"Flooding" would be an appropriate word.
Soaking it up might be the tough part.
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17 comments:
I sort of agree with Mish on this point though. This money won't cause much inflation (at least not yet), because it's not actually being circulated - the banks are hording it like crazy and are refusing to lend.
Also, the credit destruction will soak a lot of it up. Most (well, technically all) money in circulation is fictional and was created by fractional reserve banking through lending. This money is now being destroyed when the same process plays in reverse.
"A pick up in the growth rate of the M2 money supply is sometimes used to predict economic recoveries."
Another outstanding graph. The growth rate can always be used to predict monetary inflation, and how much everyone's savings are being depleted.
Reward the debtors, destroy the savers. Thanks for nothing Federal Reserve.
Since the economy seems to be more messed up now than in 1980, it looks like the m2 will have to go much higher than in 1980 before a recovery. Maybe to 30%. Hard to tell given how compressed the timeline is, but it looks like another year before that happens.
The strangest part of this whole episode is watching the worldwide strength of the US dollar, as Bernanke intentionally destroys the value of the currency. And you ain't seen nothing yet - wait until he starts buying US bonds as he said he would.
Yet people all around the world are desperately exchanging out of their local currencies and into US dollars.
Last weekend I watched as people got paid in their currency, then rushed to the currency exchange booth and regardless of the rip-off exchange rate converted into dollars.
It is truly bizarre. It's surreal.
Bernanke's not printing them fast enough apparently. The demand is greater than the supply.
For now.
"Yet people all around the world are desperately exchanging out of their local currencies and into US dollars."
The Pound and the Euro have lost all credibility in the crisis.
So now, it's the reserve currency (i.e. USD) and PMs (Gold/Silver). It's not all that surreal, politically speaking, the US is the most stable of the western powers and is yet to be overthrown by a mob.
Earlier, the European currencies were the anti-dollar, now, there is no anti-dollar since Japan is always trying to dish the Yen for the local exporters.
Agree - people in Hungary, Latvia, Lithuania, Poland, Bulgaria, Estonia, Russia etc aren't lining up to get Pounds or Euros. They want dollars. That's it. And they're even charging for things in dollar terms - not their local currencies anymore.
Won't it be interesting if the world burns and the US emerges first from the carnage just because we're the world's reserve currency. Even though we're doing everything we can to destroy it.
"Won't it be interesting if the world burns and the US emerges first from the carnage just because we're the world's reserve currency. Even though we're doing everything we can to destroy it."
It may be the only thing which saves it in the end.
Think about it, 70% of hi-tech work is in east Asia (countries from Japan to Singapore), with more going there, year by year. If you remember the 1985 Bond film, "View To A Kill", Christopher Walken tried to literally destroy Silicon Valley as a way of shutting down 80% of the world's chip production. How laughable is that plot nowadays with today's negligible production over in SV?
And at the same time, manufacturing is mainly DOA, stateside, outside of key DoD ventures which is now, an overwhelming majority of Texas Instrument's & iRobot's revenue stream.
All and all, with the loss of Wall St's overall prestige, the financial economy will eventually move to east Asia where the actual work is done. I suspect Singapore will be its capital since it's politically western friendly but neutral to the likes of a China/HK, Korea/Japan, or Malaysia. And as the money changers move east, the US will begin a long decline with 320 million persons but low paying jobs for them. Likewise, the welfare prone states, with mineral export economies (see Canada/Australia), will be able to provide a lower middle class existence to its citizens. It's the major reversal in history as the west becomes poor and the east, well off.
And of the western world, the Europeans will probably be the poorest, as the EU failed to achieve anything above what the ECC had already accomplished from the 60s to the 80s. Instead, it's a non-sustainable political morass with member states bickering about everything. I suspect some high end fashion designers may linger on but with continental Europe's dysfunctional tax structures, even they'll move to Bermuda to design Milan's latest outfits along with the Chocolate makers.
But wait a minute, you are citing M2? But I thought you guys preferred shadow stats and you claim that M2 numbers were bogus lies from the corrupt govt. A giant conspiracy held together by ultra-disciplined conspiratorial Americans, but wait a minute I thought there were no disciplined Americans. Oh, I see, only in govt. positions are there disciplined Americans, but wait I thought they were all corrupt and lazy, disciplined, conspiratorial, selfish, undisciplined, corrupt,...help....me....I.... can't....process......
The contradictions are making your head explode.
I doubt any fiat currency will survive this disaster. For now we're not seeing inflations since banks use the bailout money to fix their balance sheets and very little credit is issued. Consumers are afraid to borrow or spend, the velocity of money is near zero.
A DETERMINED FED and government could pump enough money via bailout and stimulus into the economy to cause inflation. Send everybody a $1 million stimulus check and I guarantee you the result will be inflation. How far will they go? Nobody knows. The problem will be the debt that is accumulated through reckless spending. With a declining industrial base our ability to service that debt is diminished. Sooner or later (most likely in a decade or so) tax revenue will be insufficient to meet payments so we need to borrow ever increasing amounts just to service the debt alone. Exponential growth is a bitch, especially if it is working against you.
Here's a guaranteed path to riches for all of mankind.
