Guest Post: Inflation: An Expansion of Counterfeit Credit
Submitted by Keith Weiner
Inflation: An Expansion of Counterfeit Credit
The Keynesians and Monetarists have fooled people with a clever sleight of hand. They have convinced people to look at prices (especially consumer prices) to understand what’s happening in the monetary system.
Anyone who has ever been at a magic act performance is familiar with how sleight of hand often works. With a huge flourish of the cape, often accompanied by a loud sound, the right hand attracts all eyes in the audience. The left hand of the illusionist then quickly and subtly takes a rabbit out of a hat, or a dove out of someone’s pocket.
Watching a performer is just harmless entertainment, and everyone knows that it’s just a series of clever tricks. In contrast, the monetary illusions created by central banks, and the evil acts they conceal, can cause serious pain and suffering. This is a topic that needs more exposure.
The commonly accepted definition of inflation is “an increase in consumer prices”, and deflation is “a decrease in consumer prices.” A corollary is a myth that stubbornly persists: “today, a fine suit costs the same in gold terms as it did in 1911, about one ounce.” Why should that be? Surely it takes less land today to raise enough sheep to produce the wool for a suit, due to improvements in agricultural efficiency. I assume that sheep farmers have been breeding sheep to maximize wool production too. And doesn’t it take less labor to shear a sheep, not to mention card the wool, clean it, bleach it, spin it into yarn, weave the yarn into fabric, and cut and stitch the fabric into a suit?
Consumer prices are affected by a myriad of factors. Increasing efficiency in production is a force for lower prices. Changing consumer demand is another force. In 1911, any man who had any money wore a suit. Today, fewer and fewer professions require one to be dressed in a suit, and so the suit has transitioned from being a mainstream product to more of a specialty market. This would tend to be a force for higher prices.
I don’t know if a decent suit cost $20 (i.e. one ounce of gold) in 1911. Today, one can certainly get a decent suit for far less than $1600 (i.e. one ounce), and one could pay 3 or 4 ounces too for a high-end suit.
My point is that consumer prices are a red herring. Increased production efficiency tends to push prices down, and monetary debasement tends to push prices up. If those forces balance in any given year, the monetary authorities claim that there is no inflation.
This is a lie.
Inflation is not rising consumer prices. One can’t understand much about the monetary system from inside this box. I offer a different definition.
Inflation is an expansion of counterfeit credit.
Most Austrian School economists realize that inflation is a monetary phenomenon. But simply plotting the money supply is not sufficient. In a gold standard, does gold mining create inflation? How about private lending? Bank lending? What about Real Bills of Exchange?
As I will show, these processes do not create inflation under a gold standard. Thus I contend the focus should be on counterfeit credit. By definition and by nature, gold production is never counterfeit. Gold is gold, it is divisible and every piece is equivalent to any other piece of the same weight.
Gold mining is arbitrage: when the cost of mining an ounce of gold is less than one ounce of gold, miners will act to profit from this opportunity. This is how the market signals that it needs more money. Gold, of course, has non-declining marginal utility, which is what makes it money in the first place, so incremental changes in its supply cause no harm to anyone.
Similarly, if Joe works hard, saves his money, and gives a loan of 100 ounces to John, this is an expansion of credit. But it is not counterfeit or illegitimate or inflation by any useable definition of the term.
By extension, it does not matter whether there are market makers or other intermediaries in between the saver and the borrower. This is because such middlemen have no power to expand credit beyond what the source—the saver—willingly provides. And thus bank lending is not inflation.
Below, I will discuss various kinds of credit in light of my definition of inflation.
In all legitimate credit, at least two factors distinguish it from counterfeit credit. First, someone has produced more than he has consumed. Second, this producer knowingly and willingly extends credit. He understands exactly when, and on what terms, with what risks he will be paid in full. He realizes that in the meantime he does not have the use of his money.
Let’s look at the case of fractional reserve banking. I have written on this topic before. To summarize: if a bank takes in a deposit and lends for a longer duration than the deposit, that is duration mismatch. This is fraud and the source of banking system instability and crashes. If a bank lends deposits only for the same or shorter duration, then the bank is perfectly stable and perfectly honest with its depositors. Such banks can expand credit by lending, (though they cannot expand money, i.e. gold), but it is real credit. It is not counterfeit.
Legitimate lending begins with someone who has worked to save money. That person goes to a bank, and based on the bank’s offer of different interest rates for different durations, chooses how long he is willing to lock up his money. He lends to the bank under a contract of that duration. The bank then lends it out for that same duration (or less).
