.