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Guest Post: Analyze This - The Fed Is Not Printing Enough Money!

Tyler Durden's picture




 

Submitted by Alexander Gloy of Lighthouse Investment Management

Analyze This - The Fed Is Not Printing Enough Money!

Before you trash me in the comments, hear me out.

It started off with Ray Dalio’s “beautiful deleveraging”, which inspired this post.

Since the financial crisis, the Fed has increased its balance sheet from $900 billion to $2.9 trillion (red line in below chart). The difference is $2 trillion (or 13% of GDP).

When the asset side of the Fed’s balance sheet grows, so must liabilities. The Fed’s liabilities consist mostly of money in circulation. So we can assume that $2 trillion in additional money has been pumped into the economy.

Or has it?

When the Fed buys bonds, it does so from “Primary Dealers” (21 global financial institutions). They hand over the bonds and get a corresponding credit on their account with the Fed. The Primary Dealers might then purchase some other securities with that money (which then gets credited to another bank’s account with the Fed).

And that’s where the buck stops. Three quarters of the money “printed” never make it into the economy. They remain as excess reserves (reserves in excess of banks’ minimum reserve requirements, blue line) in accounts at the Fed.

Hence, of $2 trillion additional money, only $500 billion (yellow line) ended up outside the Fed. Why? Banks could use those reserves for lending, but there is no demand for additional loans (from customers with sufficient debt bearing capabilities).

So if the money can’t find its way out of the Fed – how is money created then? What is money?

To understand, we have to take the example of buying a car.

In the US, literally nobody purchases a car with money form a savings account. The ability to purchase a car depends on the availability of credit. No credit, no car.

Credit availability depends on issuance of debt. Take a look at debt outstanding by ABS (asset-backed securities) issuers over the last 30 years:

ABS Credit market debt outstanding fell from $4.5 trillion at the peak in April 2007 to $2 trillion. That’s a decline of $2.5 trillion. This is money not available for purchases. It dwarfs the $500 billion pumped into the economy by the Fed.

Debt is money. The amount of debt outstanding controls the amount of money available for purchases, and hence for the size of the economy.

In addition ABS issuers there is debt by households, non-financial and financial corporations as well as the government sector. By adding them up you get the big picture: the total credit market debt outstanding (TCMDO):

TCMDO is the blue line, on a log scale. The red line is the change in the annual growth rate of TCMDO, measured from the prior post-recession peak growth rate. You will notice that every recession over the last 60 years, with the exception of 1970, coincides with a slowing of the growth rate by at least 2%-points. The red triangle depicts the 1987 crash, which followed a period of serious slowing in the rate of TCMDO growth.

Up until 2009, total credit market debt outstanding has never declined. The ratio of TCMDO to GDP continued higher and higher, at accelerating speed:

Has debt-to-GDP, or the debt-bearing capability of the US economy, hit a ceiling?

Look at how little additional GDP (blue area, below) we obtained in comparison to ever increasing amounts of additional debt (red area):

The dotted black line is the marginal utility of debt (right-hand scale). Think of it like this: how much additional GDP do you get out of one dollar of additional debt (in %). In 1992, for example, you get $0.30 in additional GDP for every additional dollar of debt.

Problem: this marginal utility of debt has trended lower and lower over the years, and actually reached zero in 2009.

Meaning: you can add as much debt as you want, and it still won’t give you any additional GDP.

To repeat: no amount of additional debt seems to be able to get economic growth going again.

That is a dramatic revelation. We might have reached the maximum debt-bearing capability of the economy. If true, no growth is possible unless debt-to-GDP levels fell back to sustainable levels (in order to restart the debt cycle). This could take years.

At this point, the only way to reset the debt cycle is to get rid of debt.

Ray Dalio correctly describes the three options available:

1. Austerity: this would be painful and take quite some time (the Europeans are going down this path)

2. Restructuring: requires write-downs and losses for bond investors (which are not being allowed to happen for fear of systemic risk)

3. Printing money: Inflation. Better yet: hyper-inflation. You have to destroy the value of debt fast enough before debt service costs, due to rising interest rates, drive the government into insolvency.

In the US, (1) and (2) are not happening. That leaves (3).

As shown above, the amounts needed for the Fed to be able to create inflation are much, much higher than what we have seen so far. And it is not guaranteed to work. Destroying the trust in the value of a fiat currency is a dangerous experiment with mostly adverse consequences.

 

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Sat, 09/08/2012 - 11:57 | 2774615 Papasmurf
Papasmurf's picture

Glass-Steagle should have been reinstated as the first step.

Sat, 09/08/2012 - 12:16 | 2774655 Precious
Precious's picture

They need more financial engineers to oil all the presses.

Sat, 09/08/2012 - 12:37 | 2774712 flacon
flacon's picture

PeeH Dee, baby! From an acredited university of course. 

Sat, 09/08/2012 - 13:08 | 2774777 Pinto Currency
Pinto Currency's picture

 

The only workable solution is a debt write-down to get debt from 400% of GDP down to 200% and return to sound money (gold).

This would wipe out the banks and those that now control the system so it's not going to happen.

So we get chaos.

 

Sat, 09/08/2012 - 13:23 | 2774808 EnglishMajor
EnglishMajor's picture

Silver, bitchez!

Sat, 09/08/2012 - 19:50 | 2775334 economics9698
economics9698's picture

The traditional GDP/debt ration on gold was about 150%.  Now we are at 350%.  The reason you do not see a corresponding increase in GDP with moiré debt is because of malinvestment.  Governments, housing booms/bust, NASDAQ boom, S&L boom and bust all siphon off resources from productive uses to unproductive uses that must be liquidated for the economy to reallocate those resources and continue on a path of real growth.

In other words there needs to be less credit for more productive economic growth.  A fixed credit supply, gold, would allocate money and time effectively, higher interest rates during the booms, and lower during the bust. 

When capital is allocated efficiently productive projects get build and unprofitable ones do not.

I hope this helps.  Ludwig von Mises explains it a lot better than I do.

Sat, 09/08/2012 - 14:26 | 2774911 boogerbently
boogerbently's picture

"

"When the Fed buys bonds, it does so from “Primary Dealers” (21 global financial institutions). They hand over the bonds and get a corresponding credit on their account with the Fed. The Primary Dealers might then purchase some other securities with that money (which then gets credited to another bank’s account with the Fed)."

As soon as the "primary dealers" (GS, JPM, DB...) reinvest that $$$ into another banks acct., they are no longer LEGALLY liable to repay it. Neither is the "other" bank, even if they KNOW that money was stolen, and who it was stolen from.....see Sentinel court decision.

 

Sat, 09/08/2012 - 15:17 | 2774980 fourchan
fourchan's picture

Number 3 or any inflation for that matter is off the table also because the fed only considers wage inflation in its decisions, and we have shipped all our wage earner's pricing power over seas to the slave nations of the world. The fed preys for inflation that will never come and does policy based on flawed philosophy.

But what I see as flawed is their perfect program of capturing assets and means of production through boom and bust cycles it creates and enslaving the population to debt through mortgages, credit card loans, student loans, and car loans.

I wonder what the fed will do for its centennial celebration? kill off its slaves?

 

Sat, 09/08/2012 - 17:40 | 2775173 CompassionateFascist
CompassionateFascist's picture

T'sall nonsense. Debt is our most important product. More debt, more product.

Sat, 09/08/2012 - 18:58 | 2775266 Muppet of the U...
Muppet of the Universe's picture

Just to clarify for the muppetry and noobs:  this crisis is by design.  Pure and simple.

 

So how to get out of shitfest?  too bad, it's too late, by like 30-40 years.

mathematical: collapse is a cerntainty.  119 trillion in us liabilities?  LOL yea that's not getting paid w/o epic printing.

 

So question is, how to proceed after the collapse?

 

Solution?  Kill all muppets.  No system of governance can work with people who are not even smart enough to elect people who won't sell them down the river.

Establish a weak system of military defense, and general law with use of arbitration for disputes.

Weak law will prevent robber barrons and leeching.  Strong law will become abused by corruption.

 

Secondary solution? 

Well, step one, fuck B.M. Keynes.  Fucking retard, or good conman of muppets.

Step two, return to retarded system of resources = infinite.  (don't like it?  Should have gone with solution 1)

Step three, system will collapse when raw materials are all used up.  Until then use PURE capitalism with minor controls on environmental safety.

