Inflation - deflation debate

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Inflation - deflation debate

There is a good inflation-deflation debate in the comments section following Mish's recent post on hyperinflation. Thoughtful analysis on both sides.

http://globaleconomicanalysis.blogspot.com/2011/05/hyperinflation-nonsen...

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Mish's post on hyperinflation

At last some sense. Mish makes several very important points.

Currencies are fungible. This implies that if the US dollar is going to crash, then the Euro or whatever it is valued against is going sky high. Does anyone really believe this? All of the world's major currencies have serious problems because each country which issues money in those currencies has issued credit way beyond their ability to repay. As Mish says - "The entire global banking system is insolvent."  

In the US alone total credit outstanding dwarfs currency notes by at least 50 to 1. The 27 to 1 ratio that Mish shows for credit versus M1 assumes that all demand deposits are actually available. I doubt the major banks could come up with even half in the event of a run. Again Mish nails it - "So another trillion in printing is going to cause hyperinflation? When the total credit market is $50 trillion? Please be serious."

I think he is very close to the mark with: "It's a royal screw job. But while Ben Bernanke may be a prevaricating class warrior and a charlatan, he's not insane. He's not going to shower the nation with increasingly-worthless greenbacks like they were confetti."

As Charles Hugh Smith says: "A hyper-inflationary wipeout certainly wouldn't benefit the Financial Power Elites who hold the vast majority of the financial wealth. Yet it is this very Elite which wields the preponderance of political power."

Mish is right on target with his comments about China. The most astonishing degee of malinvestment has taken place there - as you would expect in a non free market command economy. It is in China that inflation is running rampant. Look out Australia!  My own country where the resource companies are embarking on the largest capital investment in the history of the country. Another malinvestment?

Where I differ from Mish is that I do not see a long drawn out in-and-out of deflation scenario for the US along Japanese lines. I am an Elliott waver and I believe we will see a huge drop in asset prices in a relatively short period of time - most likely between 2012-16. I believe that equity markets are just being held up by a time cycle which peaks next year. It is astonishing how bullish sentiment has remained on top for so long but then that is what you could expect in a once in 300 year event.  I see no reason, according to Elliott wave theory, why equity markets should not return to their Supercycle wave (IV) extremes of less than 1000 for the Dow. If that happens, I do not think there will be too many arguments left for the hyperinflationists. I have to admit such a scenario seems almost impossible to comprehend - but going back 10 years or so, let alone 30, did anyone imagine that the US would have a debt of $14 trillion (never mind the other obligations)? The equity markets, along with everything else have been driven by the most astonishing growth in credit. More "money" was created in the last dozen or so years than was created in the entire preceeding period from 1776. Think about that. The unwinding has already started - look at residential RE - and the commodity and equity markets are next. As they implode into a deflationary black hole, the dollar will magically become worth something again because trillions of credit dollars will have simply vapourised. As always, the markets will go way beyond the ludicrous "fair value' because they are not driven by economics or fundamentals.Instead, when not being driven by sheer greed and the fear of missing out, the markets are, thankfully rarely, driven by unadulterated terror.   

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 @timeandtide A central

 @timeandtide

A central argument from the 'hyper-inflation is coming' people is that our huge debt is not able to be repayed without (a) massive cost cutting (b) massive increases in tax or (c) high inflation.  Choice (c) seems to be the easiest for governments to pull off politically.

I'm curious how you see the US federal deficit being paid down (or 'resolved').  If there is a period of deflation (with a stock market crash, bank failures, etc), then wouldn't the US Federal Debt of $15 trillion be even more difficult to pay off? 

 

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@gavinengel, That is a

@gavinengel,

 

That is a good point.  I think Bernanke has shown that the fed will print to make its obligations.  It is also the path of least resistance compared with major cost cutting or tax hiking.

There are valid points on both sides of this issue, and it is important because investment strategy differs for the two scenarios.  While we have massive money printing going on, we also have a credit economy like never before.  When debts are defaulted upon as the economy slumps, that money is extinguished.  If the fed prints an equal amount, one could argue we end up in the same place overall.  Schiff points out that when companies default on debt, their assets are sold and capacity is reduced. Therefore, when demand picks up again, there is a lower trigger for price inflation.  Also, when China realizes it will get back cheaper dollars as return for investing in treasuries, they will dump their treasuries, and spend the proceeds on goods here in the US, further driving up prices.  Also, the fed will then be the only buyer of treasuries and people will fear inflation and also spend, so velocity will drive up price inflation.