The saver knows he must do without his money for the duration. And the borrower has the use of the money. The borrower typically spends it on a capital purchase of some sort. The seller of that good receives the money free and clear. The seller is not aware of, nor concerned with, the duration of the original saver’s deposit. He may deposit the money on demand, or on a time deposit of whatever duration.
There is no counterfeiting here; this process is perfectly honest and fair to all parties. This is not inflation!
Now let’s look at Real Bills of Exchange, a controversial topic among members of the Austrian School. In brief, here is how Real Bills worked under the gold standard of the 19th century. A business buys merchandise from its supplier and agrees to pay on Net 90 terms. If this merchandise is in urgent consumer demand, then the signed invoice, or Bill of Exchange, can circulate as a kind of money. It is accepted by most people, at a discount from the face value based on the time to maturity and the prevailing discount rate.
This is a kind of credit that is not debt. The Real Bill and its market act as a clearing mechanism. The end consumer will buy the final goods with his gold coin. In the meantime, every business in the entire supply chain does not necessarily have the cash gold to pay at time of delivery.
This problem of having gold to pay at time of delivery would become worse as business and technology improved to allow additional specialization and thus extend the supply chain with additional value-added businesses. And it would become worse as certain goods went into high demand seasonally (e.g. at Christmas).
The Real Bill does not come about via saving and lending. It is commercial credit that is extended based on expectations of the consumer’s purchases. It is credit that arises from consumption, and it is self-liquidating. It is another kind of legitimate credit.
For more discussion of Real Bills, see the series of pieces by Professor Antal Fekete (starting with Lecture 4).
Now let’s look at counterfeit credit. By the criteria I offered above, it is counterfeit because there is no one who has produced more than he has consumed, or he does not knowingly or willing forego the use of his savings to extend credit.
First, is the example where no one has produced a surplus. A good example of this is when the Federal Reserve creates currency to buy a Treasury bond. On their books, they create a liability for the currency issued and an asset for the corresponding bond purchase. Fed monetization of bonds is counterfeit credit, by its very nature. Every time the Fed expands its balance sheet, it is inflation.
It is no exaggeration to say that the very purpose of the Fed is to create inflation. When real capital becomes more scarce, and thus its owners become more reluctant to lend it (especially at low interest rates), the Fed’s official role is to be the “lender of last resort”. Their goal is to continue to expand credit against the ever-increasing market forces that demand credit contraction.
And of course, all counterfeit credit would go to default, unless the creditor has strong collateral or another lever to force the debtor to repay. Thus the Fed must act to continue to extend and pretend. Counterfeit credit must never end up where it’s “pay or else”. It must be “rolled”. Debtors must be able to borrow anew to repay the old debts—forever. The job of the Fed is to make this possible (for as long as possible).
Next, let’s look at duration mismatch in the financial system. It begins in the same way as the previous example of non-counterfeit credit—with a saver who has produced more than he has consumed. So far, so good. He deposits money in a bank, and this is where the counterfeiting occurs. Perhaps he deposits money on demand and the bank lends it out. Or perhaps he deposits money in a 1-year time account and the bank lends it for 5 years. Both cases are the same. The saver is not knowingly foregoing the use of his money, nor lending it out on such terms and length.
This, in a nutshell, is the common complaint that is erroneously levied against all fractionally reserved banks. The saver thinks he has his money, but yet there is another party who actually has it. The saver holds a paper credit instrument, which is redeemable on demand. The bank relies on the fact that on most days, they will not face too many withdrawal demands. However, it is a mathematical certainty that eventually the bank will default in the face a large crowd all trying to withdraw their money at once. And other banks will be in a similar position. And the collapsing banking system causes a plunge into a depression.
There are also instances where the saver is not willingly extending credit. The worker who foregoes 16% of his wage to Social Security definitely knows that he is not getting the use of his money. He is extending credit, by force—i.e. unwillingly. The government promises him that in exchange, they will pay him a monthly stipend after he reaches the age of retirement, plus most of his medical expenses. Anyone who does the math will see that this is a bad deal. The amount the government promises to pay is less than one would expect for lending money for so long, especially considering that the money is forfeit when you die.
But it’s worse than it first seems, because the amount of the monthly stipend, the age of retirement, and the amount they pay towards medical expenses are unknown and unknowable in advance, when the person is working. They are subject to a political process. Politics can shift suddenly with each new election.
