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The Real Inflationary Threat - Decreasing Foreign Reserves: Why the US Should Expect 8% Inflation For The Next Three Years
Submitted by Taylor Cottam of EconomyPolitics
The real threat of inflation, decreasing foreign reserves: Why the US should expect 8% inflation for the next three years
Weekly we put out information on the US Dollar Money supply. Current M2 money supply is over 9 Trillion dollars.
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| Source: Federal Reserve |
This is a good proxy for money growth and good predictor of inflation except for one crucial flaw.
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There is some money which is
printed, but does not make it into the money supply. Consider the
scenario that the Fed prints a dollar that is then either lost or
destroyed. It then cannot be used to buy goods, or be lent out and thus
does not create inflation.
printed, but does not make it into the money supply. Consider the
scenario that the Fed prints a dollar that is then either lost or
destroyed. It then cannot be used to buy goods, or be lent out and thus
does not create inflation.
There is something else which
can happen to our money which has the same net effect. Foreign central
banks can take cash printed from the Fed and place it on their balance
sheet. US dollars on foreign banks balance sheets gives investors
confidence that their own currency will not be debased.
can happen to our money which has the same net effect. Foreign central
banks can take cash printed from the Fed and place it on their balance
sheet. US dollars on foreign banks balance sheets gives investors
confidence that their own currency will not be debased.
In our current (weakening)
dollar regime, the US dollar is the main foreign reserve currency. When
foreign central banks put US dollars onto their balance sheet, they
take them out of circulation. They are not being used to buy goods.
These dollars are not lent out. As such, they do not create
inflation.
dollar regime, the US dollar is the main foreign reserve currency. When
foreign central banks put US dollars onto their balance sheet, they
take them out of circulation. They are not being used to buy goods.
These dollars are not lent out. As such, they do not create
inflation.
 |
| 10 year USD/EUR |
?Americans have benefitted greatly from having central
banks prefer our cash to even their own. It has allowed the Fed to
print money like mad without the fear of inflation. ??
In other words, the real threat
of inflation is not the current printing of money which Bernanke et al
have been doing. It is the previous printing of money which has been
taken out of circulation. The threat is as great as its ever been. The
amount of money in foreign reserves is about one third or more of M2,
or every dollar which is held by US bank account (business or retail),
and all currency combined.
of inflation is not the current printing of money which Bernanke et al
have been doing. It is the previous printing of money which has been
taken out of circulation. The threat is as great as its ever been. The
amount of money in foreign reserves is about one third or more of M2,
or every dollar which is held by US bank account (business or retail),
and all currency combined.
There
are signs that this dollar regime will be ending. The cracks have been
apparent for some time, but we just blew a big hole in the US Dollar
dam. This week, China has announced that they will reduce their US
dollar holdings by more than 1.7 Trillion Dollars. Via Xinhuanet:
are signs that this dollar regime will be ending. The cracks have been
apparent for some time, but we just blew a big hole in the US Dollar
dam. This week, China has announced that they will reduce their US
dollar holdings by more than 1.7 Trillion Dollars. Via Xinhuanet:
The amount of
foreign exchange reserves should be restricted to between 800 billion to
1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that
the current reserve amount is too high.China's foreign exchange
reserves increased by 197.4 billion U.S. dollars in the first three
months of this year to 3.04 trillion U.S. dollars by the end of March.
??1.7
Trillion dollars is the amount that we have added to our money supply
since August 2007. If all that money were to come into the current US
money supply all at once it would increase money supply by 19%. That
would make US inflation among the highest in the world.
??
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| Source: SIFMA |
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If this action were to be followed by
other central banks in Japan or Europe, there would be a real danger of
hyperinflation to the tune of 50%.
other central banks in Japan or Europe, there would be a real danger of
hyperinflation to the tune of 50%.
Now, odds are they won't do this
all at once. That is why we have said that at least the amount of
inflation, should it be spread out over 3 years should be 8% or more.
all at once. That is why we have said that at least the amount of
inflation, should it be spread out over 3 years should be 8% or more.
