Two pet peeves

One of the arguments against inflation currently is that although the gov't is printing money, that money isn't being circulated throughout the economy. So inflation can't happen because the expansion isn't reaching everyone, it's being held up between the FR and the banks.

I would like to hear opinions on this from both sides of the table.

 

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This is basically true. Money isn't really being printed and circulated as many internet authors indicate is the case. The US government is going into debt to prop up the banks and a few other companies. So it is really a transfer that puts debt on the balance sheet of the Treasury and puts an offsetting asset in the form of a Treasury bond on the bank's balance sheet to increase their reserve. This enables the banks to lend more, but they are choosing not to. As long as this remains a balance sheet transaction and the US government can service the debt, in theory there shouldn't be an inflationary impact.

Now if other countries get worried about the rising level of US debt and start dumping dollars, the exchange rate for the dollar will fall and the price of imports will rise. This might be inflationary or deflationary depending on how it is financed. If the Fed doesn't increase the money supply, it will be deflationary or neutral since rising import prices will be offset by drops in other prices. But if the Fed finances it by increasing the money supply as they did in the 70s to finance the purchase of oil at rising prices, then and only then will we experience the generally rising price level for all goods and services that is commonly thought of as "inflation."

So things are not as straightforward as many internet gurus with doubtful economic credentials but large egos will have you believe.

 

Wow. I've had to read it multiple times. You always provide very thorough responses. So basically, there are still certain financial moves to be made down the road that can greatly affect the turnout whether it's inflation or deflation...

Job numbers reported today haven't really made PM's spike all that much. About $8-10 bucks today. So who knows what other events in 2010 that could really throw a wrench into our economic thought.

Anyways, this is really good to know and keep in mind. I do agree, I watch a lot of youtube videos with who I call "amateur economists" just repeating a lot of the same doom and gloom printing of our money, and I question how fundamentally sound they are in economics.

 

I think you just answered your own question. They're on Youtube, where anyone with a first grade education can post a video, so that says a lot.
Guy~

 

I can guarantee you it won't be deflationary. We could of had a deflationary economy last year, but that wasn't allowed to happen. Think about it some.

 

Some of the videos are so annoying. If you're going to even bother posting a video, why not put some effort into it. Some people slur or they don't even have their opinions well thought out so they just blab away.
If I made a mistake while talking, I'd cut the video and start again. Make it worth someones time to watch my video...

 

I agree, Fools Gold, especially if you're going to put your face and thought out there for all to see, at least make it comprehensible. But, I'm kinda like you in that I'll surf Youtube and get a feel for how some others are thinking, even if I disagree with them. Sometimes it's funny, sometimes scary.
Guy~

 

I will agree that the talk about the going to a barter system and using silver as a means to pay for things is ridiculous. Anyone with half a brain should be able to figure out that even if money become virtually worthless, nobody is going to simply abandon it completely, and go to something most consider ancient. No, people will just continue to use the severly devalued money that is given to them to use.

I think this has been an interesting discussion......I'm willing to let this thread fall to the way side. As they say, hind sight is 20/20. So, why not let this thread be forgotten. I'll bump it up sometime in July or August of this year and we can re-examine.

 

I'm ok with letting this thread die until later this year. It will be interesting to see where silver is. Does it even hit $20?

Just to add, I don't think we'll have a MadMax scenario. Most likely, the most realistic scenario is that we all deal with higher prices in everything that we touch.

Our gov't will continue to do bailouts here and there, force everyone to pay for these bailouts while not directly benefiting from them.

The dollar has already lost a lot of purchasing power since 1970's and we still haven't had a Max Max scenario....

 

bump

 

Why are you trolling around today digging up months old threads without adding anything new to these threads...?

​

 

This topic is more relevant today then when this thread first appeared, since the Fed has started QE2.

 

This explanation holds much more value than does the word 'bump'. Thanks for providing some context for why you felt it was important to return to the topic.

 

I hate quoting myself, but this does show that I did intend to bump this thread up much soon, I said July or August. So, I did have this intention all along. Let's re-examine, please.

 

Your definition of inflation is somewhat lacking. If the economy grows 5% in a year, we need a 5% larger money supply simply to keep prices level. Most people define inflation based on the buying power of money. If my $1 buys less in the next year, then we've experienced inflation.

 

Well, I bought a bunch of Ford preferred shares when they were around $5. Now, they're around $55, and they paid a pretty hefty deferred dividend last fall. Not everyone relies on hindsight to pick stocks.

The biggest play that i have right now is BP and I'm up ~30% since I bought my shares. I'm waiting a little longer to see if they reinstate their dividend, and if they don't, I'll take my profits.

 

I'd put eBay at the top (ie; the bottom) of that list. People are still paying above melt, especially for jewelry in wearable condition.

 

+1

There are some people who collect fine artwork. Even when there is a spike in the price of oil, that doesn't mean everyone who collects oil paintings is a commodity speculator.