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Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform. "It is a good moment to move to a shared reserve currency," he said.
I can express the above mathematically.
Fm = Fb + MV(Fc)
Fm = Fiat Money Total
Fb = Fiat Monetary Base
Fc = Fiat Credit, the amount of credit on the balances sheets of institutions in excess of Fb
MV(Fc) is the market value Fc
Inflation is an expansion of Fm
Deflation is a contraction of Fm
If only base money was lent out (no fractional reserve lending), MV(Fc) would equal zero. The equation ensures we do not double count credit in Fm.
MV is a function of time preference and credit sentiment (ie. Belief that one can be paid back). As long as that belief was high, banks were willing to lend.
Because (at the moment) Fc (credit) dwarfs Fb (base money), the system can only hold together as long as there is belief credit can be paid back and as long as there are not defaults. Needless to say, the perceived belief that Fc can be paid back is under attack, both by rising defaults, and by sentiment. That is why MV(Fc) is collapsing.
In other words, the mark to market value of credit is contracting faster than base money is rising.
Magical Printing Press
Assume for a moment you invent a magical printing press. Your machine can print hundred dollar bills so good that the US Treasury cannot distinguish them them from the real thing. The bills are perfect in every way. Now assume you print $5 trillion worth of those bills and bury them in your back yard. Is this inflation? Surely not. Would it be inflation if $5 trillion in bills were spent and entered the economy? You bet. The key then is not how much the Fed prints, the key is how much of that money makes its way into the economy.
I agree whole heartedly with Shostak and suggest we are following the Japanese model. This has been my thesis for years.
Steve Saville points out that recent increase in base money has been many times greater than anything during the 1930s. Steve is correct as the following chart shows.
Note that the pattern leading up to the great depression and the pattern before the latest spike are nearly identical. There is no other similar pattern on the chart. And most certainly the recent spike as Saville points out is unprecedented.
Base money is indeed soaring. However, so is debt.
The credit bubble that just popped exceeded that preceding the great depression, not just in the US but worldwide. Thus, it is unrealistic to expect the deflationary bust to be anything other than the biggest bust in history. Those looking for hyperinflation or even strong inflation in light of the above, are simply looking at the wrong model.
At some point the market value of credit will start expanding again, but that is likely further down the road, and weaker in scope than most think.
January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak
The United States has always paid for its wars. For 200 years we paid for the Revolution, World War I, World War II, Korea, Vietnam, even LBJ’s Great Society, and had yet to reach a national debt of $1 trillion – until 1982. In the past eight years our government has borrowed, spent, and added $5 trillion to the national debt.
The Congressional Budget Office reported that in the first four years of the Bush term deficits were caused by: 48 percent tax cuts, 37 percent wars, and 15 percent increased spending. We kept the government on steroids during the Bush years and household debt of $7 trillion joined the binge. By the time Obama took office, the Federal Reserve had injected another $2 trillion worth of steroids. With $14 trillion in stimulation, we were losing jobs like gangbusters. Stimulation was not working.
Last year we stimulated exactly $1 trillion, $35 billion, and lost jobs. According to the Secretary of the Treasury, we have a deficit or “stimulated the economy” $960 billion this fiscal year (3/16/09) and are still losing jobs.
On Sunday, Ben Bernanke on Sixty Minutes said he saw light at the end of the tunnel at the end of the year. So any more stimulation is politically out of the question. The government, like households, should hunker down, stop spending where it can, and plug the hole of offshoring jobs in the ship of state.
Originally posted by notsomadhatter
And the sound of one hand clapping is???????????????????????????????
House to Consider Tax on AIG Bonuses
The House will vote this afternoon on a bill that would impose a 90 percent income tax on $165 million in bonuses distributed to employees of the troubled insurance giant American International Group, the first of multiple steps that lawmakers are expected to take to quell public furor and tighten government control over AIG and other financial sector recipients of federal bailout aid.
To date, the commission hasn’t announced any findings of its investigation.
Pollack, the former SEC regulator, wonders why.
“This isn’t a trail of breadcrumbs; this audit trail is lit up like an airport runway,” he said. “You can see it a mile off. Subpoena e-mails. Find out who spread false rumors and also shorted the stock and you’ve got your manipulators.”