It is my understanding that Japan has deflation because their central bank didn't print money to buy the debt, they pawned it off on the people and institutions.  Contrast that will the Bernank, who is buying US treasuries will freshly printed money, which bodes for price inflation here.  When Japan runs out of local buyers of its debt, it would have to print money to buy their own debt and that's when they would experience price inflation there.  One other point is that gold has done well in the past when their was deflation, but wasn't that only because its value was set by the US government?  Such is not the case now.

If anyone has more thoughts to add on the inflation/deflation debate, please chime in as this topic is huge for what to invest in.  I believe Chris is 80% in the inflation camp and 20% in the deflation camp, and I am in both PMs and cash right now. 

 

 

 

 

 

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simply put

Simply put, I think we will have--are having-- deflation on luxuries and unnecessary things...and inflation on necessities like food and energy.

But then, I'm a simple gal.

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 Part of the reason we

 Part of the reason we haven't seen more agressive deflation is that credit has not been marked to market.  If it were marked to market you would see deflation and a much stronger dollar due to their relative scarcity.  Our government is proping assets by adsorbing and backstopping them via bailouts, TARPs, TALFs, Fannie/Freddie, market interventions etc.  By adsorbing assets and stimulating the Fed is hoping to tread water while banks recapitalize.  By doing so while also maintaining artificially low interest rates on treasuries it puts the currency at risk.

To me the Inflation/Deflation debate is a distraction. The primary issue at hand is the servicing of debt by sovereign nations ultimately resulting in a revaluation of their underlying currencies. Inflation or deflation are merely one of the two ways to get there.  For the record though, inflation is the tool of choice for political and psychological reasons as well as the allure of export advantage.   I think the Fed will try to attain mild inflation relative to other currencies who are also inflating. I expect an inflationary default in the US future will come as a result of a bond market revolt (high interest rates) and a consequential monetizing of debt. Regarding Inflation/Deflation for the common person, I think Safewrite is dead on.

I think the specter of default will come a good bit after a breakup of the Eurozone with a severe debasement of the new currencies introduced there. (I'm speculating Italy bails first!) This will put the Europeans at an export advantage (which everyone seeks).  On Europes heels I beleive we will see Japan as the next major shoe to drop as their margin for debt sustainability is extremely thin. China I expect to undergoe a severe depression due to it's reliance on exports (30% of GDP!!) amidst a worldwide recession/depression.

For this reason too (export dependancy) I do not think the will give up their currency peg.  The currency peg is precisely the reason the buy and hold US treasuries.  Dumping treasuries will give the US a huge advantage in the export game.  A violent dumping simply will not be allowed.  The US has China over a barrel not the opposite.  Recall in times past Gold was exchanges to settle current account differances.  Somehow the US convinced China to accept paper only.  This puts the US firmly in the drivers seat as any serious monetary threat would be met with a halt in redemptions.

Brazil and Russia are wildcards but ultimately the US will be last of the major deficit countries to default via inflation.  

If I were to speculate wildly I would say that we will see an accelated global race to the bottom using beggar thy neighbor tactics accelerated by the disintegration of the European (currency) union.  During this period I think we will see inflation somewhat muted in the beginning, much like it is now but increasing the further out we go. International trade tensions will progressively heighten and conflicts (economic and military) will likely emerge in the interim.  Eventually, to restore trust, confidence and international harmony a stable monetry system will develop with gold playing a large international role basically in line with Jim Rickards thesis.

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neutrino wrote: Part of

 

 

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neutrino wrote: Part of

Neutrino,

That it a well thought out prediction of events.  What is your ROUGH time frame for rampant inflation here in the states?  If Europe devalues, wouldn't that give Bernanke cover to inflate to keep our exchange rate export positive, while also helping with our enormous debt?  Also, Peter Schiff points out that China can simply start to consume instead of save, and between them and other growing markets like India, they would MORE than replace our lack of demand when they cut us free.  His thought process seems rational.  While exporting to us is beneficial to them, buying our treasuries comes at the expense of losing purchasing power. At some point they'd be much better off catering to demand from countries who can actually pay in currencies that aren't expected to be so heavily devalued (the writing will be on the wall for our devaluation before the fed enacts it, if it isn't doing so already as Jim Rogers and Jim Willie assert pointing to the steep increase in M2 AFTER QE2 ended -i.e. the fed is monetizing now but just won't publicly announce it).