No regulating body can stop the sale of anything harmful to humans, unless it is harmful to the environment.

Use independent ratings agencies to establish product credibility.  capitalism will flourish...

then resources run out, lol then game over forever.

Should have gone with step 1.  Lose the dead weight.

Sun, 09/09/2012 - 06:31 | 2775842 Element
Element's picture

Don't want to be a wet-blanket but I'm pretty sure hyperinflation will create far more problems than it solves, some of them potentially extinction-related.

Mon, 09/10/2012 - 10:02 | 2778149 WhiteNight123129
WhiteNight123129's picture

THe Author is off big big time on his analysis.

~In the US, literally nobody purchases a car with money form a savings account. The ability to purchase a car depends on the availability of credit. No credit, no car.~

That is where the author is off. The anomaly is the following: "In the US literally nobody purchases a car with money from a savings account".

This is anomaly is in hte process of being rectified. I think both Bernanke and the author confuses circulation and capital. The circulation is impacted by wages, only a rise in wages will promote a general rise in prices (as opposed to bifurcated prices). The reason soft commodities rise in price is that there is competition from emerging markets being industrialized, along with irredeemable currency working its way slowy down those. So out of hte printing of BErnanke a tiny portion goes into wages and a lot into capital, where there is too much of it. The capital uses credit instrument and capital transaction in B to B, and hte consumption is using circuation. There is a skinny labor and a fat capital. The labor is skinny because there was repression of wages both in the US and in China, theer was a forced consumption through fiat, all of that makes the capital gain in the short term, but  as Adam Smith and Tooke point out, there can never be more dealers transaction that what they ultimately serve which is the consumer. So now the consumers can not sustain artificially consumption that the Capital tried to goose up. So there will be massive capital destruction one way of the other, either through total deflation or through wages inflation and stagflation where the capital is forced to raise wages and real profit (not nominal) actually go down. That would either bring a Gold/Dow ratio in favor of Gold.

Only a rise in wages can promote inflation, Bernanke is increasing capital not circulation, and the capital is sitting idly or going into mergers (which do not produce anything, similar to what happened before Weimar hyperinflation and in the conglomerate boom of 60s, 70s).That being said irredeemable currency always always produce but it needs to be spent to permeate the economy (war, or large keynsian expenditures).

I suggest that the author revists Thomas Tooke and the anti-bullionist/ currency school. The banking school of Tooke and Fullarton are teh real deal. THey advocate large bullion reserves and let the market decide when alternate bullion commodities are in demand for money and avoid Bank of England meddling. Keynes is not off, he is just a devilish man who understood how to please governments and crony capitalism which leaves no capacity to the people to decide if they wnat to save or spend without being forced to it by irredeemable money.

 

Fiat is like Gold (no redeemable in anything else), with the difference that someone controls the quantity produced ad libidum which hurts a lot of people and favor those who anticipate. The banking school is the real deal, they advocate keeping a large quantity of Gold and Silver and let the necessity of hte economy dictate the increase of decrease in circulation, and they are actually against manipulation by the Bank of England. According to the Banking school (anti buillionists anti currency school,) the paper currency which is as good as gold is the Bill of Exchange, or the receivable for actual work in the economy which is endorsed from supplier to another supplier for 90 days until Gold at the end of the 90 days extinguishes the chain of receivables. It is the multiplier in the economy, the paper money without any leveraged bank counterparty and a mutual funding of the Grain dealer to the farmer to teh Grocer to teh baker in chain of mutual funding without charging any interest!!!!  There is no spread charged, the actors of the economy fund each other at no cost. This a mutual, lever free, peer to peer lending system THat is the non banked ultimate safe paper currency because tehre is no leveraged counterparty and there is a multiple guarantee of as many people who have endorsed the bill of exchange.So obviously the banking system does not like this system, it is an enormous competition to its system.

If in a banked system (preferably without central bank), the paper circulation should always be redeemable so that the economy decides teh want of circulation and noone can stuff the economy with unwanted circulation medium.

 

 

 

 

Sat, 09/08/2012 - 12:51 | 2774744 Muppet of the U...
Muppet of the Universe's picture

wow. Where past attempts to control the muppetry throughout a collapse have failed:

Science comes to the rescue in the form of "socially acceptable" austerity measures...

Mmmm, GMoooo

(edit:  I'd follow this guy's lead, cus the muppets are way too stupid to figure out this gmo nightmare is really austerity)

(disclosure: long 3d printing tech companies since 2011.  It's the future, pure and simple.)

Sat, 09/08/2012 - 13:45 | 2774839 savagegoose
savagegoose's picture

yeah but to print steak, you need to fill ink   cartrige with 1/10th juiced cow.

Sat, 09/08/2012 - 13:43 | 2774837 qqqqtrader
qqqqtrader's picture

Actually we do need more jobs, just about the biggest problem this country faces...

Population and Employment Level

Sat, 09/08/2012 - 12:21 | 2774663 Muppet of the U...
Muppet of the Universe's picture

woa woa woa.  You are mistaking the purpose of the Fed because this author is really stupid...  Glass steagal would NEVER be repealed.  That would fix things.  See this moronic author has you misinterpreting the goals of the Fed: fixing things is not the goal.  To the moronic author:  No fucking DUH!  You think this fact hasn't crossed the Fed's mind?  QE is about keeping banks stable through their ongoing insolvency!  Seriously, how the fuck did buying the stock market outright help the economy?  You're just figuring this out now?  Stock market does not equal economy.  It is a money extration tool for the wealthy and intelligent to "get theirs" before the SHFT and hunger games becomes a reality.  You know what would help the stupid fucking economy?  Not printing any more money!  You stupid fucker.  wage stagflation + monetary supply inflation = reduced real incomes = reduced economic flow.  Butt Fucking moron!

Sat, 09/08/2012 - 12:26 | 2774683 Stackers
Stackers's picture

Hello $1,000,000,000/oz SILVER !!!

Sat, 09/08/2012 - 12:36 | 2774709 THX 1178
THX 1178's picture

Hello $400,000,000 gallon of gas.

Sat, 09/08/2012 - 12:42 | 2774726 Stackers
Stackers's picture

Thats 25 gallons per oz. Much better than the 7.5 gallons per oz of today. Sounds good to me.

Sat, 09/08/2012 - 16:13 | 2775073 donsluck
donsluck's picture

+1 god I love math!

Sat, 09/08/2012 - 17:34 | 2775131 kaiserhoff
kaiserhoff's picture

Uh, Dudes, hyper-inflation wipes out debt.  It does not change relative values among durable goods, and/or commodities.

There are plenty of good minds here, but work with first principles.  These experiments have been run. 

 

And that's 2.5 gallons/ounce...  OUCH!  As my friend, Dr D used to say, "smart kids should get computers.  Dumb kids should get pencils and a piece of paper."

Sat, 09/08/2012 - 17:45 | 2775179 CompassionateFascist
CompassionateFascist's picture

That's not all it's going to wipe out. The new currency will be bullets<-------->lives.

Sat, 09/08/2012 - 18:11 | 2775207 ultraticum
ultraticum's picture

"hyper-inflation wipes out debt."

TRUE

Money = debt

TRUE

.'.   Hyperinflation wipes out Money (FRNs)

But there are also wealth cycles that come into play between commodities, which will be exacerbated during hyper-inflation.  Example:  as soon as the former day-trader former real estate flipper muppet next door realizes it's party time for hyperinflation, a pre 1965 half dollar will fill up your bug out vehicle's tank.  Reason:  A parabolic price move will be in the commodities that are rare, durable, divisible, uniform (fungible), and portable.  Gold, Silver, Platinum.  So all other factors being equal, the massive unleashed demand for a commodity that is also MONEY will do relatively better and buy MORE of the other commodities.  The Chinese understand this well.

 

Sat, 09/08/2012 - 18:49 | 2775240 kaiserhoff
kaiserhoff's picture

Yes and No.  Money does NOT equal debt.  Real money is useful for current exchange.  Debt is/will be ancient history.

I agree that those who see this coming will have interesting arbitrage possibilities, but that's not forever.  While I like PMs as a universal, durable, portable medium of exchange they have no permanent advantage over guns, farm land, tractors, or cattle.  In fact, quite the opposite is true. 

