GET READY FOR A ROUGH RIDE BOYS & GIRLS

 Yes, the creation of new money is ramping up as fast as the powers that be can create it, BUT, the actual decline of quantity of money ( including credit/insurance instruments) is many orders of magnitude greater.

There is over 500 (T) trillion in "toxic waste credit money" that has been created in the last 10 years. This stuff is unwinding now (being discovered to have little or no value) much faster than the governments and central banks of the world can inject more money to balance it. So far, the increase in money is still on the order of a few trillions, but tens of trillions are crashing down as they are found to be of no value, with hundreds of trillions still waiting to be unwound.

This is why in spite of the printing, we are experiencing deflation rather than inflation - the overall money supply (which includes credit) is deceasing.

When the overall economy recovers... then all the extra money produced will come home to roost and inflation will be the result, possibly hyperinflation; but the recovery is very far off - many years, perhaps decades.

In the mean time, producing more money does not address the current problems, probably extends the period of pain, and set us up for an inflationary nightmare in the future.

pauln:

In the mean time, producing more money does not address the current problems, probably extends the period of pain, and set us up for an inflationary nightmare in the future.

Well, of course it does. Everyone continues to attempt to associate money with some absolute constant. It simply isn't that way. Money is nothing more than grease that allows two things to slide easily - your desire, and someone else's goods. All this hyperinflation talk has very little meaning in an economy which produces things. Hyperinflation happens when production stops, or is non-existent. 

It is the "production-consumption cycle" which is important. That's the circle of useful employment in exchange for stuff, which inturn leads to more useful employment. Money is simply a lubricant to keep that moving. Money is not tied to anything. We can have as much or as little as it takes to make the gears move. 

When housing collapsed people suffered the illusion of "losing money." This is because they were borrowing value from their houses and using it as money. They had, in effect, their OWN printing presses for money and they used it a lot. Now, that is gone, swiftly and suddenly. This loss of "money" means the production-consumption cycle slows or even stops. What's needed? Not more desire, we have plenty. Not more people, we have plenty. Not more factories, we have plenty. Not more steel, we have plenty. What we ain't got is money, and that's what makes the gears turn again.

All these millions of people never actually had "money" in their house. They had what they had - wood, sheetrock, carpet, cement and so on. But if someone comes along and provides you an illusion that you can turn part of it into money, you trust that, you go down to the bank and voila - they actually give you money!! They hadn't created any wealth - they were just sitting in their joints watching TV, and suddenly money appeared. And the money was good. And the GDP rose. And people were happy. 

It actually doesn't matter if the money falls out of your attic (as it did) or out of the sky. It will have the EXACT SAME EFFECT WHEN IT APPEARS. All this "fear of creating money" is nonsense. They sure weren't afraid of it when it fell out of the attic! They sure weren't afraid of it when it fell out of paper stocks! 

Let's go back to Iraq for a lesson in economics. When the cocuntry had fallen to pieces and totally collapsed after the invasion, what did our RIGHT WING PEOPLE do? They put $9 BILLION dollars in American Cash Money on pallets and flew it into Iraq and did what----they spread it around! That's right - they same right wing people who now say doing that here is "bad" thought it was good over there! Sheeesh!

Creating more money does not address the problem because we do not have a liquidity problem, we have a solvency problem.

The money created and given to banks and companies is being hoarded, saved, not lent or spent. One would see lending and spending of that new money if the problem was simply tight liquidity. But the problem is massive general insolvency, huge leveraged over extension, and systemic failure of business decisions; so all new money is being held onto by institutions, entities, and people.

No one is using their oil to  "oil the system" even though they are receiving the oil.

Extending more credit to the insolvent does not address their insolvency, just makes it deeper, pushes their certain catastrophic collapse a little further down the road.

 The insolvency is primarily centered around banks, and finance institutions - not around production. The distinction is very important. Most institutions like Bear or Lehman or AIG were involved in nothing productive - simply operating as betting parlours. They can be collapsed (and should be) without effecting the real economy which is not insolvent. Apple can build plenty of computers. Boing can build plenty of jets. Even Ford can build plenty of cars. They don't lack customers, only customers with, you guessed it, money. 