Also, it is my understanding that the US will help bail out Europe if for no other reason than the massive CDS that could implode our banking system, and because if Europe goes down, the impact on our economy might ensure an Obama defeat next November.

If what you say plays out, do you see PMs dropping in the short?intermediate term depression period before rising meteorically thereafter?  If so, it might be best for people to hold cash/short-term CDs or something like that in order to buy PMs when they go lower before the inflationary runup. 

I am wondering your thoughts on this, and appreciate your insight!  Seems to me the timing and absolute nature of inflation/delfation is of paramount importance for people looking to preserve their wealth and possibly profit as the American Idol watchers become shocked victims of the collapse.  If PMs and other inflation protective items are going to fall in price, there's no reason to buy them now...

 

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 dmger14 and others - Great

 dmger14 and others -

Great thoughts on this thread.  One thing I have learned the hard way is when you try to get too cute with your investments, you usually lose.  As you all know, the consequences of both deflation and inflation are enormous.  The outcomes are very binary, and the consequences unforgiving.  If you have all your eggs in one of those two baskets, you are running the risk that even though you've done your homework on the economy, you may end up destitute.  I have considered breaking my investments into 50% PM (and, if I had more financial resources, farmland) and 50% cash so as to hedge against either outcome and protect myself and my family regardless of what happens.  I am currently more heavily tilted towards an ultimate inflation scenario and don't have a 50/50 split.  Probably being too cute -- a prolonged period of deflation could conceivably wipe me out.

I actually think that the most likely outcome is that we have short-term deflation (the Goldman Sachs boys will not lose....they will be on the right side of this trade and capture assets that have been defaulted on) followed by very high rates of inflation (again, perfect for the banksters who have the assets).  This is a wild guess at how it unfolds: The political pressure to stop the printing presses will mount and after the 2012 election they will probably stop or slow the printing, triggering a scary but brief bout of deflation, followed by political pressure to fire up the printing presses again (sometime 2013 to 2015) in an attempt to pull out of -- or at least create the illusion of pulling out of -- a terrible economic situation.  This will quickly debase fiat currencies.  Precious metals, farmland, and a whole host of other increasingly scarce commodities will do very well in the end, although it will be a bumpy ride and all of these things might do terrible in a period of deflation.

Save for the deflation-only scenario, I think PM and other commodities will ultimately do very, very well.  

Would love to see continued posts on this thread.  It's a tough subject.

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AWR,Good stuff.  I have

AWR,

Good stuff.  I have heard that scenario from a few people and it sure seems plausible.  I know Obama, Inc. wants to get reelected so moderate inflation, then deflation, then major inflation may be the path we're headed toward.  I also like your thinking on diversifyng for both inflation and deflationary environments.  If we have only deflation, or deflation and then inflation, cash would be good and can be converted to PMs when/if they go down.  As Jim Rogers and Jim Willie (Golden Jackass) pointed out, M2 has grown a lot since the summer, so it appears the fed is on stealth inflation mode, perhaps assisting with as good an economy as it can get for Obama. Also, the fed may print to keep the European contagion not only from tipping our economy into the obvious depression, but also to keep the bank contagion via CDS from collasping the financiarl system.  In the end, you can't write off the loss of purchasing power, and the government can't tax deflation.  TPTB are not only first to spend the freshly printed (or e-printed) dollars so get the most benefit, and can personally load up on PMs before they go astronomical.  Deflation would be met with an outcry for the fed to run the presses.  It would keep the game going longer, albeit at a terrible price.

 One of the things I keep thinking about is that I will have my retirement savings and inheritance coming my way.  If we have deflation, that money should hold its value. So my cash for deflation is partly offset by that scenario, albeit locked up for another 10 years or so.  I therefore think in terms of cash needed in the meantime, and PMs for inflation protection.  Seems like PMs in general, and gold in particular, are the only real investment in common for those who predicted the '08 collapse and are predicting a worse collapse in the next few years.  Foreign stocks might thrive or go down with the US, at least at first.  Maybe when foreign stocks bottom out, invest in foreign commodity companies, I don't know...

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 "...and the government

 "...and the government can't tax deflation."  This is a very good point.

