Percent change at seasonally adjusted annual rates M1 M2
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3 Months from Dec. 2008 TO Mar. 2009 -8.3 9.5
6 Months from Sep. 2008 TO Mar. 2009 15.2 13.7
12 Months from Mar. 2008 TO Mar. 2009 13.8 9.5
http://www.federalreserve.gov/releases/h6/Current/
As you can see, M1 is up 13.8% year over year and down 8.3% in the last three months. 200 billion compared to a total credit market of 52 trillion dollars.
The topic was ‘hyperinflation’. And all of your examples are down severly year over year.
Obviously, with your view that total amount of debt outstanding = money supply, you are not an Austrian. In case you were wondering, though, the Austrian measure of money supply, the true money supply, is definitely up and has not fallen since this crisis began.
It hasn’t been updated since the end of 2008. I went to the Fed website and calculated it to now be close to $6000 billion, a 9% increase in the past 5 months.
Debt outstanding is obviously not the true money supply. If I buy a corporate bond, $1000 from my bank account will go the corporation’s bank account. Total debt will increase by $1000, but the money supply is the same.
The Austrian measure of the money supply contracted strongly during the Depression because bank failures wiped out people’s savings deposits and demand deposits. The money was there one day and gone the next. This has not happened thus far and the FDIC is likely not going to allow it to happen to any significant extent.
I would be a deflationist if the FDIC and Fed did not exist. Then bank failures and bank runs would cause a contraction in the money supply.
Whoa there cowboy. You’re appeal to authority and claiming ‘I’m not’ may make you feel good. Even John’s shadow stats don’t see hyperinflation…
And if you think the FDIC changes the game, tell it to all the folks that owe a great deal more than their homes are worth and where they can get more of that easy ‘home atm’ money. How about the savings that gets wiped out from medical bills? The guy out of work and the guy that owns the mall the other guy worked at.
And as this is about me now, I have no faith in this system. My savings are in silver. But that is because I think the whole system is doomed as credit money can not survive in a world with limited resources and going on 7 billion people. I don’t see this as a failure of ‘just’ the U.S. dollar.
Perhaps you could define ‘hyperinflation’ in your own words…
What authority did I appeal to? I merely showed you that the money supply is still increasing. It’s a fact, not an argument.
Of course, the bond markets, shadow stats, and any indicators will not indicate that hyperinflation is occurring right now because obviously hyperinflation is not occurring right now. What I thought we were debating was whether it is possible and whether it is likely in the future.
Similarly, the fact that my pulse shows that I am alive right now doesn’t mean I will always be alive in the future.
Also, I find it amusing that you believe I was appealing to authority and then you proceed to trot out shadow stats. A blatant appeal to authority.
Let’s start with your medical bills example. I have $10000 in my savings account. I suffer an injury and must pay the hospital $10000. My savings is depleted by $10000, but the hospitals accounts rise by $10000. No change in the money supply. My $10000 in savings will eventually pay some doctor or nurse who will deposit the money in their bank account.
As well, unemployment does not cause monetary deflation. No change in the money supply would come about if we were all to be unemployed tomorrow. If unemployment caused deflation then Zimbabwe would never have been able to hyperinflate. Their hyperinflation occurred at around 20% unemployment and increased throughout the hyperinflation to 70-80%.
Finally, debt defaults alone do not decrease money supply. The bank loans me $100 to buy a widget. I pay $100 to the widget maker and his accounts increase by $100. I lose my job and I cannot sell the widget for any money. The bank forgives my debt as a result, but the original $100 is still in the widget maker’s accounts. The bank may lend more conservatively or not at all in the future as a result of their decreased capital, but the increase in money supply remains.
Banks are currently massively insolvent. If the Fed was not propping them up and the FDIC did not exist, they would fail and billions, possibly trillions of deposits would be wiped out. That would be monetary deflation. Like I said before, we would definitely be going through deflation if the Fed and FDIC did not exist.
It’s not about me or my definition. I subscribe to the Austrian view of the runaway boom (hyperinflation)
See section F for a description of the process of hyperinflation.
You wrote, ‘Obviously … you are not an Austrian’, and ‘the Austrian measure of money supply, the true money supply’.
That chart is historical. And duh, that is the way the ‘credit money’ system works.
That was what my first post was about. So, no more tangents? Your first retort to my post was, ‘The Federal Reserve is currently expanding its balance sheet through monetizing of $1.75 trillion of debt. Historically. this is the mechanism by which money supply increases and hyperinflation occurs.’
Can you qualify this?
Big difference, I didn’t say, ‘You are obviously not of the shadow school.’
You have made the assumption they don’t use this money to service debt.
I have already addressed this. The government of Zimbabwe cranked up a printing press, the U.S. government can not do that. If the factory that employed workers cuts back, the service debt instead of borrowing for new production and the money supply goes down.
