Not a hint of hyperinflation in Japan and rates have been at 0% with numerous periods of quantitative easing (read printing money) for over a decade. Japan is actually reporting deflation.
The velocity of money, as you rightly point out, has slowed massively. Money that just goes into the pockets of bankers (Fed lending at 0% to big banks who lever up and buy treasuries at 3%) is just not getting money moving in the economy.
The govt’s control over the economy is a lot weaker than people seem to think. Controlling the short end of the yield curve can be done much easier than the long end.
on July 14, 2010 at 5:10 am Jesse @ Tyrone (cont)
One might even argue significant inflation (not hyperfinflation by definition) already happened in this country. The dollar has since rebounded against the euro, but within a ten year period the dollar went from $0.80/euro to nearly $1.60/euro. Real estate, of course, went up dramatically along with the price of oil (denominated in dollars) and the stock market and gold (priced in dollars). All of these assets priced in euros showed much smaller appreciation, if any. Clearly there was dollar inflation happening at a huge pace.
Inflation is simply an expanding money supply chasing asset prices higher.
Look at money supply figures since we went off the gold standard during the Nixon administration. They have gone straight up, particularly during the last 15-20 years. Take it back further and the dollar has lost 99% of its value since FDR. That is by definition inflationary–seriously fucking inflationary.
Now we are in a cycle of debt destruction (meaning asset prices as supported by debt are falling). This in turn forces the value of the dollar higher as the amount of dollars outstanding is declining. Note that the dollar is a commodity like any other, governed by the laws of supply and demand.
One way we might jump the shark to hyperinflation would be for China and other foreign debt holders to sell Treasuries and other US assets. This flood the world with dollars, more dollars than are currently being elminated through debt destruction. China and other foreign holders would find their US assets hurt in the process, however, as they own too much to sell all at once without effecting the market significantly. Chances of this happening are tiny.
I see decades of deflation similar to Japan ahead for the US. We are following the Japanese model: zombie banks, stimulus plans, and quant easing. It failed for them to produce inflation and it will fail for Big Ben.
Not a hint of hyperinflation in Japan and rates have been at 0% with numerous periods of quantitative easing (read printing money) for over a decade. Japan is actually reporting deflation.
ReplyDeleteThe velocity of money, as you rightly point out, has slowed massively. Money that just goes into the pockets of bankers (Fed lending at 0% to big banks who lever up and buy treasuries at 3%) is just not getting money moving in the economy.
The govt’s control over the economy is a lot weaker than people seem to think. Controlling the short end of the yield curve can be done much easier than the long end.
on July 14, 2010 at 5:10 am Jesse
@ Tyrone (cont)
One might even argue significant inflation (not hyperfinflation by definition) already happened in this country. The dollar has since rebounded against the euro, but within a ten year period the dollar went from $0.80/euro to nearly $1.60/euro. Real estate, of course, went up dramatically along with the price of oil (denominated in dollars) and the stock market and gold (priced in dollars). All of these assets priced in euros showed much smaller appreciation, if any. Clearly there was dollar inflation happening at a huge pace.
Inflation is simply an expanding money supply chasing asset prices higher.
Look at money supply figures since we went off the gold standard during the Nixon administration. They have gone straight up, particularly during the last 15-20 years. Take it back further and the dollar has lost 99% of its value since FDR. That is by definition inflationary–seriously fucking inflationary.
Now we are in a cycle of debt destruction (meaning asset prices as supported by debt are falling). This in turn forces the value of the dollar higher as the amount of dollars outstanding is declining. Note that the dollar is a commodity like any other, governed by the laws of supply and demand.
One way we might jump the shark to hyperinflation would be for China and other foreign debt holders to sell Treasuries and other US assets. This flood the world with dollars, more dollars than are currently being elminated through debt destruction. China and other foreign holders would find their US assets hurt in the process, however, as they own too much to sell all at once without effecting the market significantly. Chances of this happening are tiny.
I see decades of deflation similar to Japan ahead for the US. We are following the Japanese model: zombie banks, stimulus plans, and quant easing. It failed for them to produce inflation and it will fail for Big Ben.
And, yes, you guessed it correctly.
ReplyDeleteQuantitative easing is feminine.
Very feminine.