Social Security is counterfeit credit.
With legitimate credit, there is a risk of not being repaid. However, one has a rational expectation of being repaid, and typically one is repaid. On the contrary, counterfeit credit is mathematically certain not to be repaid in the ordinary course. This is because the borrower is without the intent or means of ever repaying the loan. Then it is a matter of time before it defaults, or in some circumstances forces the borrower to repay under duress.
Above, I offered two factors distinguishing legitimate credit:
1. The creditor has produced more than he has consumed
2. He knowingly and willingly extends credit
Now, let’s complete this definition with the third factor:
3. The borrower has the means and the intent to repay
Every instance of counterfeit credit also fails on the third factor. If the borrower had both the means and the intent to repay, he could obtain legitimate credit in the market.
A corollary to this is that the dealers in counterfeit credit, by nature and design, must work constantly to extend it, postpone it, “roll” it, and generally maintain the confidence game. Counterfeit credit cannot be liquidated the way legitimate credit can be: by paying it back normally. Sooner, or later, it inevitably becomes a crisis that either hurts the creditor by default or the debtor by threatening or seizing his collateral.
I repeat my definition of inflation and add my definition of deflation:
Inflation is an expansion of counterfeit credit.
Deflation is a forcible contraction of counterfeit credit.
Inflation is only possible by the initiation of the use of physical force or fraud by the government, the central bank, and the privileged banks they enfranchise. Deflation is only possible from, and is indeed the inevitable outcome of, inflation. Whenever credit is extended with no means or ability to repay, that credit is certain to eventually become a crisis that threatens to harm the creditor. That the creditor may have collateral or other means to force the debtor to take the pain and hold the creditor harmless does not change the nature of deflation.
Here’s to hoping that in 2012, the discussion of a more sound monetary and banking system begins in earnest.
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'Here’s to hoping that in 2012, the discussion of a more sound monetary and banking system begins in earnest.'
What's with the hope?
Ain't happening Weiner unless by some remote chance Paul is elected.
Damn dude you sound like A.R.J. Turgot (1727-1781). Good job.
I hope MDB and the Keynesians read this because this EXACTLY explains what an Austrian economist understands about the relationship of money, time, capital users, and consumers. Contrasted with a Keynesian 4th grade mentality of printing, spending, and "pushing" demand to create "full employment."
This is why Austrian economist have zero respect for a Keynesian economist, they are like stupid kids telling dad how things will be.
Read Steve Keen or better yet Hyman Minsky, since they capture a 'grey' area in the field of economics without the dogma of neo-classical Keynesian or Austrian doctrine.
Hyman Minsky is terrifiic! Just goes to show you that a Marxist can be quite licud.
You mis-spelled "Likud."
I can never trust any man named "Hyman".
They all tend to be twats.
Hey guys! Listen to this clip, you'll love it! :)
http://www.youtube.com/watch?v=jJYzLaiBHqc&sns=em
Best line in the song - Silver in my pocket, paper in the caaaaan!
Cute.
WTF do you think Ron Paul as President would do about it? Talk?
Talk is cheap. And if he tries to do anything more than that they'll pull an Oswald on his ass.
You mean a William McKinley (1843-1901-25th President), who was assasinated because he was a strong supporter of the gold standard by Leon Frank Czolgosz .
Let's assume there's no assasination. A Ron Paul presidency wouldn't mean shit anyway.
Oligarchs transferred wealth quite efficiently over time in countries that had a gold standard and a weak or no central banks.
It's a club and you ain't in it. They take care of their own.
If pigs fly and RP becomes president and ends the FED, it won't make a damn bit of difference.
Look at the principal actors, cause and result of Shay's Rebellion for a clue.
Three thumbs up. Great analysis.
I wish he had tied it in to the other axiom: "credit that is used for productive purposes (plant, equipment) will increase the standard of living. Credit that is used to finance consumption can be nothing but inflationary".
And, the inflation resulting from said purchase of unproductive asset (McMansion) will be delfationary when the creadit is defaulted, or even more inflationary when money printing is used to make the lender whole.
Where's Corzine?
He's "Chasin' 'Ol Shep"....you need not worry about the threat of competition....
....you got him beat by one vowel.
In Belize sipping a couple of Belikin Stouts with Kenny Boy...
this article is fabulous and a serious and welcome contribution to intelligent discussion of credit and money....i especially enjoyed the reference to real bills - i know that antal would smile.