See the total allocated and
unallocated foreign reserves above. You can see that the US Dollar, is
the king right now, but the Euro is gaining. What is gaining even
faster is the Unallocated foreign reserves, which means it is either in
something else (gold, or IMF certificates), or they don't want to
disclose.
unallocated foreign reserves above. You can see that the US Dollar, is
the king right now, but the Euro is gaining. What is gaining even
faster is the Unallocated foreign reserves, which means it is either in
something else (gold, or IMF certificates), or they don't want to
disclose.
??????
Either way, it should be concerning to anyone who has money in dollars... very concerning.
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Not as much as when Buffet buys it out.
Your eyes must be deceving you. At 8% per week, you must be paying $200 for a loaf of bread by now
A loaf of bread before he started watching his costs every week was probably $1.50. You multiply that by .08 you get an additional .12 cent cost each week . What kind of bread are you eating anyway ? silver bread ?
8% a week. if you like to walk.
Lending money does not, on net over the longer term, cause inflation because the money must be paid back. You may get a surge in prices but ultimately there will be a contraction or collapse as the case may be. The inflation you would get would be with respect to the interest on the debt if the money supply is expanded but that is an 'if' because you shouldn't normally expand the money supply to pay the interest or the lender ends up a loser.
Also: when you say "foreign CBs" you may be talking about somebody's cousin who enjoys hookers in Mayfair over the weekend. If dollars drop significantly, they're going to take a hit to their lifestyles. Better off in PMs, other currencies or just exchanging that toilet paper for something fun
Not to fear, the stock market will look pretty - more QE is the prescription baby, for all your ills
Wake up! Who gives a damn what the defination of inflation is, come on. When people like me spend 8% per month upwards, that is inflation; it is not 8% per month. Do you all shop? I cannot be the only person in the world experiencing this???
Agreed. Have you seen the price of arugala lately?
Most people aren't paying attention as closely as you probably . They are most likely wondering where all of their money is going though .
Even my 9 yr old complained about the new "skinny box" of cereal the other day...dollar don't buy what it used to [unless its a morgan/peace dollar].
From the mouths of babes.
One cornerstone of Biflationary theory is that excess foreign dollar reserves will eventually come home to roost. Check. Particularly during a contractionary period in the real US economy. Check. Thereby aggravating a vicious cycle. From that point on, the more they print, the worse the spiral down for the economy, the worse the spiral up for prices.
Lotsa Luck!
And they all run for the resource theater.
http://www.guardian.co.uk/business/2011/apr/28/glencore-float-sovereign-wealth-funds
Whenever Bernanke says the word "unlikely", that's a sure danger sign.
Yes. It's almost more like a sure thing when he mutters the word "unlikely." I've seen so much written on his "transitory" word because of course it's bullshit. But his comment on foreigners concerns will likely turn out to be the largest catalyst to the end of the U.S. dollar regime.
This ties into the velocity of money concept associated with hyperinflation. These funds need to be repatriated, so either the Fed takes them back reducing the balance sheet, or they start creating inflation.
Not a pretty end game.
He expects countries will act in a calm manner when getting rid/reducing their reserves this is Not the way it will be . Imagine you have 3.07T dollars and the purchasing power of that currency is dropping at .25%-.50 daily . Those are huge losses and likely to create panic as the dollar continues to decline . First country out gets the most bang for the buck .
When exiting dollar reserves you better be politically correct. That’s a little difficult to accomplish when holding 3 trillion hot potatoes no one wants.
We will not make it another three years until the world monetary system breaks down.
Society will also fall apart along with it.
Seriously, people think the FED can control this outcome? It is certain. We passed the point of no return long ago.
The real economic crisis is in front of us, it is not behind us. Before Barack Obama leaves office there will be a currency crisis. The US dollar will collapse and prices in this country for consumer goods will go ballistic and so will interest rates. WE will then be living in an economy with double-digit inflation and double-digit interest. This is economic ruin that is coming due to the economic policies Barack Obama is pursuing. - Peter Schiff
Well said proLiberty,
Even in the best case scenario for the US where the economy does start picking up some wholesale momentum, that entails increased lending from where we currently stand.
