Financial topics

[John]

Hussman has real data to show that the velocity of money is a largely a f u n c t i o n of the interest rate. As interest rates go down the velocity of money goes down, if they go up the velocity goes up. So when the Fed makes new money to buy bonds it is increasing the quantity of money but lowering the velocity of money, at least for awhile. But the odds are the impact on interest rates is temporary and the increase in money is permanent and so we will get inflation eventually.

Unless Hussman's data is from the 1930s, it's irrelevant to today.

John

[vincecate]

Unless Hussman's data is from the 1930s, it's irrelevant to today.

It makes more sense to say that unless we are on a gold exchange standard that the 1930s deflation is irrelevant to today. The deflation back then was only in the first 3 years till they got off the gold standard for citizens and started printing money. We never went back on a gold standard. Back then they got like 10% deflation per year for 3 years as people took their gold out of the Fed which then had to reduce the money supply by 2.50 for every 1.00 worth of gold taken out. We are not seeing this 10% per year at all so far and it has been 4 years since the start of this thing. To me it looks like there are less and less people talking about deflation being a threat. You are still predicting a 30% drop in the CPI?

http://howfiatdies.blogspot.com/2010/11 ... ndard.html

[Higgenbotham]

Instead of hyperinflation, I'll call it monetary breakdown. Deflation wouldn't be a monetary breakdown, but the opposite, as cash becomes more valuable.

Anyway, the only way to avoid a monetary breakdown is either for the authorities to enable the bankruptcy laws, the use of which have prevented monetary breakdown of the world reserve currency for 5 centuries of Western civilization, or for the citizens to effectively bankrupt the insolvent institutions by withdrawing their cash and refusing to take their checks.

I believe the window has passed where either of those 2 things will happen. So, as I see it, we're outside of the 5 centuries of history covered by the rise out of the 14th Century collapse and mini Dark Age in Europe. We will, in my opinion, see a monetary breakdown. That doesn't mean there will for sure be a hyperinflation but there probably will be. It could be a slow steady breakdown as the population dwindles and the government does a controlled debasement. But I see that unlikely in today's world. The breakdown is more likely to be catastrophic and it will resemble hyperinflation. One day the system will just stop functioning. The algos alone could be the trigger for that. To have deflation, generally, you have to partition off the rot and save the part of the system that is functional and solvent. The leadership and the citizenry shows zero propensity to do that, either here or in Europe. Yes, houses can become nearly worthless because many people have no means to purchase but at this time that is pseudo deflation and part of a larger breakdown process.

[aedens]

This sums up the problem since we are all Keynasians now since the Smithsionian accord of dirty float.
In an increasingly integrated world economy, the currency rates impact any given country's economy through the trade balance. In this aspect, almost all currencies are managed since central banks or Governments intervene to influence the value of their currencies.
"Here is a example from the FT intellectual parrots"
"Credit systems are not "designed". They happen, congeal, converge, evolve, explore, test boundaries, etc etc, alongside and deeply entwined with various institutions and technologies. That is one of the many things the Austrians have never understood."

It is impossible to lift the Keynasian veil with these people as quoted above. John explaination is telling of the endless parroting we will endure until as Higg correctly points to the clearing mechanisms from inept actors protected from the true velosity of money as we all understand here and the actual mechanism's or lets say traction to natural interest rate to sound money. In the context of todays proxy war we ARE in and HAVE been in the interest rate does not include a actual risk premium in our mixed market which we monitor as reality. In addition both agreements, i.e 1971 made mistakes, similar to the Bretton Woods Accord and in 1973 collapsed. The collapse of the Smithsonian agreement and the European Joint Float in 1973 signified the official switch to the free-floating system. This occurred by default as there were no new agreements to take their place. Governments were now free to peg their currencies, semi-peg or allow them to freely float. In 1978, the free-floating system was officially mandated. In a final effort to gain independence from the dollar, Europe created the European Monetary System in July of 1978. Like all of the previous agreements, it failed in 1993. In todays context they do not run or ever have run a Business, we have. There are 3 rules to capital and 99 percent cannot even name it. Governement tolerates Capitalist's and the Consumer is King in the long run period. We can point back to many Centurys of so called Keynasian regimes and we have here in the forums of GD realities to economic facts that money is decided on by market conditions and not idiots in the long run with paper fools spending other people which they will run out off. There is no economic difference between socialism and communism, ask Putin. In Europe they just voted Ruere in servitium. They are dead and do not even know it yet in the eye of historical fact and in GD purvey. I feel the purview who banksrupts "property rights and contract fullfilled" the most effectively will win the future and maintain stability even with fiats demise in zones since it is designed to fail and accomodate Statist inflationary facts of design. The people decide what is money not elected puppets in the long run and we all know the algos will kill it quicker in addition.