In that past 3 decades the financial services sector of the economy has gone from around 5% to around 25%. They produce litterally nothing. All this insolvency you refer to is pretty meaningless unless you are a stockholder in Bof A or AIG. If rationalists were making decisions, the banks would have been nationalized already, and recovery would be closer. But -- and this is crucial - Wall Street literally OWNS DC. Look at the cast of characters involved in the Treasury dept in this and the last administration! Rubin, Summers, Paulson, Geithner. Gee, what do they have in common? These guys are simply blocking the loss of their ill-gotten gains and making recovery all that much harder to get to.  

Mark, I side with Paul on this one.  BTW, you guys should join us in the BS section where we talk more about these things.

Anyway, what you are missing, Mark, is that money DOES represent something.  We are not on a barter system, and if we were, the economy would most definitely collapse, and we'd be done.

What money represents is purchasing power.  And if you think all we need is inflation, you're incorrect.  Look at what happens by reading a little on the effects of runaway inflation in Zimbabwe.  It ain't pretty.

Now, Mark, one of the bigger fallacies in your argument is that the "insolvency is centered around banks and financial institutions and not production."  You think "they can be collapsed without affecting the real economy, which is solvent."

This is far from the case.  This economy is built around debt.  People have mortgaged their future incomes in order to have present purchasing power.  The future is so far mortgaged, that it cannot be mortgaged any further.  You do the math.   What is the value of $1,000 30 years from now at, say, 4% inflation?  Zip!  That's why there is no more "future" to squeeze from the borrowing class.  Without that, there is no economy. 

Financial institutions, banks, mortgage companies, lenders AND borrowers (which is pretty much covers every single American) is all about future incomes.  With no more future income to commit, none can continue to grow.  And of course, future incomes have already been dedicated to past consumables, which in many cases, already need replacement (like being upside-down on a car or charging meals at restaurants).  The trick is how to get the replacement to the consumer when he is broke today and we cannot squeeze any more of his future out of him.

If AIG goes down the banks go down, (AIG insured all of their bad mortgages with credit default swaps (unregulated) with no money to back them up) most foreign banks go down, (AIG had a scam going with them also) and the FDIC goes down as they only have 100 billion to back them up. That's why Bernanke is livid when anyone mentions AIG. AIG is not worried as they know Uncle SAM has to bail them out or the monetary system will fully collapse. And all of us will be selling pencils on the street corner instead of writing "E" mails. The Internet will be only for the very, very rich if it is still around.

JJK

Jeff Matthews:

Mark, I side with Paul on this one.  BTW, you guys should join us in the BS section where we talk more about these things.

Anyway, what you are missing, Mark, is that money DOES represent something.  We are not on a barter system, and if we were, the economy would most definitely collapse, and we'd be done.

What money represents is purchasing power.  And if you think all we need is inflation, you're incorrect.  Look at what happens by reading a little on the effects of runaway inflation in Zimbabwe.  It ain't pretty.

"Purchasing power" means the same thing as "grease" which I said earlier. Look, a schooner of beer was 5-cents in 1913, it's 450 cents today. They drank beer in 1913, and we drink beer today. Bars made money then, bars make money today. A working guy might have bought 3 or 4 beers with an hour worth of labor then, and he can buy 3 or 4 beers today with an hour labor. But holy cow - - look at how much more "money" it takes 90X more money!!! And yet, NOTHING IS DIFFERENT about beer, bars or the labor it takes to earn one. If you take a piece of wood, and you tell me it is 500 oogle-boogles long, or 12,000 scrathes long, or 12"inches" long, it's all the same piece of wood.

Money has no basis - - period, end of story. We have way WAY more money circling around today than in 1790, or 1890, or 1990. Big deal. When we needed to fund a big war, where did all that money come from? it's MADE UP at will. 

Zimbabwe. Ok, what did I say about hyperinflation? It matters in countries with no productive capability, but it much less a problem in places that actually have an economy that produces things of value. Zimbabwe is no example. Waht you want to look at is "how much value is in our productive output?" and then "how much money are we adding?" You'll see that in Zimbabwe the relationship is "all money, no output." Here, we have LOTS of output and can thus tolerate lots of money.

Now, Mark, one of the bigger fallacies in your argument is that the "insolvency is centered around banks and financial institutions and not production."  You think "they can be collapsed without affecting the real economy, which is solvent."