If the scenario i just described does play out then those excess reserves currently parked at the Fed will make their way into circulation.
At that point you are looking at an ever increasing money supply to the tune of $10-12 Tril. + as it is multiplied via fractional reserve banking.
Nuff said.
I have commented here in the past that high inflation (hyperinflation definition is debatable) may originate from foreign divesiture of USD. What many ignore is that reserve currency status requires an extra degree of confidence for foreign holders.
Most here understand the concept of participants hitting the exits at once.
Revaluation of the Iraqi Dinar? What if the US sent Billions of repatriated T-Bills from China to Iraq and revalue the Dinar say 3 dollars per Dinar????? Did we not just send US politicians to bothe countries recently??????
That's the plan.
Now, whether the plan will endure long term that's the real enigma.
I bet against it holding up.
Inflation, hyperinflation, stagflation, bi-flation, w/e anyone wants to call it. I call it cluster storm because I dont like ot cuss I can avoid it. Pardon me if I am completely soddish on this but its given that wages are stale, commodities are rising, unemployment/underemployment is growing, housing is a bust atm and the dollar is in the crapper. Dollar is losing reserve currency status which once its not pegged to oil that'll finish it off(least in my opinion). Call it w/e but the truth of it is that this is to put the squeeze on us common folk. To me and not just from any one point, I see this as, here comes conspiracy theory stuff. Designed. It totally crushes the avg person. Nothing left in our houses, wages are stale, everything essential to survival nowadays is going through the roof, our money is worth less than toilet paper, well you get the idea. Nothing makes sense in stats/markets. Its all manipulated, lying bs. Who does this hurt? I don't really think its hurting the elite types. Its to put the vice on the avg person. They want us to break. Then conform to what is phase two or three or w/e phase they are on. It is pretty much a lock. Just a matter of when and what chute we allow ourselves to be lead down to get us there.
Even if "they" win there children don't. Its a small little rock and there's no where to run to.
What you see as malaise is bureaucracy and good business. Some are out to harm others as their education and trainning is to spot and attack weakness. Others are ignorant and disfunctional.
Mostly as Ive come to understand it, neglect and fixed principals, dagma even group think.
"The surest way to a fight is to tell a man he's dead wrong when he knows he's right." -Chick Bouldry
Don't forget taxes and fees. Your state, county and city governments must be fed, too. Property taxes, permits, water, sewer, trash, sales taxes, transfer taxes auto fees and traffic fines, etc. It's getting worse by the day. And rising utilities and telecommunication bills bring higher taxes and fees.
Say goodbye to the middle class.
That's OK though because you don't need a middle class in a feudal society where the bank and government are the same as well as de facto owner of all the land and property and permits use through payment of taxes and fees.
i think we have em right where we want em now.
nobody can figure anything out, anymore.
by next wednesday, our banksters will have a whole new winning paradigm of capitalization based upon the transitory nature of the backorder system. scientists in great britain are about to publish a paper that the $USD$ and Yen absorb CO2. this is gonna be fabulous!
"In other words, the real threat of inflation is not the current printing of money which Bernanke et al have been doing. "
What absolute bullshit.
From my humble understanding; the US dollar makes up ~60% of international reserve currency. If it drops to ~40% its not just that currency that comes home its all the future currency that would have been wanted that know will just be printed.
The pound dropped to ~5% of holdings so 40% is not the end of the world. The US is still a big market and will not stop being a big market just because its currency is now less wanted.
Will the US reach parity with the yuan, Brazil, South Africa... The US dollar is still a strong 3rd word currency but not a strong 1st world one.
Thats my take.
Now if only we could inflate purchasing power, for everyone.
So can I expect an easy 24% no matter what is printed out of the FED on my Gold and Silver Holdings? I can live with that.. fire and forget!