 

As you elude to, stocks are pretty tricky.  Obviously if you think there is significant risk that the financial/banking system could fail, you will second-guess any decision to hold stocks with any financial institution as the custodian.  Legally you should (assumption -- I am not a securities attorney) still have ownership of the securities even if you can't access your account or if the securities are "hypothecated."  

http://silverdoctors.blogspot.com/2011/12/etrade-scottrade-fidelity-fine...

I wonder if it makes any difference to own stock AND have physical possession of the stock certificate rather than keep it in street name.  Maybe that way you could still go to the company have them send dividends, proxies etc directly to you rather than to some shady custodian.  Again, if things get real bad then the best strategy is probably just to own "real" assets that you have physical possession of rather than paper assets such as stocks that merely give you a claim on the cash flows.

I do think foreign stocks will ultimately outperform US stocks, but only those that are based in creditor nations, have large demographic tailwinds, etc (i.e. China and most of Asia).  But this is my long-term view...short term they will get hammered with the US as the myth of "decoupling" is exposed.  In my 401k I have $110K mostly in MLP pipeline stock here in the US.  Not ideal but no good alternative exists since there is no exposure to precious metals or commodities generally.  The MLP stocks pay decent dividends but since the Fed is artificially depressing rates, the dividend yields on these MLPs have come way down (read: their prices have been bid up) in the past few years.  In any event, in accounts that I forced to select from a very limited universe of investment candidates, I am trying to keep my money in depression resistant businesses with conservative corporate cultures and that put a high emphasis on maintaining dividend payments with a reasonable payout ratio.

I have no doubt that the best strategy is to own real, productive (other than PMs) assets.  I just can't bring myself to take the huge penalties associated with cashing out retirement accounts.  Ironically, either way the government will win with "tax advantaged" accounts...either inflate the value out of them or penalize those who pull out.

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MLPs have been good

MLPs have been good investments, and are regulated to ensure the opportunity of a reasonable return on equity.  However, MLPs are riskier than corporations because the Incentive Distribution Rights of the general partner to goose up the limited partner distributions in order for the general partner to receive a higher distribution themselves.  This forces the growth to be obtained from aggressive acquisition activity, with the MLPs often having to access capital markets, which can be at inopprtune times if the bond bubble pops.  Just a heads up in case you didn't know...

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 Thanks dmger14.  I

 Thanks dmger14.  I actually did know that and my primary concern with them is their need for functioning capital markets.  They are certainly exposed to permanent capital loss if debt markets collapse.  I said I invest in MLPs but I actually own the GPs as you mention because the IDRs are designed to benefit the GP.  A couple are set up such that the GP is financially healthy with other (non MLP) regulated cash flows and they are a viable option to provide some financing, but that is a stretch for a SHTF scenario.

You've got me thinking now...maybe I oughtta just take the big withdrawal penalty, cash out, and forgo the company match on the 401k.  Something to think about I guess.  

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If I could pull my money

If I could pull my money out, I'd do it.  I just saw a segment with Jim Rogers on Glenn Beck.  Rogers speculated that the government might claim that the stock market is risky, and force people into the "safe" treasuries like they are doing everyone a favor.  In reality, it would be to get new buyers of the tremendous amount of debt we need to float as China and other countries puls back. If you consider our total debt levels, how can we possibly continue much longer without some major new source of funds to the treasury unless the fed buys it all?

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AWR wrote:  In my 401k I
AWR wrote:

 In my 401k I have $110K mostly in MLP pipeline stock here in the US. 

Question:

If an investor realizes more than $1000 of Unrelated Business Taxable Income (UBTI) from all MLPs held in a single IRA/401K account, the excess will be taxable.  How are you getting around this?

Nate

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Presumably, that is the

Presumably, that is the money he has in there - mostly his contributions, but some income and capital gains as well.  I don't believe he has over 100 k of income.

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dmger14 wrote: Presumably,
dmger14 wrote:

Presumably, that is the money he has in there - mostly his contributions, but some income and capital gains as well.  I don't believe he has over 100 k of income.

The retirement account threshold for MPL income is $1k, not $100k before creating IRS headaches.  I was asking because there are other ways to skin this cat - ETF's, ETN's, mutual funds and closed end funds.  Each comes with issues, and I wanted to know what approach was used.

