John wrote:1. You say that the Fed can "print" an unlimited amount of money. But as I've been saying, that's politically impossible. You're seeing that today. The Fed's "modest" QE program is generating an enormous political backlash, both nationally and internationally.
The Fed at $100 billion per month will be essentially covering the whole deficit of the US Federal government. This is not a "modest" amount of money by most measures.
I don't mean that they can print an unlimited amount this month, Ben would get in trouble. But if people stop buying government bonds and want cash for bonds they hold as they come due, the political pressure on Ben will be to buy more and more bonds so the government can pay off the bonds coming due. The backlash internationally will be that they dump their bonds and stop buying new bonds. This will add to political pressure for the Fed to print/buy more.
I think we are less than 2 years from when they start printing/circulating $1,000 bills. Other central banks worked with political pressure to make hyperinflation. I expect the US central bank will too.
John wrote:Once again, I can make the point that a so-called "gold standard" is completely irrelevant. If the politicians want to weaken the currency, then a gold standard won't stand in the way; if the politicians don't want to weaken the currency, then a gold standard is irrelevant.
2. When I wrote about an international "race to the bottom," you said that this would weaken the dollar and create (hyper)inflation. Once again, that's impossible. You can't weaken all currencies at once. When one currency weakens, another strengthens. If there's a race to the bottom, then all currencies remain equally weak or strong.
You may be imagining that when China prints yuan they buy up dollars or yen and so take some of those out of circulation. This is not the only way things can go. They can just print money and spend it (ok some bonds may change hands between central bank and government). The US will not be buying up any other currencies when they print money.
Don't think about any "gold standard". Think about my 1/10th oz gold coins or 1 oz gold Kugerands or something. Or silver coins. US customs classifies pure gold coins with a stamped weight as "currency" not merchandise. The currency symbol for gold is XAU and the units are 1 oz. Really.
Now all the paper currencies can "race to the bottom" as each country prints more of their paper. Theoretically they might even each maintain the same ratio to dollars that they had at the start of the race. In this case the "dollar index" would stay the same. So in this sense it could well look like the dollar is not getting stronger or weaker relative to other paper currencies. But nobody is printing gold like that, so it is not part of the race to the bottom. When the race starts the best currencies to hold are gold and silver. These get more and more valuable when measured against any of the paper currencies in the race. Also, commodities get more expensive when measured in a rapidly printed currencies. Seems like the race has started.
I really expect all the paper currencies to weaken when measured against commodities or the two hard currencies, gold and silver. Most paper currencies are backed by dollars, so when the dollar falls they will fall too, even if they were not trying to be part of the race. Again, it seems like the race has started.
John wrote:3. Meanwhile, the CPI keeps falling into deflation levels, as it did in America in the 1930s and in Japan in the last 20 years. This is generational, and QE has nothing to do with it.
I cannot see any realistic scenario that leads to any sort of inflation.
The CPI is not falling 30% like it did in the 1930-1933 timeframe when people were taking gold coins out of the Fed's Ponzi gold standard where they had 2.5 paper dollars for every dollars worth of gold while saying all paper dollars could be turned in for gold. Also, the CPI is rigged now.
If you think printing money has nothing to do with inflation, why have taxes? Why not just print money for all government expenses? The $100 billion per month printing is about 40% of the Federal governments spending. Why not just cancel every kind of Federal tax and print $250 billion per month?
Most people hold short term bonds now. If people stop buying bonds and are getting their bonds paid off as they come due, the government/Fed is going to have to print a huge amount of money. Maybe $4 trillion to cover bonds coming due in the next 12 months. How is this not a realistic scenario for inflation?
Note, there are many real countries that have already tried printing money for all their deficit spending. If deficit spending/printing is like 40% of government spending it always causes big inflation. Always. When inflation is clearly higher than bond interest rates people stop buying bonds. With debt levels of 80+% of GNP and deficit spending of 40+% of spending, then when bond sales fail and the government/central-bank has to print to cover bonds coming due it always causes hyperinflation. I link to a couple books in my document that cover some of this history.
I am expecting you and Mish to understand hyperinflation right before the rest of the world does. Be sure and let me know when you do.