The planet earth has a radius of 6400KM. Volume = 4/3* pi * r^3 of about 1.1x10^12 KM^3 or 1.1x10^27 cm^3. Gold has a density of about 20/cm^3, a troy oz is about 31g, so that works out that the entire planet in solid gold would weigh about 7.1x10^26 oz. Now assume someone would have invested the equivalent of 1 (one!) oz of gold 1236 years ago at 5% interest per year. We would have e^(0.05 * 1236) = 7.1x10^26.
So the investment of 1 ounce of gold at 5% over 1236 years would provide enough money, equivalent to the entire planet made out of solid gold. Nobody would ever have to work anymore, we would all be billionaires...and they lived happily ever after.
That's to illustrate the power of exponential growth. Unfortunately the exponential growth we're experiencing is not in our favor but working against us. Inevitably the system has to collapse through default (=deflation) or money printing (=inflation). There's no other way out shy of nuclear war or aliens evicting us from planet earth. Sorry guys, earth is getting foreclosed on. You have to find another planet you can wreck.
Meanwhile...
Jumbo Loan Defaults Rise at Fast Pace as Rich Suffer
Feb. 20 (Bloomberg) -- Luxury homeowners are falling behind on mortgage payments at the fastest pace in more than 15 years, a sign the U.S. financial crisis that began with the poorest Americans has reached the wealthiest.
The jump in late payments on jumbo loans, while still lower than the 20 percent delinquencies in subprime mortgages, signals that the borrowers with the most money and the best credit are hurting as the U.S. recession deepens in its second year. It also means these loans will be even more difficult to obtain and more expensive to pay off.
Money added to cover holes and pork doesn't do much for recoveries, especially when there's a historical shift in overall consumer behavior.
Agree - people in Hungary, Latvia, Lithuania, Poland, Bulgaria, Estonia, Russia etc aren't lining up to get Pounds or Euros. They want dollars.
And they all want to move to Florida.
All and all, with the loss of Wall St's overall prestige, the financial economy will eventually move to east Asia where the actual work is done. I suspect Singapore will be its capital since it's politically western friendly but neutral to the likes of a China/HK, Korea/Japan, or Malaysia. And as the money changers move east, the US will begin a long decline with 320 million persons but low paying jobs for them. Likewise, the welfare prone states, with mineral export economies (see Canada/Australia), will be able to provide a lower middle class existence to its citizens. It's the major reversal in history as the west becomes poor and the east, well off.
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You need to quite smoking crack or dreaming your asian investments are going to make it. 100 years ago China had the second largest economy on earth with the most corrupt government. They completely imploded and stayed their until Clinton and wallstreet began selling them the US standard of living.
100 years from now the Asians will be living in trees again due to their corrupt culture. A top CIA analist (very succesful as well as respected) predicts this. The current US government will be taken down in a collaspe. IT REMAINS TO BE SEEN WHETHER OR NOT THEY WILL BE EATEN. As for Asians being somehow more honest than western people, well your just ignorant.
The Chinese state owned banks just borrow money and don't pay it back to the tune of 1.7 Trillion. Difference between asian and western culture, talk about it in China they either expell or kill you want to hear about here turn on the TV.
PS 20 years ago the Japanese were going to own us all remember. If I were you I would not invest in Japan today. They are asian. Please don't tell me about how well Japan is doing I watch the numbers. The US will rebuild after all the corrupt greedy scumbag globalists are hunted down and eaten. Goodby closet globalist.
Good post, Vanilla ice. You also mentioned,
"Consumers are afraid to borrow or spend, the velocity of money is near zero."
Actually, some of us consumers are so very pissed about what's going on that we've slammed our wallets shut.
Taking money out of a HELOC or a credit card and spending it is CREATING money, real money. So the massive destruction of that credit now taking place must be factored into the money supply. The M2 could soar 500% and we'd still have deflation. This is not 1980 and this is the problem the Fed has right now.
Paypal is a 3rd rate service. They made it sound like they would check my bank balance and use my credit card as a backup source if I didn't have any money in my ban acount. Low and behold, I get hit with overafe and nonsufficient charges on my bank account for 10 transactions. union bank beeing greedy SOBs don't want to negotiate on the $30 per transaction bullshit fee times 10 transactions.
yoski said,
I'm going to have to find another planet....
F**K !
I just planted a tree and put up a swing set.
.
"100 years ago China had the second largest economy on earth"
You mean after the British had bent them over in the Opium war? China, I believe, was the 'sick man of Asia' back then.
Next, Britain controlled, except for Thailand & French Indo-China, all the countries from the middle east to Singapore in South & SE Asia.
The largest world power back then was Britain, certainly not China.
Now, Britain has minimal powers in Asia and the whole region is in ascent.
"PS 20 years ago the Japanese were going to own us all remember. If I were you I would not invest in Japan today. They are asian"
If you think the Japanese and the Chinese are the same peoples, then you're smoking something. That's like saying that the Brits and the Russians are the same culture because they have a similar skin pigment.
"dreaming your asian investments are going to make it."
I didn't *invest* in Asia. And the only place in Asia where I'd keep any cash is Singapore because it's a defacto British ex-pat banking center. And the name of the game now is Forex swing trading, not equities.
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