Nate

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safewrite wrote: Simply put,
safewrite wrote:

Simply put, I think we will have--are having-- deflation on luxuries and unnecessary things...and inflation on necessities like food and energy.

But then, I'm a simple gal.

IMHO, when you cut through all the inflation-deflation noise, this is what it boils down to.  (I'm a simple guy)

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 Nate - I mispoke.  I

 Nate - I mispoke.  I don't have MLPs in my 401k.  I have some company stock in a GP (Corp) of a MLP.

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This is exactly what we have

This is exactly what we have been seeing - biflation.  However, as we get more and more printing, at some point housing and even luxury items will stop falling and increase.  After all, they can't go to zero!  Also, we see silver and gold today getting hurt by deflationary forces.  With all the reasons why deflation is dreaded - can't tax it, it leads to a downward spiral in jobs and economy and bank failures, pain from unemployment being very visible, etc. it seems that the fed will try to inflate.  My money is on it, except I wonder if all that money printing is like pushing on a string, that no matter what the fed CAN'T inflate for some reason.  That money needs to get to people and maybe it will take a check in the mail like Bush's tax rebate.  If anyone can chime in on the fed's ability to get that money into the economy and causing price inflation, please do.

As a side note, I read an article today saying that banks much prefer deflation to inflation, which makes sense because at least they can repossess collateral that has SOME value, versus being paid in worthless paper.  I DO wonder if TPTB wouldn't simply and secretly buy PMs and benefit from the inflation. 

 

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This is exactly what we have

This is exactly what we have been seeing - biflation.  However, as we get more and more printing, at some point housing and even luxury items will stop falling and increase.  After all, they can't go to zero!  Also, we see silver and gold today getting hurt by deflationary forces.  With all the reasons why deflation is dreaded - can't tax it, it leads to a downward spiral in jobs and economy and bank failures, pain from unemployment being very visible, etc. it seems that the fed will try to inflate.  My money is on it, except I wonder if all that money printing is like pushing on a string, that no matter what the fed CAN'T inflate for some reason.  That money needs to get to people and maybe it will take a check in the mail like Bush's tax rebate.  If anyone can chime in on the fed's ability to get that money into the economy and causing price inflation, please do.

As a side note, I read an article today saying that banks much prefer deflation to inflation, which makes sense because at least they can repossess collateral that has SOME value, versus being paid in worthless paper.  I DO wonder if TPTB wouldn't simply and secretly buy PMs and benefit from the inflation. 

 

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Massive inflation makes banksters very unhappy
dmger14 wrote:

 

As a side note, I read an article today saying that banks much prefer deflation to inflation, which makes sense because at least they can repossess collateral that has SOME value, versus being paid in worthless paper...

I believe that is very true. This an excerpt from the article in the OP that I think is worth highlighting:

 

Please note that banks do not want hyperinflation or even massive inflation. The reason is simple: Banks will not want to be paid back with cheaper dollars, especially worthless dollars, and Congress is beholden to itself and the banks.

Hyperinflation could theoretically come from massive sustained political will to bail out the little guy at the expense of the banks, the wealthy, and the political class. However, unlike Mugabe and Zimbabwe, neither the banks nor the Fed nor the political class wants to bail out the poor at the expense of the wealthy.

 

 

 

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Forget About Inflation Or Deflation For The Moment

Just a quick thought experiment: Forget about cash or gold for the moment or inflation or deflation for the moment.

Get yourself some food and supplies (equipment, tools, etc.), store them in a cool, dry, dark safe location.

Because in the end, whether we'll have inflation or deflation - either environment could be economically disastrous and you may not have a job or be able to bring in an income stream sufficient to keep up.

But you'll still have some food and supplies. In either outcome, it's possible that some of that stuff won't be as easy to acquire as they are today. Factories may close, supplies may be harder to come by, regardless, and you'll have had use and practice with durable equipment and tools. In a deflationary environment where money is hard to come by, you'll be glad you don't have to spend as much because you already have things on hand - and likely you'll not be as upset that you paid more for things "before teh crash". In an inflationary environment, you'll also be glad you don't have to spend as much either, and you may even have goods to trade with.

Poet

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Inflation/Deflation, Banking and the future day of reckon

 

As a side note, I read an article today saying that banks much prefer deflation to inflation, which makes sense because at least they can repossess collateral that has SOME value, versus being paid in worthless paper. 