Try animal feed in general. I have livestock (Horses, Goats, Chickens, and Turkies) for which the costs of feeding has gone through the roof in the last few years. We farm on the side, and sell locally, for which my prices for eggs, goat milk etc are now WAYYYYY higher than even last year. 3 years ago we sold free range eggs for $2/dozen, I now have to ask $4.75; and fresh pasturized Goats milk went for $3.50/gallon our new price now has to be $8.25/gallon. Lucky for me most of my customers have the will and cash to buy "farm fresh". Though, I may have to get out of the Thanksgiving Heritage Turkey side show all together as I'm sure few folks will want to spend 50-60 bucks on one.
I admire your business and what you are doing to raise wholesome, honest food, and feel for you in your rising costs --- which are denied and made a mockery of by that pathological liar Bernanke and his minions of disinformation and propaganda at the BLS.
I am lucky enough to have a neighbor who raises goats, and who supplies me with fresh, raw goat milk regularly. Yeah, it's "illegal" --- we just laugh at that.
on Fri, 04/29/2011 - 17:32
#1222230
Try animal feed in general. I have livestock (Horses, Goats, Chickens, and Turkies) for which the costs of feeding has gone through the roof in the last few years. We farm on the side, and sell locally, for which my prices for eggs, goat milk etc are now WAYYYYY higher than even last year. 3 years ago we sold free range eggs for $2/dozen, I now have to ask $4.75; and fresh pasturized Goats milk went for $3.50/gallon our new price now has to be $8.25/gallon. Lucky for me most of my customers have the will and cash to buy "farm fresh". Though, I may have to get out of the Thanksgiving Heritage Turkey side show all together as I'm sure few folks will want to spend 50-60 bucks on one.
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You should start a service on-line or at your ranch or both.. teaching people how to farm..
I am NO farmer (God Bless them ALL!) and I did propogate some squash / zuccuni and the insects (although I thought it was my watering) got them! I am in South Florida so we have a 12 month grow season but as well have a bug problem the size of the atlantic ocean.. But any way! Great Work / Job You have! now share the wealth of info, for a fee of course.
Good Luck!
Start with a Garden, consult with your county agent (or equivalent in your state) for free help. Build a small chicken house (plenty of plans on the internet) and get a few Rhode Island Reds or Barred Rocks as these are good layers. Chickens are easy to take care of, being in Florida they'll also eat alot of the insects which will in turn lead to deep yellow yolks in their eggs. Also, visit the Backwoods Home Magazine website at
http://www.backwoodshome.com/
You'll be suprised at what most people can produce on an acre or less......of course it's lots of work which has the added benefit of keeping you in shape.
Good post. I live in central Austin and have 2 chickens and a raised garden that provides all the squash, tomatos and beans we can eat.
Jerky is said to keep for years, but it’s so good that around my house it’s shelf life is usually measured in minutes.
http://www.backwoodshome.com/articles2/rohdenburg81a.html
Maybe I am just to Country.. but I could Not! find one thing that I did NOT! Love at that site you offered up.
They have solar! They have guns! They have Jerky! They have Silver! and even help growing stuff for wanna be farmers like me!
Great Find! and I Thank You Kind Sir for Sharing it with me!
Only 8%? that's not bad at all!
dup? only hit the button once....?
Any way you cut it the bottom line is not pretty. Whether it's inflation / deflation / stagflation / bi-flation it makes no difference. When energy and food are parabolic, real estate is tanking and the presses are working overtime it's bad news city.
Jan. 2009: reflation doctrine. FEDchairsatanicus non interruptus.
helocopterus.
I thought the fed could only print on debt-- so the trillions that the fed threw around the world to "friendly banks" were really loans and the money(zeros) are in the plus columns of balance sheets. In a fractional system if you repay a debt then the money disappears. So if the banks that have this borrowed money in their accounts let the money go back unused it will disappear-- meaning trillions will evaporate. Is this not the case? If you have an asset and it's relative value decreases with out being used or sold the difference between the high and the low just evaporates. How does this effect the money supply?
I call bullshit! When foreign countries start dumping reserves, interest rates will spike. The results will kill any form of credit. There will be no inflation, it will be deflation. Deflation bitchez!!!!!!!
Unicorns bitchez!
Unicorns bitchez!
Narwhall sees horse.
I'm going to fuck that!!
8% inflation a year and silver rising 50% a year?
No problem, I can do that forever.