Good point! Corzine is pumping MUD in South America!
UPdate: Corzine will die of " Jungle Rot"!
Let the Sunshine In
http://www.youtube.com/watch?v=-5-Q8igwxDw
Aquarius and Let the sunshine in - Hair Musical on Broadway - David Letterman TV Show
http://www.youtube.com/watch?v=xPLg5gA-9ck
Hair - Let the sunshine in
http://www.youtube.com/watch?v=ekOEXzspRkQ
In 1978 my dad could buy a new chevy pickup for $3,500......with 7.5 $470 calves.
Today it costs around $27,000 for a base model chevy pickup and my improved calves are selling for $800....Thats 33 calves for a new pickup.
I would submit that calves and lots of other production need to be priced higher or shortages will ensue....Production deserves to be respected and should be paid. My family is still ranching and I am the 4th generation raising the 5th. We haven't purchased a new picup since 1985......Don't get me started with everything else. Tractors, fencing, etc.
I have been lurking/ reading for two years..........be gentle first post
Welcome! My prediction: You will get three pickups for one of your calves in a future not so far.
Be gentle? Ha! If I were in a better mood I'd give ya a proper introduction to Fight Club.
Just too tired and worn out right now to whoop yer ass.
I'll just say "Welcome!" instead.
Sorry RR, I would have called off the Blue Ticks had I known it was you!
LMAO! I love the " Hulkster"!
Thanks! maybe next time
It is the same all over the world rancher.
One of the ponzi schemes great illusions is it's ability to get people to work for nothing while making them think they are getting ahead.
Everybody wants to get. ahead but if you are ranching how can you increase production fast enough to keep up with 7 Or 8 % real inflation.
In a hard money regime a production gain would go into your pocket...
Instead it goes into paying your higher input costs....
There's no way out ...we are all stuck in the same situation.
Your labour has been stolen...
Just a new rendition of the same old song.
http://www.youtube.com/watch?v=jIfu2A0ezq0
it takes a lot more to make a truck these days in terms of shit that goes into it.
The cars of yesteryear were far simpler but ZOMG they didn't have 3 point belts with airbag curtains and a few more people died as a result.
So you haven't seen a robotic production line, or a CAD system or anything else apparently... Figures...
Exactly. If anything, automobile prices should have went down, relative to "inflation" of course.
But, but, airbags save 12 lives a year! (And take 15 lives a year from short people who have them explode in their face.) Ain't progress grand?
You need the airbags more when you're surrounded by plastic instead of steel.
however do they allow motorcycles on the road without all that steal-plastic-airbag protection?
and aeroplanes have to have seatbelts too... thank fuck for public transport (buses, trams and trains) ...no airbags or safety belts needed there
If your calves were equipped with as many government-mandated systems as the pickup the calves would sell for $8000 apiece. For example, airbags, catalytic converters, emissions control, anti-lock brakes, seat belts, restraints, interlocks, etc. Go get an environmentalist to get Congress to pass some special legislation and soon you'll get your $8000 apiece.
How'd you like to be the guy who installs catayltic converters on calves?
Didn't you know cow farts cause global warming.
http://ginovieto-globalwarming.blogspot.com/2009/03/cow-farts-causing-gl...
Cattle are allergic to palladium!
actually it's cows burping/belching that produces more CO2 and methane than farting
once again the ignorant hysterics of Govt/Oil financed global bullshit that fucks up yet again and has the wrong end of the stick/cow/sheep
Trav777. I always enjoy your post. However, I beg to differ. About two months ago, I clicked the touch screen to SR tab (SIRI) and discovered my contract ended. My 600 watt THX-II sound system with 14 speakers told me to call a 800 number to renew. I barely used the feature in the first place. In fact, this Lincoln Navigator has an Elite package. I can sit in the back and watch movies… Never have used that feature because I drive it.
Moral of my story, car manufactures subsidize unnecessary features to create windfall profits under aftermarket renewal revenues. SIRI can hold their breath for a long time.. I won't be calling.
BTW, I didn't TD you
Price of Grass fed beef Retail 1978 - Ground Beef - $1.11 Up 38% from 1977.
Right now its $6.99 or more than a 700% increase since 1977- Just like your pickup truck.
The price of food in America is too high, not too low. The entire food chain is making out like banksters and many are, in fact, just that - banksters.