 

I'd be interested in reading that source. I'm a bit skeptical of it because in traditional banking Deflation is a disaster.

Here's a grossly simplified version of why: When banks in the US lend they do so by leveraging their capital.  If they have $1 million they can go on to lend $10 million which is a 10:1 ratio.  This extra $9 Million they are legally allowed to "conjure" into existence (yes it's true) which is the main way our money supply is expanded.  Or as many like to put it, they create it out of thin air.  Understanding this fundamental truth of the fractional reserve lending system is key to understanding our economy and financial future.  By law, the banks balance sheet must maintain this 10:1 ratio, expressed as their "capital reserves".  In layman's terms when they lend out this $10 million, the assets securing the loans must not cause a bank to fall beneath their capital reserve ratio of 10 to 1.

Now lets look at this through the lense of Deflation.  Bank "A"  lends out $10 million.  Their capital reserves are $1 million.  The value of the assets securing the loan are $12 million since this bank doesn't loan up to the full value of the house, instead they require a down payment before they will lend.  Now lets say the housing market experiences a real estate slump the following year.  The value of the assets, i.e the houses that they lent the $10 million on, decreases by 10%.  So now instead of having assets (homes) worth $12 million on their books, these homes are now worth $10.8 million.  Bank "A" is dangerously close to their minimum reserve requirements.  Should the houses securing their $10 million loan portfolio take another 10% hit they will have to raise capital to boost their reserves above the 10:1 ratio .

And if some borrowers stop making payments on thier loans?  Now all of a sudden the bank cannot count the loan as an asset.  It's a liability which must be counted against their balance sheet too. On a grand scale this results in all lending halted, jobs lost more borrowers not making payments and further decreases in asset values, i.e a "deflationary spiral" where banks go bust.  It's happened numerous times with thousands of banks perishing in this very manner.

If they cannot boost their reserves they go into "receivership".  The FDIC comes takes over the bank, makes up for capital shortfalls and sells off the bank assets - desks, computers, buildings etc. Prior to the FDIC people who had their money in the bank i.e the true owners of the $1 million in capital, would fear that the bank go over extending and that their $1 million might not really be there anymore and withdraw en mass.  In times past this was called a bank run. This is why deflation is such a huge fear for banks.

Now recall I said "traditional banking".  This is because the laws regarding traditional banking have been suspending here in the US.  Banks do not have to admit that the properties they have on their books have declined in value (even though everyone knows the have). In other words they do not have to "mark" the value of the homes in their loan portfolio "to market".  This is thanks to an emergency provision by the FASB (Financial Accounting Standards Board).  The banks are legally allowed to hide the true value of their assets securing their loans. Many many banks in the US are technically insolvent without this provision.  

Now we know why the Fed and the US gov't desperately wants to prop housing and why the whole banking system began to implode.  

Miscellaneous Notes

  • This very same leveraged deflation is occurring in Europe right now, however they do not have a Fed who is pumping bank reserves thus their imminent demise
  • This is why the Fed desperately wants/needs inflation.
  •  

    This is why Mish calls phoey on hyperinflation predictions (and he's right)

  • This is why the Fed's QE efforts have NOT cause significant inflation.  The Fed is "merely" (lol) pumping Trillions into bank reserves so they don't go bust.  This money is not being released into circulation.....yet.  However they are refilling the buckets and this pumping will spill back into the economy eventually.
  • This period of non-inflation could go on for some time.  Japan did type of "kicking the can down the road" for almost 2 decades.
  • The bigger risk is the risk the Fed has put on our currency by issuing debt to fund these bank repairs.
  • There will be a day of reckoning

  Conclusion:  Folks Inflation is coming, but right now we are not "printing money" in the form most people think of.  We are repairing banks balance sheets which are a clinical way of saying we are giving the banks money to compensate the losses they have on their assets in order to keep their capital ratio in tact.  Think of this as an opportunity.  Position yourself accordingly (including Poet's recommendations). When the banks are on a sound footing,  they go back into the business of lending (which increases money supply) and there will be a new gush of money going into circulation -i.e inflation.  I don't think this will cause hyperinflation (high inflation yes, hyperinflation..... maybe but far from certain).  If our sovereign debt gets out of hand though, just like Greece, Italy and others are experiencing now, then the Fed may have to directly monetize our debt (an inflationary default). If that happens look out!  

 

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