You keep going on as if the same mechanism that creates new money can’t suck it back. Well, it most certainly can.
You really need to re-read my first post. Now you are preaching to the choir.
What does this have to do with our present condition?
Here’s the information about the Federal Reserve expanding its balance sheet.
Maybe I was unclear. I did not mean that monetizing debt is always how the money supply increases. I meant to say that, during hyperinflation, the money supply increases through monetization.
Hyperinflationists expected the Fed to begin monetizing and they did. Deflationists need the Fed to stop monetizing for their thesis to be correct.
The Fed, by monetizing over $1 trillion of debt, is starting the printing presses. The Fed can most definitely use the printing press and they are. How else would the Fed expand its balance sheet?
It’s not necessary that the US government prints the money. And actually, it was not the Zimbabwean government that printed the money, it was the Zimbabwean Central Bank. In both cases, the government’s demand for funds caused their respective banks to monetize (use the printing press).
If what you argue is true that all new money will go towards paying off debt and cause no increase in the money supply, then the Fed should just ramp up monetization and print enough money so that Americans and the US government can get out of debt. I mean, in your view, since servicing debt reduces the money supply, then all of the printed money will be sterilized.
So you agree that the Fed and FDIC are preventing credit contraction and deflation?
Banks runs and bank failures are one method of credit contraction that results in deflation, while hyperinflation acts as the ultimate limit to credit expansion that is only reached if the other methods of credit contraction are prevented from working (by the Fed and FDIC). The passage from MES was supposed to highlight this.
Yes, they are primarily in the market buying assets from the banking system. As I said in my first post, this action was to shore the reserves of the banking system. It does not create new money. You said that historically it does, (creates hyperinflation). That is what I’d like you to qualify.
This is just an open ended claim and has nothing to do with assessing our present condition.
The solvent point is that this ‘printing’ is not being piled into helicopters as it was in Zimbabwe. Until massive monetization occurs of the type you expect, it is not happening. The fed has the ability to mop excess liquidity up as fast as they created it. Now, unless you have a crystal ball and know what they will do in the future, you can not claim our present condition is hyperinflationary. If anything the fed is still behind the credit crunch curve.
And there you have it. The fed can not print money nor can the U.S. government without an act of congress. TARP is obligatory and the stimulus package is relatively small, 3% of GDP. We are nothing close to what Zimbabwe has done.
Boggle. Do you make this stuff up as you go along? Start here:
This is our system and what you wrote has nothing to do with it.
No. It is what they are attempting. The real target is the class of asset called ‘real estate’. Just look at the numbers…
What you wrote did not make a lot of sense. And I’ll ask again, what does your reference have to do with our current condition?
Bank has $100 of treasury bonds. Fed gives them $100 in exchange for treasury bonds. Bank may add it as reserves. It could just as easily buy another government bond. The new money is now in the hands of the government. You are assuming the banks will hold onto their reserves and not try to get any kind of return above the 0.25% rate the Fed currently pays on reserves.
The opposite of monetizing bonds is the Fed selling back treasury bonds to the banks. This obviously decreases the money supply. To argue that the Fed’s buying and selling of bonds in the market never affects the money supply is ridiculous.
It was never piled into helicopters in Zimbabwe. It was government spending of the printed money that caused hyperinflation. Likewise, presently, the Fed buys bonds, the banks receive money, the banks buy newly issued bonds, the government receives and spends the new money. It can happen here just as it has in other countries that have monetized government debt.
Again, I have never claimed that hyperinflation was occurring right now. I have only argued that it remains a possibility. An increasing likely one, in my opinion.
I’d like to counter by saying - what you wrote makes no sense.
This discussion has become less and less constructive. If you’d like to give me an article or book that describes and elucidates your viewpoint, I’d be happy to read it. But I’d rather not continue this back and forth.
Come on, you know better than that. The deficit spending happened at the time of legislation, not if a bank buys a bond.
I’m not assuming anything; it is in fact what is happening.
What is ridiculous is to propose that buying $300 billion of bonds over the next six months in a $52 trillion credit market is hyperinflationary. At that, I never said what you imply I did. Why do you keep playing that game?
The helicopter is an analogy, but you knew that…
Look at public debt to GDP. Japan’s is twice ours. Their money should be worthless? Why make this statement which has no connection to our present condition?
There is that ‘it could happen’ again. As if repeating what ‘could happen’ makes it truth pertaining to our present condition.
Ok, so it is your opinion. Mine differs for now as the numbers say it should.
And I’m sure you won’t point it out, just a sweeping claim will stand…
I guess this is good bye then. Keep peddling the ‘The Church of Hyperinflation’. You will have plenty of followers as there are plenty that would rather believe instead of crunching numbers. I’ll consider hyperinflation when I see ‘real’ numbers that support it.