There are many scenarios, and endless possible end games, but for PMs to have lasting, real value implies a relatively stable community, well defended, and with rule of law well established.  But it's all better than Benny-Bucks, so happy trading.

... and the Chinee kleptocrat understands portable.  Enough said.

Sat, 09/08/2012 - 20:42 | 2775383 Vendetta
Vendetta's picture

world oil production: ~27 billion bbl/yr

world gold production: 2500 tons or 80 million oz/yr
world silver production: 700 million oz from mining, approx. 200 million oz from recycling = ~900 million oz/yr

normalizing gold oz to silver oz at a 40:1 (extremely conservative): 80 million oz x 40= 320 mil/oz

silver + normalized gold oz = 900 + 320 million oz = 1,220 million oz annual production rate or 1.22 billion oz/yr

world oil production / normalized world precious metals production = 27 billion/1.22 billion = 22 bbl oil per oz of precious metal

so try barrels per oz (22 playing with numbers), not gallons per oz.

Sat, 09/08/2012 - 23:21 | 2775569 YuShun
YuShun's picture

or maybe 2.5 gallons per ounce.

Sat, 09/08/2012 - 12:34 | 2774702 centerline
centerline's picture

+1 from me.

Sat, 09/08/2012 - 13:04 | 2774757 Caviar Emptor
Caviar Emptor's picture

@Muppet: You win today's distinguished award from Biflation Nation. 

Fed never expected it but they have reached an endpoint where monetary expansion no longer creates just inflation. It creates inflation AND deflation at the same time.

 

We all know what inflates: everything you need (cost of living and doing business)

We all know what deflates: real median income, net worth and business margins. 

 

When the cost of working and of doing business rises but the ability to pass on costs is no longer operational then you get biflation. It accelerates when both workers and businesses are locked into yesterday's cost structure (and debt) in today's environment

Workers have to pay more just to get to work (transport, tolls, auto expenses), stay at work (food, clothing, fees and licensing, credentialing costs, cost of staying healthy, child care) and make work pay (zero interest on savings, rising taxes). 

Businesses contend with rising costs from overhead, raw materials and inputs, operating expenses, but can't pass on the extra cost to squeezed consumers, which compresses margins. 

Wash rinse repeat and voila, a biflationary spiral. The numbers will gravitate toward zero: CPI, PPI, average hourly earnings. But "productivity" will sky (because people are working more for less) and prices paid/received will compress. 

Sat, 09/08/2012 - 13:16 | 2774786 centerline
centerline's picture

In hypertiger terms, economic cannabalism of the underclasses to support diminishing yield.  Scary how much of his ramblings look true.

Sat, 09/08/2012 - 15:08 | 2774973 Muppet of the U...
Muppet of the Universe's picture

I think what everything he just said equates to is a mantra repeated by Taleb and Zerohedge endlessly:

On a long enough timeline, everything returns to 1:1.

Sat, 09/08/2012 - 17:14 | 2775140 Dr. Sandi
Dr. Sandi's picture

An even bigger problem is that many of those hard-pressed workers will no longer have jobs under a hyperinflation scenario as most businesses will be hard pressed to keep up with the cost of doing business vs. the cost of being paid for their product.

Margins can't really be compressed past zero for very long or the business becomes a hobby.

Sat, 09/08/2012 - 16:01 | 2775059 KickIce
KickIce's picture

+1

Which brings us to option 4, hang the SOBs.

Sat, 09/08/2012 - 11:57 | 2774617 akak
akak's picture

Yes, the Fed is not printing enough money ....

 

 

April Fool's!

Sat, 09/08/2012 - 13:10 | 2774625 vast-dom
vast-dom's picture

fantastic post! thank you.

 

the sane thing would be to use a combination of the 3 points and not think in either/or terms, with point 3 being the one to avoid at all costs since velocity of M2 is dead anyhow...if we were to project total debt to gdp in the above chart we could have some seriously grave plunging -- this is what happens when "unconventional" central planning measures become conventional yet with no comprehension of possible repercussions. and i believe the start (yellow dot) and end (green dot) of 2008 recession is inaccurate esp if you factor in said projection...

And maybe Okun's Law isn't the most accurate measure, but when you factor in true unemployment at well over 15%, declining wages and NIRP you also need to take into account that consumer debt becomes essentially impossible to generate, which further compounds the GDP decline in "real" terms, whatever that is today...and your above red total debt line plunges over time post 2012...

maybe some here would make an arguement that people on food stamps could buy a car from savings since they don't spend on food. what idiocy today up here in da ZH. GOLD STARS to all that bought their cars from personal savings! Congrats you are the minority that wouldn't impact the above charts in any measurable way!!! Brafuckingvo for being right!

Sat, 09/08/2012 - 14:15 | 2774888 SafelyGraze
SafelyGraze's picture

".. the start (yellow dot) and end (green dot) of 2008 .."

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

1790-1834 : 44 yr, of which 33% in recession 
1843-1927 : 84 yr, of which 45% in recession 
1928-2009 : 81 yr, of which 20% in recession

if post-federal-reserve banking practices artificially lowered the recessionary periods from 40% to 20% (on average), then that leaves an unrealized 20% over the last 81 years still in the pipeline waiting for recessionary clearing.

16 years of recession overhang

Sat, 09/08/2012 - 15:23 | 2774999 fourchan
fourchan's picture

now we know what the "system" part of their name means. seems to be working perfectly.

Sat, 09/08/2012 - 17:30 | 2775165 vast-dom
vast-dom's picture

generating new consumer debt is going to be nearly impossible over time. the graph for non-payment of credit cards will shoot up or we will have a housing-like stall of banks going after delinquent accounts a la shadow bankruptcy stock in limbo. interesting times for sure.

Mon, 09/10/2012 - 10:18 | 2778233 WhiteNight123129
WhiteNight123129's picture

It is a shitty post, the author confuses circulation and capital and lump that together as "money".There is littel increase in wages (the circulation) and hte increase in capital is sitting idle and not converted in wages. Eventually when the infrastructure gets really poor, corporation will be forced to spend the capital and convert that into wages, and then inflation will go somewhat biserk.

Though some his arguments are correct. The Fed believes it is stimulating the circulation, while in fact it is increase the quantity of capital (while we are capital fat and wages skinny). The Fed believes it is creating inflation by lowering rates which it creates a dangerous deflation and resulting hyperinflation. The Fed does not know how it could stimulate wages without putting more debt on the consumers (which it tried before and that was a disaster).

 

Sat, 09/08/2012 - 12:06 | 2774629 Hannibal
Hannibal's picture

When the "solution" becomes (is) the problem its down the rabbit hole fast.  This imaginary "debt" never existed in the first place but fabricated with a magic wand out of thin air and then "monitized" by your labor (the bankers dirty little secret).\

Complete debt forgiveness/writeoffs is the only way.

Sat, 09/08/2012 - 12:13 | 2774630 akak
akak's picture

 

"In the US, literally nobody purchases a car with money form a savings account."

Really?  LITERALLY "nobody"?
Not ONE single person buys a car with their OWN saved money in the USA?

I guess that the purchase of my current vehicle, made entirely with my own SAVED money, never really happened, because some crank named Alexander Gloy says so.

Oh, and then there was this gem of idiocy:

Debt is money.

No, you fool, all debt is NOT money, merely because our 'money' (Federal Reserve Notes) happens to be issued as debt.  This is the same egregiously simplistic, and erroneous, assertion made by every other deflationary flat-earther, but it is still wrong.

Stick a fork in this idiot's credibility; I have already read enough to dismiss this fool.

Sat, 09/08/2012 - 12:29 | 2774654 vast-dom
vast-dom's picture

debt was once upon a time money, when there was something (of measurable value) backing both the debt and the money. that is in some way the point of these charts.

Sat, 09/08/2012 - 12:15 | 2774656 brutus keynesius
brutus keynesius's picture

Nobody with any sense would purchase w/savings.

Sat, 09/08/2012 - 12:22 | 2774675 akak
akak's picture

Before I rescind your red arrow, care to explain why NOT going into debt is without sense?

Sat, 09/08/2012 - 12:39 | 2774718 centerline
centerline's picture

Is all a gamble I think.  Debt - no debt.  Clean title.  I had to replace a car recently and decided to take the 0% for 4 year deal - but have the cash in savings to throw at it in an instant.  Or, if things go the other way, run out and deploy it before it is worthless (hoping ZH gives me a 24-hour advantage).  Or live off of for awhile longer if we wind up in some other wierd place... and say "fuck it" come get my car if you want.  Note though that I DID pay for my wife's car in cash because I wan't to have at least one that is MINE.  Her car is the one that is bigger, more powerful, etc. in the case I need to leave in a hurry.  Or wind up living in it (lol).