All this BS will end when the Fed no longer has the ability to increase our preposterous debt. They will not hyper-inflate. Instead, we will have deflation in everything. It has already started in housing and will wind up deflating everything that has any sort of leverage or financialization.
Not quite... You are quoting a retail price from a niche product that very few ranchers produce for. Most of the commodity beef is produced for the big agribusinesses who run the calves through huge feedlots in the cornbelt. Grassfed is a small niche that is healthy and is therefore more expensive.... the latest usda beef report has ground beef at $1.90-$2.16 .......http://www.ams.usda.gov/mnreports/lm_xb403.txt Confusing wholesale ground beef price with a retail advertised price is apples and oranges
Too high? Hardly, growing animals or vegetables isnt as easy as urbanites think and less people want to do it. Most prefer to sit in an office shuffling electrons and being generally useless. Government subsidies and illegals it keep the cost artifically cheap for the amount of time and effort that goes into it.
Wait till you see what beef costs at the end of this year.
I'll say. There's always some pest that is looking to consume the fruits of your labour. And then there's the government.
O my god we are neighbors , I live in N Dakota.
You are in a government supply chain. It's kind of like the doctors chain. They stuff the channel with very greedy suppliers. Doctors pay 800 bucks for a pole to hang a IV drip bag off of. You pay way too much for medicine for cattle etc etc etc. Difference is the doctors get access to big fat money pools of government. You don't.
Production is controlled by simply putting you entirely in debt and either giving you the paper to produce or not. Or if you own the farm like you said it's 4th generation. You are competing against people who are controlled by big business. And they hedge and sell and buy futures and sell futures and act basically like very sophisticated wall street types. So they are going to get more money for their sales and buy stuff cheaper.
your right they tptb have been pushing consolidation in the name of efficiency...a lot of neighbors have quit and moved to town. Ranches around here used to be one family and 2000-3500 acres and 70-80 cows ...now they are all at least 10,000 acres and no one can get it all done. Some of us are rebelling .....buy some healthy bison meat! www.thebuffaloguys.com
80 cows on 2000 acres!?!?? Why is it so low?
"He keeps his herd together as a group as it rotates through about 100 paddocks on the ranch. He runs on average one head per acre." from http://www.tx.nrcs.usda.gov/news/lonestarlink/archives/09/grazing_ws.html
Is wherever you are that much less productive?
It's a genuine question :O)
Your citation is referring to mob grazing on rotating grass paddocks- often cows see one paddock once a year(except spring when they may see four paddocks a day). There are other people that graze large areas without paddocks. The numbers are much different because the amount of grass per acre is so much less.
We are in the beginning of trying out some of these new grazing techniques. The reality is that mob grazing is great but very labor intensive. I move my herd about 4-5 times per year and they graze on large open pastures from 1000-2500 acres each. Mob graziers move every day or at least every 2-3 days and then manage to stay off the land for the next year....takes time, fencing, planning, and capital, but it looks like it works. I have been to two different holistic management seminars that are preaching these types of systems and it looks promising. I also am managing 300 hd of bison and 300 hd of cows at the same time on different land. There is a limit on what one man can do.
Most cattle today live in feedlots and are fed a diet consisting of pellets consisting of dried grass, chicken shit, corn husks, grain, lime, and antibiotics. The antibiotics are needed because the diet and living conditions are so bad they'd die of diseases. The antibiotics also cause intestinal perforations and result in a massive buildup of lymphatic tissue and visceral fat. More pounds for more money. Are you hungry for a steak?
What you say makes no sense. It takes a half acre to feed a person planting much higher quality food than grass. There is no way a cow could live on that unless it was 30 lbs.
"Doctors pay 800 bucks for a pole to hang a IV drip bag off of."
Doctors don't pay for it, virtually every American citizen pays for it through: medicare, medicaid, and reduced compensation due to high insurance premiums/and or high workers comp premiums, etc, etc, etc...
As a physician I must ask, how do I get "access to big fat money pools of government."? Do you mean that I am paid by Medicare a government conduit for medical care?. I do. I would not describe it as "big, fat" however.
It is not keeping up with costs and it is not reliable. This year we were threathened with a 29% cut. That would have killed the program (and all private practices caring for the elderly) so I did not worry about that one.
I'm in Shenzhen PRC...sucks not being able to link y•outube or several of the other links.
It seems pretty open here so that makes these blackouts seem weird. Like society is fine but there is some curmudgeon who does not like some particular idea so he gets to bleep it out for 1.3 billion folks.