This is far from the case.  This economy is built around debt.  People have mortgaged their future incomes in order to have present purchasing power.  The future is so far mortgaged, that it cannot be mortgaged any further.  You do the math.   What is the value of $1,000 30 years from now at, say, 4% inflation?  Zip!  That's why there is no more "future" to squeeze from the borrowing class.  Without that, there is no economy. 

Nope. The economy is built around STUFF. It's only "money" that is built around debt. So, I agree that money is debt. However, STUFF IS STUFF.  So debt is being wiped out and forgiven all over the place. This allows for more.....you guessed it, MONEY, to do what it does best. The only danger here is if Wall Street puts up a huge fight and insists on getting US cash for all it's bad debt. In other words the new money will be distributed very unevenly. If that happens, you'll have all the money sitting in a very few hands. That has to be avoided. 

Financial institutions, banks, mortgage companies, lenders AND borrowers (which is pretty much covers every single American) is all about future incomes.  With no more future income to commit, none can continue to grow.  And of course, future incomes have already been dedicated to past consumables, which in many cases, already need replacement (like being upside-down on a car or charging meals at restaurants).  The trick is how to get the replacement to the consumer when he is broke today and we cannot squeeze any more of his future out of him.

Well, why do you think we are renegotiating mortgages? It's to reduce this debt to make room for new purchasing power! And that my friend takes MONEY! 

Essentially, we are spreading "do-overs" all around. At the banks, at the brokerages, at people's mortgages. 

Now, if you are just saying that everyone has too much debt -- on that I agree. But that doesn't negate the argument that increasing the money supply broadly will create a recovery. 

 

 

I like your reasoning, Mark.  We describe the same vision in unison, but using different terminology.  The only point in your last post I'll take issue over is your point about our ability to absorb monetary supply growth easily. 

Interest rates depend very much on inflation.  You can't expect that we should forget the 80's savings and loan crisis, where people bailed out of their homes en masse because they were paying 15% mortgage rates. 

Sure, we can't print money and dole it out to the masses.  They can pay off their debts with it.  As soon as creditors figure out what a raw deal they got, the next time they loan money, it will be at 12% - not 6%.  They will have wised-up to the game of increasing money supply. 

So, is it really a favor to the debt-ridden, middle-class to explode the money supply, so they can go borrow at double the rate they currently have on their existing debt?

Edit:  Let me respond in your terminology:  If you give me a schooner today, I will gladly give you 3/4 a schooner next Tuesday.  I'm sure you'd agree you would not be interested in that.

Here's your statement from the previous post:

"Purchasing power" means the same thing as "grease" which I said earlier. Look, a schooner of beer was 5-cents in 1913, it's 450 cents today. They drank beer in 1913, and we drink beer today. Bars made money then, bars make money today. A working guy might have bought 3 or 4 beers with an hour worth of labor then, and he can buy 3 or 4 beers today with an hour labor. But holy cow - - look at how much more "money" it takes 90X more money!!! And yet, NOTHING IS DIFFERENT about beer, bars or the labor it takes to earn one. If you take a piece of wood, and you tell me it is 500 oogle-boogles long, or 12,000 scrathes long, or 12"inches" long, it's all the same piece of wood.

Now, by your example, 5 cents in 1913 is the equivalent of 450 cents today (i.e. one schooner).  That's due to inflation.  Inflation came about, as you righly observed in the prior post by you, because of the fact that there is vastly more money floating around out there.

So, if I am a lender with a crystal ball, and I can predict inflation, if I was in the year 1913, I'd loan you 5 cents, if you agreed to pay me something more than 450 cents today.  BUT, if we stuck that agreement in writing, and it turned out the money supply increased more rapidly than my crystal ball told me, and today I could only buy 3/4 a schooner with 450 cents, I would obviously feel the raw end of that deal.  As part of risk avoidance, I will increase my interest rate next time.  As it stands, the borrower got the better end of me last time, but not this time.  So, how does increasing the money supply solve the borrower's problem if the borrower needs credit in the future?   Your scenario only works if the need for credit diminishes.  You might think it would.  I would predict it would not.  My belief is there is always someone ready to borrow at whatever the going rate is.  That's why even sub-prime lenders turned down many loan applicants.