Sat, 09/08/2012 - 13:35 | 2774824 Seasmoke
Seasmoke's picture

thats called an auto hedge

Sat, 09/08/2012 - 17:25 | 2775156 smiler03
smiler03's picture

 "I had to replace a car recently and decided to take the 0% for 4 year deal"

 

Here in the UK you would get a discount on the new car for paying cash. Thereby making your 0% discount look expensive. Surely the same applies in the US?

Sat, 09/08/2012 - 23:13 | 2775549 centerline
centerline's picture

Not when I went - but I don't aim for luxury vehicles either.  The incentive was the 0%.  Even if there was a discount, one has to weigh the risk in giving up leverage.

Sat, 09/08/2012 - 13:45 | 2774840 Kalevi
Kalevi's picture

In my case, to have cash available in case of emergency, where I live, it is a fact of life that cash is king.

But go into negative overall balance is something I will never ever do again.

Sat, 09/08/2012 - 12:46 | 2774736 Beam Me Up Scotty
Beam Me Up Scotty's picture

I beg to differ.  Instead of paying $10,000 for your car, you are paying 12 or 13,000 since you are also paying interest.  By paying it out of savings, if the interest rate you are paying on that $10k car is say 5% you are in effect saving all of that interest payment---in effect paying yourself that interest not the bank.  And the government doesn't even get to tax you on that amount that you saved.  On the other hand, if you took out a 10k loan at 5% and got .1% interest on the 10k you left in your bank account instead of paying for the car outright, you are giving that money to the bankers instead of yourself.  And to top it all off, you have to pay tax on the .1% interest that you earn.

Most people who are poor are debt slaves.  They have to take on ever higher loads of debt, which eats into their disposable incomes, which means they have to take on ever MORE debt.  And most of the debt they take on is to buy shit that doesn't last and you can't eat any of it.

Sat, 09/08/2012 - 16:27 | 2775090 donsluck
donsluck's picture

Here's the future: cash. That's it. No debt. If you buy anything except a house with debt, you have to make taxable income to pay the interest. That means not only do you pay interest, but you pay income tax on the money to pay interest.

This is why a dollar saved is at least $1.25 earned. For every dollar you don't spend, you don't pay tax. Not only that, but your commute, daycare, etc. costs of going to work are reduced. The hidden savings from not spending are significant. My rule of thumb is to figure each purchase at about 1.5 times the listed price. This puts things in perspective.

Sat, 09/08/2012 - 20:21 | 2775359 deflator
deflator's picture

 Nobody with any sense(that inflation will outpace interest payments) would purchase w/savings.

FIFY

Sat, 09/08/2012 - 12:25 | 2774681 jimmyjames
jimmyjames's picture

This is the same egregiously simplistic, and erroneous, assertion made by every other deflationary flat-earther, but it is still wrong.

Stick a fork in this idiot's credibility; I have already read enough to dismiss this fool.

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

As usual-anything that amounts to not being the sexy sounding hyper-inflation-drifts above AK's elementary level of understanding-

Sat, 09/08/2012 - 12:41 | 2774704 akak
akak's picture

And as usual for the blinkered, disingenuous and idiotic deflationary flat-earther, you continually keep throwing out the false dichotomy of "deflation or hyperinflation".  Who but YOU, and your fellow deflationary cranks such as Karl Denninger and Rick Ackerman, has stated that those are the only two possible outcomes?

If you will go back through my posts, you will find that not only do I NOT argue that hyperinflation is inevitable, I have repeatedly (even very recently here) argued that I think it is unlikely.  But for you deflationary flat-earthers, putting words in others' mouths is only part and parcel of your lunacy and dishonesty.

Oh, and by the way, if all debt = money, then the economy of the USA should have experienced massive inflation throughout the 1990s and most of the 2000s, on the order of 15X, to match the growth of total debt --- yet I fail to note any such thing ever having happened, even in stocks and real estate.

Sat, 09/08/2012 - 12:45 | 2774735 centerline
centerline's picture

Per an ealier post today, I contend that hyperinflation already happened.  But in a place we do not see... in creative financial instruments and leverage that is orders of magnitude larger than the world economy.  We just haven't felt the real effects in the same way as past hyperinflations where the "creativity" and computers did not exist... or one might say the environment was not suitable.

Uncharted waters now.  Is why the 'flation' arguments just lead to confusion.

Sat, 09/08/2012 - 12:54 | 2774752 akak
akak's picture

Interesting points, and thank you for making them.

If true, though, one must wonder just how long the hyperinflation can be contained strictly within that financial realm --- history clearly demonstrates that the expansion of the money supply, however defined, can never be indefinitely limited to just one asset, or one set of assets, but inevitably 'leaks' into the broader economy.

Sat, 09/08/2012 - 12:59 | 2774758 centerline
centerline's picture

Totally agree.  Some sort of moment of recognition.  Kind of like a flash crash, but the other way maybe.  In the earlier post I compared it Tylers Schrodlinger's cat thing.  As long as we don't observe it, it is both true and false at the same time - lol.  The instant we open the box though... wham!  Game over.  Watching for the leaks myself!  Early warning signs.

Sat, 09/08/2012 - 14:12 | 2774881 kito
kito's picture

Tyler has repeatedly demonstrated that the shadow banking deposit base is rapidly deteriorating.....so you are saying that in light of these deflationary pressures in the shadow banking sector, bens quest to save the shadow banking system through targeted printing is already leading to a loss of confidence in his weapon (the dollar) by those in the "know"...ie shadow hyperinflation? Please explain...

Sat, 09/08/2012 - 14:48 | 2774940 centerline
centerline's picture

Sort of.  Except that the necessary "money creation" to create hyperinflation already occured in a sense - just out of the ordinary channels.

The assertion is the stealth save for the shadow banking system changes money from a space that can't slam velocity to a place that actually can.  I don't see much difference here except that a trigger point might be the moment what is really hiding in the shadows gets cast into the ugly lights and the real stick save happens.

Deflation in the shadow banking sector - yes.  Why - because it already blew up.  My hypothesis is that we are just beginning to realize it.

Sat, 09/08/2012 - 15:20 | 2774992 jimmyjames
jimmyjames's picture

Yes there was hyper-inflation-of the credit money supply including shadow banking instruments and it was done without printing FRN's-

Now that the collateral that underpinned it all has collapsed-the cash supply is too small to cover it-

Contracting credit is genuine deflation-in a credit money system-

Sat, 09/08/2012 - 15:31 | 2775008 akak
akak's picture

You continue to make the ridiculous assertion that since money = debt (in our fiat-based system), then ALL debt is therefore also money.  Such wildly simplistic, and woefuly erroneous, "analysis" is to be expected from the likes of say Paul Krugman, but is laughable on the face of it.

Again, if your (historically and monetarily ignorant) thesis is correct, where was our 1500% inflation between 1990 and 2007, to match the growth of total credit in the American economy?

 

(PS: I do not expect any rational response from you to my question above, as it is obvious that you can supply none, so at best you could only flail and bluster in reply.)

Sat, 09/08/2012 - 15:43 | 2775036 jimmyjames
jimmyjames's picture

lol--you are such a dumb fuck

 

Sat, 09/08/2012 - 15:46 | 2775040 akak
akak's picture

And just as I expected ....

Sat, 09/08/2012 - 16:20 | 2775083 kito
kito's picture

assuming that the fiat currency was loaned into existence through a central bank, how can it not be deemed debt? 

Sat, 09/08/2012 - 16:35 | 2775093 donsluck
donsluck's picture

It is, until it is physically printed into bills, which in practice are not actually debt (they also decompose of their own accord). This is my position, that we are moving into a cash based economy, where computer generated "money" loses it's credibility and only physical cold hard cash is accepted. What will eventually happen is that a significant percentage of the digital money will have to be physically printed in order to bail out the rich who are sitting on huge amounts of digital "cash". This is when inflation will finally occur.