[Trevor]

About the only bit of good news that i can think of is that when the housing bubble is fully deflated, homes will be a lot more affordable. Of course, that won't be for years yet. I still lean more towards deflation, but we'll have to wait and see.

Over the last couple of years, some people are also taking to calling my generation the "New Lost Generation" due to a lack of economic opportunities.

[Higgenbotham]

The clearing mechanisms from inept actors protected from the true velocity of money as we all understand here and the actual mechanisms or lets say traction to natural interest rate to sound money.

Exactly what I mean to convey. Or, the natural interest rate on a deposit account at an insolvent US institution unprotected by the Fed would be high enough to bankrupt the institution. Who pays for that? The payment for that is inflation. An instantaneous absence of naturally occuring deflation is inflation. A chronic absence of naturally occuring deflation is monetary breakdown. All external symptoms of the patient can appear normal until catastrophic breakdown. Or, the appearance of the bridge or that of a population as you pointed out, given that the feedback mechanisms of control are destroyed.

[Trevor]

Something else I would expect to happen is that the United States will no longer be the world's reserve currency. The Euro currency is falling apart and I would be amazed if it lasted throughout this year, considering the condition that Spain is in. It's harder to just print money when there are trillions of dollars of foreign reserves and if others believe that our currency is devaluing, they may decide to hold their money somewhere else.

[aedens]

The clearing mechanisms from inept actors protected from the true velocity of money as we all understand here and the actual mechanisms or lets say traction to natural interest rate to sound money.

Exactly what I mean to convey. Or, the natural interest rate on a deposit account at an insolvent US institution unprotected by the Fed would be high enough to bankrupt the institution. Who pays for that? The payment for that is inflation. An instantaneous absence of naturally occuring deflation is inflation. A chronic absence of naturally occuring deflation is monetary breakdown. All external symptoms of the patient can appear normal until catastrophic breakdown. Or, the appearance of the bridge or that of a population as you pointed out, given that the feedback mechanisms of control are destroyed.

Yes, ask the Dinar. Anyway, bankruptcy is not the end of assets and 99.99 do not get it anyway. If Bondholder had the mind they serve the assets
under Bond as discounted managers. These Keynasian idiots are statist babal worshippers. Legal framework is a different reality of Business to State.

[Higgenbotham]

Prosecutions for fraud occur when there are sudden losses and resultant anger due to bankruptcy (Madoff for example). When there are no sudden losses but only debasement losses as when the Fed keeps fraudulent and insolvent institutions afloat, there is not enough concentrated anger to trigger sufficient demand for prosecutions. Bankruptcy, therefore, is necessary to maintain morality as well as to avoid monetary breakdown. Just my 2 cents.

[Marc]

One could also respectfully add that a liberal bankruptcy policy is also good for innovation. While I realize that having a "super-liberal" bankruptcy policy that is little more than a license to steal would be counterproductive, a liberal bankruptcy policy allows the entrepreneur to fairly quickly get back on his or her feet and try again. I think that the United States' excellent track record in innovation is related partly to this, as well as due to the ability of consumers who have gotten way over their heads to start afresh with new economic/consumer lives.

As for the US losing its reserve-currency status shortly, I respect those arguments which state that it is bound to happen shortly, but I personally feel that the US will keep its reserve-currency status for some time. The reason I say this is that I really see no other truly potential competitor out there which is suited to being the new reserve currency. The Eurozone is having serious stability problems, and China lacks the legal and democratic framework to create a global reserve currency anytime soon (not to mention its time-bomb–like economic problems). Other potential candidates (such as the Japanese Yen or Swiss Franc) just don't seem to have the heft and global-market influence to become reserve currencies anytime soon, I feel. The US, economically, is apt to be, to quote John's words, "the tallest midget." As such, the US will have economic problems aplenty, but is still likely, I feel, to have the world's reserve currency, barring Fourth Turning outcomes which cause catastrophic damage to the US homeland.

Thanks, all, for the insights. —Best regards, Marc