You're in china? I'm talking about america.
rancher...you cannot compare directly the prices of the 1978 chevy to the 2012 chevy. You need to adjust for the fact that the new truck has additional technologies like antilock brakes, traction control, mp3 player, elctrodimming mirror...etc. Calves haven't changed their feature set as much in those years. It is true that adjusted for technology, truck prices have inflated and beef prices have deflated...but it is not quite as severe as the numbers you used.
A good question to ask is why isn't there a truck offered at a price point, say for around 12-14 calves. I think financing is far more profitable than margins on low-end trucks.
All that new technology doesn't mean shit. It's still a bucket of bolts getting one from point A to point B.
Why is a 7.3L Ford with more miles on it worth more than a newer Ford truck with less miles and more bells. whistles and other new technology?
Exactly!
WHY is it impossible to buy a SIMPLE car or pickup nowadays? I do NOT need all the fucking gadgets and bells-and-whistles of leather seats, cruise control, power windows, automatic starters, GPS, etc. etc. etc. I resent this constant, non-stop ratcheting-upward of what is considerd "standard" and "necessary" in a vehicle.
Who knows, maybe Kia will enter the US market with a truck around $15k USD (c. 2012).
Of course, by the time I click "save" on this comment, that price will have gone up by 25%. Hooray for a central bank hell-bent on inflation. Everyone needs to timestamp price estimates to the second these days. Or microseconds.
I wonder how I ever survived in my no seatbelt Chey Nomad. Car makers can still build a basic truck cheap if they want to. Why everyone thinks they have to have the latest do-dad is beyond me. I am not impressed and vehicles these day are ugly as hell. Fuckyou, George Jetson.
As a rancher and independent you are most welcome here, but if you have not found out yet you are "an enemy of the state. Welcome to the burgeoning club!:)
@rancher from SD. What's worse, with this infernal drought, a lot ranchers in my area had to sell off 2/3 of their herds. Grass is expensive to boot.
Good post.
Thx der da post.
Nice, and post again.
I don't have a clue, you much of them ...
Nice work Goldilocks! You get it!
This definition of social security completely misses the purpose, intent and function of the social security system. It is not designed to be a savings/repayment on retirement system. Social Security is a form of wealth redistribution on a national scale. It is designed to provide all those who reach retirement age a certain, baseline standard of living. It was never intended to be simply a system where you get back what you put in + interest. Some may receive more than they put in. Most will receive less than they put in. But, all will enjoy a certain minimum standard of living-that was the intent.
Some may receive more than they put in. Most will receive less than they put in. But, all will enjoy a certain minimum standard of living-that was the intent.
*************
If you contributed dollars monthly for the last 40 years-
The 1970 dollar was worth much more in buying power than what a 2010 dollar buys-meaning-your pension contribution has been robbed from you via inflation
Milton Freidman rocks on everthing but monetary policy.
http://www.youtube.com/watch?v=rCdgv7n9xCY
That happens until it doesn't
The govts debt burdens will trickle down to the serfs eventually....my guess thru austerity...and a serious slash of entitlements.
When that dynamic comes around....then you will see the real symptoms of inflation
The govt. will remain pre-occupied with posting "colorful" statistics about "new workers" and "jobs created"
What they won't tell you is how they engineered class warfare....with older people becoming direct competition with the unemployed younger generations. I don't sense levels of optimism right now. It sure won't get anymore optimistic should they decide to print their way to servicing their debt loads....and unleash the vicious effects of inflation on a wider range currently feeling the pinch.
Of course the "Prechterites" will argue that Deflation is in the cards this time around...and my response would be (?...time will tell).
I'm submitting a scenerio where inflation has alot more damage to deal out to the sheep than has already been felt thus far. It's levels could stair step rather evenly....like the pot of "bath water" for the frog....until a time when it decides shift into a higher gear. That's when strange days force people to really learn the true definition of inflation.
The American landscape is not so resilient and hardened like generations past. I doubt they will do a very good job coping with any increases in their financial hardships.....whatever direction our "Social and CB Planners" decide to take us.
I'm submitting a scenerio where inflation has alot more damage to deal out to the sheep than has already been felt thus far.