Mon, 09/10/2012 - 21:17 | 2780456 WhiteNight123129
WhiteNight123129's picture

One has to know that the circulation springs into existence from consumption, and consumption comes from wages and can not come from leverage anymore. The rich own capital, not circulation, the need of consumption of some of those capital owner will make them pull-out cash from teh ATM, to be used in the circulation, before that the capital sits idle in the bank account having no effect on inflation whatsoever. So donsluck you are correct in the greater scheme of things, but the 0 and 1 are capital. The bills are pulled-out as a result of the need of the consumption, but the need for circulation can actually be satisfied from bills of exchange, and actually credit card expenditures are also a mean of satisfying the need for circulation.

 

Sat, 09/08/2012 - 16:41 | 2775100 akak
akak's picture

Kito, I am categorically not claiming anything of the sort --- quite the contrary.  As I already stated, I agree our fiat currency IS issued as debt.

What I take issue with is the false reflexive assertion, that ALL debt is somehow money. This is so contrary to any established monetary theory, to all of monetary history, and to logic itself that I find it incredible that anyone would even make it.

Sat, 09/08/2012 - 16:47 | 2775112 kito
kito's picture

im sure you have explained yourself before, but how can you say that debt (monetary as opposed to gratitude) isnt "money"? if its listed as an asset by the lending party, what else could that "asset" be viewed as? or is it that you take issue with the debt being listed as an asset?

Sun, 09/09/2012 - 01:21 | 2775715 socalbeach
socalbeach's picture

Consider the 3 cases,

1) When the central bank creates reserves out of nothing to buy Treasuries, it retires debt, so in that case money (reserves) is not debt. Maybe one could call it anti-debt,

http://www.hussman.net/pdf/annrep12.pdf

"the central bank creates currency and bank reserves in order to purchase and effectively retire government debt."

2) When a commercial bank creates money out of reserves, it creates money and debt, so in that case they are the same,

3) If a non-bank makes a new loan then there is new debt, but no new money is created - for example, a real estate hard money loan.

So in general they're not identical.

Mon, 09/10/2012 - 21:03 | 2780410 WhiteNight123129
WhiteNight123129's picture

Dear Kito, I think Fullarton, Tooke have the clearest view between circulation (bills of exchange) and bank notes, versus money and capital. Debt is capital, and hte world is bloated with it, it does not mean that circulation (the thing that springs into existence when consumption picks) is. The anti-bullionists are the most ignored, yet smacked Ricardo in the face when predicting that the return to convertibility would make prices plunge. Everyone remembers Ricardo, yet Tooke and Fullarton were almost always right in market direction predictions....

And BTW, money springs into existence as a result of transactions (that is really clear in the bill of exchange phenomenon), not the other way around, the quantity of money is right only in the long run when capital finally gets converted into circulation AND if we are talking about compulsory non redeemable government circulation (fiat). The monetarists and the Keynesian have it backwards altogether. And BTW low interests create deflation by decreasing the cost of the marginal new entrant producer. Once the interest rates are at the minimum, the new entrant do not have an advantage anymore, the process stops, while at the same time capital slowly makes it way through the economy in the form of circulation- wages (which is impossible with redeemable money) AND the capital base age also which is forcing replacement. In redeemable money the only inflation is long term due to the quantity of bullion produced (if produced faster than economy), in the short term, bullion is becoming money only when it is in demand as anchor for circulation, otherwise it is in paintings, jewelry sitting in bullion doing nothing and you can print any amoutn of bills you want in redeemable money, those invariably come back to the bank and do not get into circulation if the public do not need them, so there was really no way to jack up prices during great depression without confiscating Gold. The fiat has only one good feature which it is very effective in creating inflation by the simple fact that once you stuff the ciruclation (not the capital base, Bernanke is inflating capital, but not circulation), it can not be moved out by sending it back to the bank to sit in bullion, so even if you do not need it, you end up using it in the end. You can redeem it in bullion in order to neutralize it.

 

 

 

 

Sat, 09/08/2012 - 17:34 | 2775158 vast-dom
vast-dom's picture

+1 a dumb fuck but hey a very special one that buys clunkers with his own cash. and considers debt does not equal money in accounting terms as per THE FUCKING CHARTS IN THE FUCKING ARTICLE HE IS MISUNDERSTANDING ABOVE. but hey my expectations are quite low....

Sat, 09/08/2012 - 23:21 | 2775572 Clashfan
Clashfan's picture

I may be confused, but hopefully someone will correct me if I am wrong. Isn't the creation of all of these complex financial instruments very similar to printing money=creating wealth from nothing? So isn't it true that it creates hyperinflation in one sense, just not in FRNs, and creates deflation in FRNs, so that we have a curious kind of biflation in which certain less essential items become cheaper, but certain necessities (gas, bread, milk) become more expensive?

If it were just the matter of selling a debt (like a mortgage) to someone else to collect, fine--but we're talking about one bad debt that was turned into many, and traded (x infin, of course).

So isn't that creation of money, in a sense--but not money that can flood back--a different kind of money that sucks FRNs OUT of the system, causing deflationary results? I've been saying that for a while, but ultimately, I'm out of my league. Jimmy's post makes sense to me, though. I'm a believer that sovereign, debt-free money would fix a lot of this, a la Bill Still.

But if they're creating all of these CDs and MBS, and many are worth much less than they were initially valued, and if they did this x several trillion worldwide, isn't the effect deflationary? So wouldn't the answer be to print more money? Of course, if the money were not debt to the FR, right?

Sun, 09/09/2012 - 09:22 | 2775962 centerline
centerline's picture

Out of my league too really.  I really try to stick what seems like the basics... standing on the shoulders of many folks around here - of course, deciding for myself what seems realistic or not.

In the absolute most simplistic terms, I view the "creative" instruments like contracts for money creation - not money creation itself.  Sort of like you and I making a bet for $1,000,000,000 (add more zero's if you like - lol) and niether of us actually has the cash (our bets are made against other bets, which are made against other bets, etc., which are made against some collateral somewhere that has been marked to fantasy and no one really even knows who owns it anymore).

As long as an event that triggers the bet does not happen, there is no effect.  Through all sort of tricks like bitlateral netting, the financial industry has managed to create a near complete, global chain of counterparty risk.  A circular firing squard.  Thus, if a triggering event occurs, and it can't be stopped, no one would be able to sort it out.  MFG is like a warm-up act.  Hence, we don't get traditional hyperinflation.  We go right to the circuit breakers being thrown.  Game over.

 

Sat, 09/08/2012 - 15:16 | 2774983 Muppet of the U...
Muppet of the Universe's picture

Very well said. In a world where 40% of wealth is in the hands of 300-400 families...  Where the M2 supply looks like a strait line upward, and the fed must walk a tightrope of easing that doesn't aggrivate the world into hyper inflationary collapse, but doesn't allow the mountain of debt to explode...  In a world where debt must be supported by leveraging bets against the wall of debt...  In  a world where a popping debt bubble can cause an explosion in the hyper leveraged bets that support the bubble itself...  You really wanna be long Gold and Silver....  Seriously.

Sat, 09/08/2012 - 17:55 | 2775191 CompassionateFascist
CompassionateFascist's picture

Hyperinflation is currently being "contained" by 11 US Carrier Battle Groups. But not for much longer. How much longer? Only Netanyahu knows.

Sat, 09/08/2012 - 12:32 | 2774701 cxl9
cxl9's picture

Not ONE single person buys a car with their OWN saved money in the USA?

This caught my attention too, since a few years ago I bought a Jeep Liberty with cash from savings. Perhaps the author meant to use the word "virtually" rather than "literally", and possibly he was referring only to new cars. But even then he is still mistaken, as another ZH article makes clear: "Today, 77% of new car purchases are financed. About half of all used vehicles involve financing." [ http://www.zerohedge.com/news/subprime-auto-nation ]. So that means 23% of new cars and half of used cars are purchased outright for cash, clearly a significant number. Much higher than I would have expected, frankly.

Sat, 09/08/2012 - 13:30 | 2774819 Seasmoke
Seasmoke's picture

nope, you forgot % of LEASING

Sat, 09/08/2012 - 15:32 | 2775013 cxl9
cxl9's picture

Swing and a miss. Did you read the article? Financed includes leased.

"Of those cars financed, 89% are through a loan vs. 11% with a lease."