 JEFF-

Well, yes, there will be some pain all around for everone. I didn't mean to imply it was painfree. I am only arguing ONE central idea - that getting more money broadly into the economy will get the gears turning again. People will order cars, car companies will need workers and so the cycle begins. People have been getting screwed over by money since it was invented and this will be no different! The "masters of the universe" will figure ways to keep average guys broke, but scrambling and surviving. If we don't get people back into J-O-B-S, the shite really WILL hit the fan. So, I am not worried about hyperinflation, or crazy scenarios. I am worried first about getting guys outta bed and on the job and out into the stores buying stuff. 

Sure.  But the influx of money is a wash.  The smaller the influx, the quicker the wash.  It's giving money away for 6-packs, and realizing that you're still out of work AND have a hangover.  It's unproductive.  It's a needless addition to an over-bearing debt load.

Jeff Matthews:

Now, by your example, 5 cents in 1913 is the equivalent of 450 cents today (i.e. one schooner).  That's due to inflation.  Inflation came about, as you righly observed in the prior post by you, because of the fact that there is vastly more money floating around out there.

So, if I am a lender with a crystal ball, and I can predict inflation, if I was in the year 1913, I'd loan you 5 cents, if you agreed to pay me something more than 450 cents today.  BUT, if we stuck that agreement in writing, and it turned out the money supply increased more rapidly than my crystal ball told me, and today I could only buy 3/4 a schooner with 450 cents, I would obviously feel the raw end of that deal.  As part of risk avoidance, I will increase my interest rate next time.  As it stands, the borrower got the better end of me last time, but not this time.  So, how does increasing the money supply solve the borrower's problem if the borrower needs credit in the future?   Your scenario only works if the need for credit diminishes.  You might think it would.  I would predict it would not.  My belief is there is always someone ready to borrow at whatever the going rate is.  That's why even sub-prime lenders turned down many loan applicants.

When money is flush interest rates are low. And, we can invert that to say, when interest rates are low, money is flush. Mr. Greenspan spent 7 years holding rates artificially LOW to vastly increase (and man, do I mean VASTLY) the amount of debt (money) that could be taken on by Americans. There was no basis for this - - other than HIS WILL TO DO SO. <-------If you suddenly get that, the entire money-economy-interest-inflation-scam will become crystal clear!

You might be trying to argue that the system has rational laws - like physics. That WOULD be true if money itself was rational, but it's not. I just showed that. If individual will can vastly increase or decrease the money supply - (and that's easy to prove that it does) - than your entire argument has no fundamental basis - no laws or principles upon which you can fall back. When the FED quietly issues a new guidline for capital reserves to be say 5% when it used to be 10%, do you see how instantaneously tons of money is created out of the blue? 

The Crash of '29 happened because a couple of ticked off guys like JP Morgan didn't get their way about some new rules and they purposely shrank the money supply. BOOM! Huge crash based on nothing but the will of ONE man. 

Jeff Matthews:

Sure.  But the influx of money is a wash.  The smaller the influx, the quicker the wash.  It's giving money away for 6-packs, and realizing that you're still out of work AND have a hangover.  It's unproductive.  It's a needless addition to an over-bearing debt load.

Who made the beer?

Ah, maestro!  +1.

Wait for grasshopper to regroup! 

Okay.  Here we go.  Let's use a world with three people.

You have the cash.  I borrow from you.  Dave produce beer with his labor.  He owns $55 worth of beer.

Okay... 

Starting point.  The money supply is $100.  You have it all.   

I borrow $50 from you.  I spend it all drinking beer.  I lose my job.  The goverment prints $10 and provides it to me as "aid."  I pay you $5, and I buy the rest of Dave's beer with the other $5. 

That's the end of that.  I am not given more money by the government, and I default.  You cannot collect from me. 

Now, you have $55.  Dave has $55.  All the beer is gone, and I have no money.

Now, how can that be good?

Seriously (as that's partly a joke), the beer-make probably made a few bucks along the way, and it carried him a bit.  However, supposing the creditor is a righteous populist who really needs the benefit of his bargain to eak out a living, he is bearing a bit of the brunt of carrying the beer-maker along, as he will now be paid in the future with dollars that are worth less.  Therefore, the increase in the money supply operates as a tax on hard-working, honest people. 

There's your wash.  It was for naught, especially if the beer-maker's fortune results in an unemployed creditor who is broke.  As a further result, the price of beer went up in the meantime.  Inflation is a tax on everyone.