***********
I think we are feeling the effects of a past inflation mania-
There has been little passthrough of money printing into the broad economy from all the money expansion of the last 4 years-velocity has collapsed and unemployment is climbing and wealth/personal balance sheets are contracting-
This will bring about lack of affordability by consumers to support higher prices and i believe prices will fall hard as demand decreases-
What's gunning future prices at this point is taxpayer bailout funds in the hands of hot money bankers who are speculating in commodity markets-
In the end--it's us peasants and our "sentiment in mass" that makes the market and what we do will eventually have a far more powerful influence on prices than a few printed trillion here and there
While I agree wholeheartedly with your core, I don't think we have to "slash entitlements."
There are plenty of voluntary scanarios where people who've paid in can opt out or be bought out.
Happens all the time in corporate america...
I am frustrated that we use binary language, whern there are an array of solutions that would also
give people choices. In exchange for "resigning" social security's commitment to you, one could:
Take out all that you've paid in, tax free.
Calculate the expected SS payout and take a discounted lump sum up front.
To sweeten the pie, do the same as above, and offer it federal tax free.
Do the same as above and roll discounted SS payments into your children's or grandchildren's Roth or IRA's.
Jeeze, I'm not an actuary, but there are alot of mathmatical solutions that would be appealing to many people...
AND still keep that Gubment payout for the sheeple who like that kind of stuff.
I argue it here largely because you talk about class warfare of older vs younger and social security....
"But, all will enjoy a certain minimum standard of living-that was the intent."
Yup, all those who receive social security before the entire balance is raided and used to fund the upcoming Iran war will get a minimum standard of living. The rest of us? Not so much.
The purpose of the SS system is to rob you. They dress it up in communism red, but the reality is you would have been better off investing your money. Forcing me to pay for someone else's retirement and then forfeiting my savings if I don't live long enough to receive it is criminal theft and fraud.
The only people who benefit are the politicians that guarantee their jobs with handouts, the free riders that don't have to work and the bankers that collect the interest of the debt created when the government spent the money, instead of saving it.
You might want to check your pollyanna at the door...
The Fed is falling way behind the curve.
If they would simply print more money, then the dollar will start rising just as fast as the Yen.
Japan gets it. The U.S. Fed is woefully inept. The ECB is even worse.
The reason the Euro is tanking is because stubborn technocrats from the Austrian school are trying to hold back the ECB from printing any money whatsoever.
If Bernanke would simply step on the gas and firewall it, then the U.S. Dollar would explode to new highs very soon.
WTF, over.
I think Dodotraiter has finally flipped...
Nope, he has been saying that for a year now, and it ain't sarcasm...
Yo, Hulk! I know, I think the guy actually believes what he posts. It will be interesting to see who he blames when the market crashes over the next two months.
Guy? So I shouldn't hold out thinking it's the chick with the tits?
I think SuddenDebt should change avatars with Robotrader. Unfortunately, as best I can tell, SuddenDebt's avatar is actually him...
I have convinced myself that is a self photo. Please don't destroy my fantasy:) Since she refers to her father as "dude" I refer to her as "dudette".
Yo, WonderDawg! It will be crickets you hear from RoboTrader when reality catches up to us...
If he really ACTUALLY believes what he types, he must be very close to suicide, the poor guy. If it gets half as bad as we all expect, he'll die of starvation, shivering, looking into a corner.
You've got the ECB part right. If the ECB prints, the Euro will rise because right now the fear is in the Euro falling apart.
The dollar, on the other hand, will drop when more printing commences. I say more because they're already doing quite a bit of printing as I type.
TheSilverJournal.com
Robot Trader that is a big "F" in macroeconomics. Ouch!
As with everything, it's the 'supply & demand' that governs value.
The more paper dollars in the system; the more the existing supply is devalued by dilution. Simple.
So, as you say if Bernanke "firewalls" it with the printing, then you have false credit and inflation by way of devalued currency induced cost push.
Either way; it does not end well. The only protection is owning physical gold, silver and guns, with plenty of ammo!
could at least put on a sexier av
japan gets it in more ways than one - since 1989 i'd say?
ref: "The Myth of Japan's Failure" by eamonn fingleton 1-6-12 [nytimes]
http://www.nytimes.com/2012/01/08/opinion/sunday/the-true-story-of-japan...
Ps. caution: for those of us that can't responsibly handle our finances,... social security & medicare are wonderful programs --- no one knows what tomorrow brings - now does one? case in point, ayn rand!
Robot, I mean "dudette", you are incredible and a sight for sore eyes!
RobotTrader...what's the reasoning behind the thesis that printing will lead to dollar strength?