 

Sat, 09/08/2012 - 13:07 | 2774774 vast-dom
vast-dom's picture

akak you purchasing with your savings is you being an exception. ergo your extrapolations are fucking erroneous! you are in the minority. you make not even a measurable impact on any of the above charts! and i'm sure your shit don't stink either. 

Sat, 09/08/2012 - 13:29 | 2774816 akak
akak's picture

Um, I suggest you read cxl9's post directly above.

Your argument, such as it is, smacks of center-thinking sheepishness.

Sat, 09/08/2012 - 13:50 | 2774848 vast-dom
vast-dom's picture

don't be a douchebag akak and read this:

http://www.zerohedge.com/news/subprime-auto-nation

 

Sat, 09/08/2012 - 15:23 | 2774986 akak
akak's picture

If there is a douchebag here, you will find him in your nearest mirror.

From cxl9's post above:

So that means 23% of new cars and half of used cars are purchased outright for cash, clearly a significant number.

Such figures are certainly far from "not even measureable".

Sat, 09/08/2012 - 17:38 | 2775171 vast-dom
vast-dom's picture

don't be a douchebag okay? see Seasmoke above: leasing accounts for probably over 20%, which is what i did for business purposes. so maybe 3% paid cash, maybe.....yes that's measurable -- guess i'm not perfect.

Sat, 09/08/2012 - 15:04 | 2774963 duo
duo's picture

I bought a used 4Runner for cash a month ago from a dealer.  They made me wait in the "financing" office for half an hour then asked me is I wanted to finance at 5%.  All I wanted to do was write a check and get out of there.

I know a lot of people that think you're a chump if you actually pay cash for things.

Sat, 09/08/2012 - 15:23 | 2774998 seek
seek's picture

I bought a new Jeep unlimited for cash in January. The hardest sell I got at the dealership was during the final paperwork for a 0% loan, and it was a hard sell, to the point I started packing up to walk out.

Apparently the dealers get a significant inventive (hundreds of $) for the loans, and I also learned you're better off in negotiations if they think you're financing (which is a 180 from how it used to be, financing used to be an invitation for them to rape you, at least where I'm from.)

We're in a strange new world, that's for sure.

Sat, 09/08/2012 - 16:39 | 2775099 donsluck
donsluck's picture

I concur. Actually, you reveal as little info as possible in negotiations, if they seem to favor a loan, talk in that direction. At the close, give them cold hard physical CASH. They will be taken aback. They may not even close the deal, saying things like "we are not a bank". I got that one from my broker when I attempted to make a cash deposit.

Sat, 09/08/2012 - 20:28 | 2775364 StychoKiller
StychoKiller's picture

That is when you should read out to them what it states on EVERY FRN:  "This note is LEGAL TENDER for all debts, public and private."  Threaten them with Police action for violating the Law.

Sat, 09/08/2012 - 15:39 | 2775027 pods
pods's picture

 

 

No, you fool, all debt is NOT money, merely because our 'money' (Federal Reserve Notes) happens to be issued as debt.  This is the same egregiously simplistic, and erroneous, assertion made by every other deflationary flat-earther, but it is still wrong.

 

I am having a hard time accepting this one.  I am glad that you put "money" in quotes when speaking of FRNs, but our credit trades on par with money, so in practice, debt is money.

About the only time I have seen that there is a divergence is when you used to see a lower price for fuel on a cash basis or when a credit card has only a certain percentage allowed to be used as a cash advance, although I think that is simply to protect the miniscule amount of cash in circulation.

Can you kindly point me to some examples where debt is not money? By debt I mean bank created credit and by money, I merely mean currency.

pods

Sat, 09/08/2012 - 20:31 | 2775369 StychoKiller
StychoKiller's picture

If you owe the bank $1000, you have a problem.  If you owe the bank $1Billion, the bank has a problem -- point being:  WHO decides what is debt and what is Money?

Sun, 09/09/2012 - 11:04 | 2776078 supermaxedout
supermaxedout's picture

Not ONE single person buys a car with their OWN saved money in the USA? I guess that the purchase of my current vehicle, made entirely with my own SAVED money, never really happened,

The trick is simple.

The cash from your savings buying the car is declared by the banks as their own capital while internally the have a credit running for your car. The bank borrows for Zero % so they would be stupid not to take your fresh free money and make a better criminal use of it.

 

Sat, 09/08/2012 - 12:07 | 2774634 Chartist
Chartist's picture

The post was very long winded so maybe I missed the point of money velocity....MV is sinking while the Fed prints....And what do you think will happen to oil and gasoline when the printing picks up in earnest....I mean, the poor and middle class are getting killed as it is.

Sat, 09/08/2012 - 12:50 | 2774747 Janice
Janice's picture

That has been one of my thoughts. When people begin to feel good about the future (animal spirits), and begin to purchase via bank loans (money velocity), then we will see hyperinflation. We have one more "good time" to go. When things are good again, like during the housing bubble, when everyone is manic, that will be the beginning of hyperinflation. Supply and demand economics meets animal spirits propelling the velocity of money creating hyperinflation. The people waiting on the collapse will be mistaken and discredited, only to have their fears realized in the end.

My thoughts.

Sat, 09/08/2012 - 14:02 | 2774862 Winston Churchill
Winston Churchill's picture

Eactly.Just as most BK's happen when the economy improves via

companies overtrading,so hyperinflation will escape from Ben's

printfest.However the UST bubble may pop first.

Damned either way by the end of 2014.

Sat, 09/08/2012 - 12:23 | 2774636 Bay of Pigs
Bay of Pigs's picture

Number 1 and especially number 2 are the answers. 3 is not a solution at all. It will make problems worse. 

Edit: actually the answer is to repeal legal tender laws and end the FED's monopoly of creating debt as money.

Yeah I  know, dream on...

Sat, 09/08/2012 - 12:10 | 2774639 oldgaranddad
oldgaranddad's picture

I have bought my last 5 cars from money that I had in my savings account. I am not rich. I make a lot less than $100K a year and yet I can do it. I agree with AKAK, the author's credibility is suspect.

Sat, 09/08/2012 - 12:19 | 2774665 vast-dom
vast-dom's picture

you are an exception. gold star for you.

Sat, 09/08/2012 - 12:20 | 2774669 brutus keynesius
brutus keynesius's picture

Have fun paying for $6/gallon gas

Sat, 09/08/2012 - 12:25 | 2774680 akak
akak's picture

Well, that was one humdinger of a non sequitur.

Sat, 09/08/2012 - 15:37 | 2775024 akak
akak's picture

I guess I got (at least) three down votes from troglodytes who thought that "non sequitur" was some kind of insult.

Sat, 09/08/2012 - 17:34 | 2775170 Uncle Remus
Uncle Remus's picture

Isn't that French for "no sequins"?

Sun, 09/09/2012 - 00:12 | 2775649 luna_man
luna_man's picture

 

 

Good debate fella's...Just another good thing MY MAIN MAN, brings to the table.

 

Yeah

Sat, 09/08/2012 - 12:13 | 2774651 Tursas
Tursas's picture

If FED and Treasury were serious in 2008 they should have set set fixed 2% interest ceiling to every existing loan/credit balance outstanding in the country! Crisis solved instantly and as a bonus the worst among the "too big to fail" banks would have been put 6 feet under!

Sat, 09/08/2012 - 16:42 | 2775105 donsluck
donsluck's picture

With the tiny problem of voiding MILLIONS of Contracts. But who really cares about Contracts anyways?

Sat, 09/08/2012 - 20:33 | 2775373 StychoKiller
StychoKiller's picture

"The Fed answers to no one, not even the Whitehouse." -- Alan Greenspan

Sat, 09/08/2012 - 12:23 | 2774677 Heroic Couplet
Heroic Couplet's picture

With QE, four hedge funds blew up in 2012. That's wonderful. Let the hedge funds or what's left of them sue Ben Bernanke.

Sat, 09/08/2012 - 12:25 | 2774682 DeFeralCat
DeFeralCat's picture

I  thought it was a well-stated piece. There is no amount of money that the Fed can print to trigger true inflation. Via perception and speculation, there will be pockets of inflation but these will be temporary to the long-term. We are in a deep deflationary spiral. However, now we have spent trillions of dollars which becomes further debt with the only result being that we are not eating cat food, yet.

Sat, 09/08/2012 - 12:38 | 2774708 Bobbyrib
Bobbyrib's picture

I must have skipped the part where he said we will only experience temporary inflation. I think he means at the current point in time, they can't stop deflation [*added: in certain parts of the economy like housing and consumer discretionary*]. The future as we all know will be a different story.

