| Archive for Downsizer For an ethical approach to consumption |
| James |
Record Federal Reserve LendingThe Federal Reserve bank of Saint Louis is one of 12 regional fed. reserves that make up the national FRB. They hold the largest, national economic dataset in the US. In the 1960's, their president published research relating the growth of money to inflationary pressure. ( source )They have recently published this graph, showing the total amount of borrowing of institutions from the Federal Reserve (in other words, how much the Fed has lent ). ( source ) Given that more money = more inflation, it looks like the Fed are knowingly inflating their way out of a sticky situation.... (edit: for those who cant see the text, the graph runs from approximately world war one to present. The top of the graph is $150 billion, . The source of the data is given as "Board of Goveners of the Federal Reserve System". ) 
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| Northern_Lad |
 Erm......
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| Blue Peter |
Not my strongest suit, but since I'm in the deflation camp, I'll giver it a go.
As you note, these are borrowings (not the printing of new money Zimbabwe-like), so, some banksters have lent some dodgy mortgage bonds to the Fed in return for (a lot of) shiny new Treasuries. And both have pretended that the face value of the dodgy bonds is their current value, rather than taking into account the fact that US house prices are falling faster than a lead balloon. It thereby allows the banksters to keep going, for now. But eventually (gradually), they will have to recognize that those bonds are not worth what it says on the tin, and the banksters will have to eat those losses. So, it's deflation. To make it more understandable, imagine you're trying to remortgage your house at the moment. Your current 100% mortgage was taken out in August 2007, and, importantly, that was when your house was valued. Now, your house is down about 10% from the Aug 2007 valuation. Normally a bank would say, we won't lend you as much against your house now, because that's the security for the loan and it isn't worth so much. But the Fed would say, "Tell you what, we'll just pretend that the last 9 months or so haven't happened, and we'll lend you as much as we would have in Aug 2007." "Phew!" you say. They can continue doing this, but at some point, that loan has to be repaid really. If we assume that the housing market never returns to its highs of Aug 2007, then either you spend the next 25 years paying on a loan that is more expensive than what you're buying with it (which is deflationary), or you try to sell and don't get the amount you paid for it, and the loan goes bad, or you have to pay out extra money to cover the difference. Again, both deflationary, because that money is being lost which would otherwise have been spent "usefully". That's not to say, of course, that prices won't go up and we will all get poorer, but that's not monetary inflation, Peter. |
| James |
I understand what your saying, and now I'm a little confused......
here's how I see it (and I'm at the limit of my knowledge, so this may not be right...) Milton Friedman put this forward as an explanation of inflation, called “the quantity theory of money”. It states that the amount of money in circulation multiplied by the the rate of transactions equals the price of goods multiplied by the number of transactions taking place. So .. if you reduce the number of transactions (for example, if you hold off buying your next house, or if banks stop dealing with each other) and .. increase the amount of money in circulation (by a central bank “loaning” money to commercial banks) and... if you assume the rate of transaction is reasonably constant, then ... the price of goods increases in other words: if the amount of cash in the economy grows faster than the output, then you'll get inflation. Now, that's a really broad-brush theory, and takes no account for spending profiles. In reality, people preffere to buy some things more than others, so some things will feel the effects of this theory more rapidly or more acutely than others. Inflation will first be seen in items that you need to buy regularly. The stuff you dont need to buy, you'll do without. This could be holding off buying the next MP3 player, or it could be not buying that nice house you've been wondering about. So those items will fall in price as people tighten their belts. There'll be a point, however, when the “real” price of these items (that will have already theoretically been inflating in price) will meet the dropping price, after which point these items will also become inflated. So its not all bad news...your house will rise in price again oneday. Its just that by then a tin of beans will cot £5 this is just my opinion, and I've probably got the wrong end of the stick....but its looking a little frightening from my end of the stick. (I could really do with dougal to put me staight) |