Sat, 09/08/2012 - 13:06 | 2774773 DeFeralCat
DeFeralCat's picture

It is called inference. If the argument is about deflation then believing in inflation would be contradictory. Right now is a great example: The Fed and the ECB have only spoken words; they have actually not performed any action since early August. Gold, Silver, Oil and food prices all rise. They did not rise because of the action; they rose because of the speculation of the action. I am sorry folks but that is not an argument for inflation. I still have my dollar pizza, my one dollar value meal, the Dollar store and t-shirts from target for 10 dollars. The point being is that they are trying to create some inflation in a deflationary spiral. It is like trying to hold on to a cardboard house in a tornado. For inflation one needs money velocity and it is dead. Done. Down for the count. Call me when we put a unicorn on every doorstep.

Sat, 09/08/2012 - 13:17 | 2774789 Bobbyrib
Bobbyrib's picture

Unofrtunately the people who run our economy right now (Wall St.) believe in buying on the rumor and selling on the news. Also if the ECB and Fed print who wouldn't want to have the best inflation hedges? Will it happen? Only the idiots running the economy know.

That's why I added in certain sections of the economy deflation occurs. You can still get your dollar pizza, because the price of the cost to make one slice is well below $1. You can still get a hamburger for $1, because there is not enough demand for these crappy burgers to allow them to raise the price. The crap from the dollar store and t-shits from Target are consumer discretionary items.  Let's look at other parts of our economy. How about rent? Is that in a deflationary spiral? What about food with an ounce of nutrition, is that in a deflationary spiral?

See the posts on biflation.

Sat, 09/08/2012 - 15:39 | 2775000 Muppet of the U...
Muppet of the Universe's picture

HOW THE FUCK IS THE FED GONNA STOP DEFLATION WITH INFLATION WHEN INFLATION CAUSES A DROP IN CONSUMER SPENDING WHICH CAUSES DEFLATION IN ASSET PRICES? Are you really that fucking stupid or are you just trying to look dumb?  This is about creating a 1 world currency.  fucking muppets.

Sat, 09/08/2012 - 18:44 | 2775247 sessinpo
sessinpo's picture

So let's use a little logic here.

Let's say you have $2000 dollars and you want to buy gold or something else like a rifle. Let's say gold or that gun is worth $1500. You see inflation coming and you figure that the price of gold or that gun may jump to $2000 dollars. Are you going to wait to buy that product or buy it now while it is still $1500. I ask you because you said "WHEN INFLATION CAUSES A DROP IN CONSUMER SPENDING".

Inflation doesn't stop spending. It just makes your dollar buy less, not go as far.

 

On the other hand, let's say you see deflation coming. The price of whatever you want to buy is currently $1500 but because of inflation, you see that the price may DROP to $1000.

Are you going to buy now at $1500 or wait till the price drops to $1000?

And when it drops to $1000, might you then think it is possible the price may drop further and thus wait some more?

Sat, 09/08/2012 - 19:13 | 2775287 Muppet of the U...
Muppet of the Universe's picture

No fucking duh I would wait.  Because clearly, demand is being outpaced by supply... 

 

So in other words what you are saying is:  lets erode the entire system's backbone- the singular currency we are all forced to price everything in...  IN ORDER TO CREATE A BUBBLE IN A COMMODITY NO ONE FUCKING WANTS AND NO ONE IS WILLING TO PAY FOR CONSIDERING IS HIGH SUPPLY. 

ESSENTIALLY YOUR RETARDED ASS IS SAYING, LETS IGNORE SUPPLY AND DEMAND IN AN ECONOMY BASED ON SUPPLY AND DEMAND, SO WE CAN MAKE A STUPID FUCKING BUBBLE, SO A BUNCH OF RICH ASSHOLES CAN MAKE A FUCKLOAD OF MONEY...  YEA GO FUCK YOURSELF DIPSHIT.

 

But yea no we should definitely keep printing to make artificial bubbles because its not like the muppets consumption of raw materials in the form of beany babies and other worthless shit would ever be impacted by printing money.  fucking muppets everywhere I look, even on ZH.

Sat, 09/08/2012 - 20:11 | 2775348 sessinpo
sessinpo's picture

Actually I ddn't say anything for or against your point. I simply pointed out an example using your logic from YOUR statement and you replied: Duh I would wait, which contradicts your first post.

 

I said nothing regarding eroding anything, for or against any policy or action. So what is up your butt that you are making untrue statements about my post. Why are you so defensive? And why are you calling names and being disrespectful when no one has disrespected you. Are you looking in the mirror when your  call other people a retarded ass?

Oh wait, I apologize to you and to others. You are a muppet. Imagine that! A muppet calling other people a retarded ass. Is the kettle black? You liberals are so easily to spot and tear apart. Out of all the threads and posts, I picked yours on purpose and it paid off.

Sat, 09/08/2012 - 20:34 | 2775377 Muppet of the U...
Muppet of the Universe's picture

cus you are a fucking moron.  reread what i wrote u are not worht time

Sun, 09/09/2012 - 05:12 | 2775810 sessinpo
sessinpo's picture

And from the overwhelming down arrows on your posts, it would seem you are in the minority and the majority of people that voted think you are the moron. Have a nice day. Hope you ass isn't to sore from the spanking you received. LOL

 

And thanks again for adding nothing of substance and value but to resort to personal attacks. The best part is that I'm not for Romney/Ryan but when I run into a person like you, it definitely puts me against any liberal ideology which you display with your jealousy and illogical thoughts. Anyway, this will be my last response on this thread as you certainly have no clue and probably will never. But it was certainly amusing exposing you. You truly are your handle, Muppet of the Universe. I'm sure you are proud of that. LOL

Sat, 09/08/2012 - 12:28 | 2774691 q99x2
q99x2's picture

Give me money or give me death.

Sat, 09/08/2012 - 12:30 | 2774695 indio007
indio007's picture

An asset in the Federal Reserve system does NOT automagically become the right to print a Federal Reserve Note. Only certain assets are eligible to be used as collateral for a new note issuance. Yes T-Bonds are one of them but electronic credits are not. 

And another thing....

Does a $ of electronic credit equal a note legally speaking?

I don't think so.

Sat, 09/08/2012 - 12:31 | 2774698 BaggerDon
BaggerDon's picture

There is just one problem with all this ---- CONFIDENCE, or in todays instance, a LACK OF CONFIDENCE.  CREDIT, regardless of where it orginates, will only expand the economy if the buyer and seller have CONFIDENCE, that there will be a consequence should the contract be broken.  Once either party recognizes, that there are no consequences for either issuing too much credit, or not paying off the credits, the CONFIDENCE game is over.  No amount of more credit, will restore CONFIDENCE.  In fact, the more credit that is issued, whether it comes from Fannie or Freddie, GE, GMAC, JPMORGAN, DRAGHI, CHINA, or the FEDERAL RESERVE without consequences for those who default, the precipace only gets higher and higher, and more fragile.  As my Dad use to say, it is not the height of the fall that will kill you, IT IS THE SUDDEN STOP.  By the way, my dad was blessed with common sense, and did not have a PRINCETON DEGREE - thank god!

BaggerDon


Sat, 09/08/2012 - 12:32 | 2774700 Bobbyrib
Bobbyrib's picture

Did you guys read the last paragraph? He basically says that no amount of money printed can affect GDP. I don't think he is actually for money printing and stimulus. He is saying that the US refuses the first two options and now only the third option is left. The title and the first part of the article may be sarcastic, because the last paragraph really doesn't match the first few.

Sat, 09/08/2012 - 12:40 | 2774719 andyupnorth
andyupnorth's picture

If no amount of debt can affect GDP (for a country), does this also apply to companies and individuals?  So there's no point in me going into debt up to my eyeballs (and leveraging myself like no tomorrow) will not get me any richer in the long run?  CRAP!

Sat, 09/08/2012 - 12:44 | 2774731 Bobbyrib
Bobbyrib's picture

Unless you were going to buy PMs then declare bankruptcy, no.

I should have said affect GDP positively. In the future GDP (if it is still calculated) is fucked.

Sat, 09/08/2012 - 16:46 | 2775110 donsluck
donsluck's picture

Hey, that's an idea!

Sat, 09/08/2012 - 15:43 | 2775034 docj
docj's picture

Well, glad to see I'm no the only person who read through to the end before starting to fire-off comments! (tempted though I was to start flailing away about half-way through)

Sat, 09/08/2012 - 12:38 | 2774711 walcott
walcott's picture

7 trillion people on the earth. 1 trillion dollars equals 30 cents per person.

7 trillion printed so far equals $1 per person.

Should print about 700 trillion at least. More like 7 quintillion.

Does it really matter at this point? Look at all the money dumped into the middle east.

Did it help? Have the indoor ski slopes changed minds? Has it created "Forward" sarc.

thinking? No way. They can't wait to cut some innocent persons head off. 

Slaughterhouse mentality of the psycho religious brainwashed statist retards rules 

the day. Inquisition coming soon to a neighborhood near you. YOURS THAT IS!

Sat, 09/08/2012 - 12:40 | 2774720 Bobbyrib
Bobbyrib's picture

Forward...lol. What desperate political slogan!

Sat, 09/08/2012 - 13:07 | 2774775 falak pema
falak pema's picture

the good thing about all this funny money  printing is that it could all disappear with the click of a mad runaway algo.

Lets hope the war of the algos arrives soon to our local theaters! 

 

Sat, 09/08/2012 - 13:18 | 2774790 centerline
centerline's picture

Skynet's first move - lol.

Sat, 09/08/2012 - 14:46 | 2774942 delacroix
delacroix's picture

7 billion people

Sun, 09/09/2012 - 00:43 | 2775680 Errol
Errol's picture

walcott, are you writing from a prison library in Alabama?:

"7 trillion people on the earth. 1 trillion dollars equals 30 cents per person.

7 trillion printed so far equals $1 per person."

FYI, there are about 7 Billion people on earth.  That means 1 trillion is about $140 per person.  $7 trillion comes to $1000 per person; to most folks in Asia, Africa, and South America that would be a lot of money.

"They can't wait to cut some innocent persons head off. 

Slaughterhouse mentality of the psycho religious brainwashed statist retards rules "

As opposed to brainwashed statists who sit in an air-conditioned trailer in Arizona and kill Afgan wedding guests with missle-firing drones?

You're an embarrasment to Americans : (

 

 

Sun, 09/09/2012 - 01:34 | 2775727 walcott
walcott's picture

stand corrected on 7 billion. Never once did I imply defense of any of these wars.

The same people droning weddings, finance and propagandize the slaughterhouse psycho religious brainwashed statist faketriot nazi retards like yourself. 

Sat, 09/08/2012 - 12:39 | 2774715 sandhillexit
sandhillexit's picture

When my dad bought sliver at $15 his broker had the boss call to warn him about risky transactions.  he's old, after all.  I asked him why he bought silver and he said that when things got tough enough they would confiscate gold.  

 

Sat, 09/08/2012 - 12:47 | 2774739 Bobbyrib
Bobbyrib's picture

The people in our government are total and complete kleptocrats. What makes him think silver would be safe too? Just buy with cash and don't tell anyone. Was there a time in our nation's history where our government was this corrupt?

Sat, 09/08/2012 - 13:03 | 2774769 j8h9
j8h9's picture

Yes, during the Bush-Cheney years. Oh and that master criminal Nixon's administration. 

Sat, 09/08/2012 - 13:19 | 2774793 Bobbyrib
Bobbyrib's picture

Nixon doesn't have anything on Bush/Cheney or Obama/Chicago.

Sat, 09/08/2012 - 13:42 | 2774836 Urban Roman
Urban Roman's picture

Who would have thought, back in the '70s, that we would be admiring Nixon for his honesty and integrity?

Sat, 09/08/2012 - 14:34 | 2774925 Bobbyrib
Bobbyrib's picture

Funny, isn't it? How depressing..

Sat, 09/08/2012 - 12:42 | 2774727 DUNTHAT
DUNTHAT's picture

This guy is seriously deranged.

The reason the reserve balance is so high is that the demand for loans is nil.

The reason the demand is nil is because the sheeple are maxed to their limit in which to service their existing debt.

To print money and create hyper-inflation to "solve" a debt problem is to destroy the capital stock of the country, destroy the dollar, and render the U.S. a financial third world nation.

Want to do something crazy? declare a debt Jubilee. Screw the Bank owners and debt holders.

Sat, 09/08/2012 - 12:56 | 2774750 FleaMarketPete
FleaMarketPete's picture

my thoughts exactly.  "Lets just burn the whole economy down instead of letting the bad actors go bankrupt.  Hell, we all know we can't have a banking system without Bank of America...."

Sat, 09/08/2012 - 12:57 | 2774755 Marco
Marco's picture

Would you still suggest printing all the money needed to pay off the deposit guarantuees?

Sat, 09/08/2012 - 13:00 | 2774763 Bobbyrib
Bobbyrib's picture

Wrong place to ask this question.. Most posters advocate not having money with big banks and some to not have any money with any bank.

Sat, 09/08/2012 - 18:50 | 2775257 sessinpo
sessinpo's picture

That is where the inflation fun begins because you are actually talking about printing money and putting it in circulation - thus inflation.

So a guy has $200,000 deposited. He wants his money to buy a $200,000 house in cash. Bank can't cover it and money has to be printed. Bank gives customer his $200,000. He goes to buy the house and finds the price has jumped to $400,000.

In other words, it doesn't solve the problem.

Sun, 09/09/2012 - 08:19 | 2775911 crusty curmudgeon
crusty curmudgeon's picture

"The reason the demand is nil is because the sheeple are maxed to their limit in which to service their existing debt."

There's no doubt a lot of truth to that, but that's not the whole story.  I've run into many business owners who have soundly demonstrated their fiscal soundness but they can't get a loan. 

I think the banks are also scared to death of not having enough capital.

Sat, 09/08/2012 - 12:47 | 2774740 slewie the pi-rat
slewie the pi-rat's picture

Sat, 09/08/2012 - 13:18 | 2774792 centerline
centerline's picture

cat got your tongue?

Sat, 09/08/2012 - 17:21 | 2775146 Dr. Sandi
Dr. Sandi's picture

I HAD to upvote this comment. It says everything that needs to be said here.

Sat, 09/08/2012 - 12:47 | 2774741 FleaMarketPete
FleaMarketPete's picture

and we all know hyper inflation can be turned on and off with the flick of a switch or a few electronic debts and credits.

Sat, 09/08/2012 - 12:56 | 2774754 CrashisOptimistic
CrashisOptimistic's picture

Why in hell would people think that activity of any kind, economic or otherwise, would not slow as available oil slows?

But people like the author just never think about it.  It's all their handwaving credit this and currency that stuff.  It just doesn't occur to them that oil defines it all and it is maxed out.

Sat, 09/08/2012 - 13:08 | 2774772 Marco
Marco's picture

Oil is not irreplaceable ... solar electricity generation and methane electro-catalytic synthesis are within an order of magnitude of cost and efficiency necessary to actually undercut oil prices and I don't really see any fundamental problem with getting to that point.

With a moonshot type redirection of the economy the US could do it within a decade IMO.

Of course the capacity for growth is still constrained by other things, we will still need much better recycling, population stability or decline and an political/economic system which can survive without continually increasing debt ... but oil doesn't need to be the reason to let the median living standard this and previous generations laboured hard to create to go to shit.

Sat, 09/08/2012 - 14:17 | 2774891 CrashisOptimistic
CrashisOptimistic's picture

marco let me suggest a mod to thought.

Forget money.  Price instead in BTUs.  How many BTUs are required to do tasks, and how many BTUs are required to obtain the BTUs to do tasks.

Perform your measurments that way and you will come to realize what's happening.  

And oil btw DEFINES the modern standard of living.  Civilization comes from oil.  Do the BTU computations and you'll understand, but it is the nature of the problem that if you do NOT do the BTU computations, you will not understand.

Oil feeds cities.  Food doesn't come from farms for a city.  It comes from trucks that are able to haul it 1000s of miles with refrigeration so it doesn't spoil.  Electrics can't do that.  Nat Gas can't do that.  Do the BTU calculations and you'll see why, and why the world is falling apart now.

Sat, 09/08/2012 - 15:31 | 2775012 swmnguy
swmnguy's picture

And that's exactly why they will never allow pricing in BTU's, until you can print abstract BTU's.

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