Is July 18, 2008, the day that the Yuan hit its record price of 6.8167 per dollar after declining every month since the end of the peg on July 22, 2005. The Yuan/Dollar exchange rate has remained nearly constant since last summer, never dropping below its record.
How does this signal the end of “credit inflation”? The Federal Reserve is still catalyzing credit inflation. Controlled reserves can increase while uncontrolled reserves decrease.
Maybe I’m simply missing the point.
The Federal Reserve can only incite the banks to create credit. If the banks stop, then the Fed is only “pushing on a string”.
Last July is also the point where the crisis went worldwide and mass layoffs began.
The federal reserve cannot force a bank to lend money, but it can, itself, inflate the money supply (just, not as drastically as it could otherwise). When the Federal Reserve buys an open market security, for example, and increases controlled reserved by $1 trillion, then it has inflated the money supply by that much. It may not be lent out, but that’s still an increase in the money supply.
The argument is akin to saying that controlled monetary inflation ended with the stock market crash in 1929. It’s not true. Murray Rothbard shows how controlled reserves increased, while uncontrolled reserves decreased.
If one type of reserve increases while another decreases, the net effect is zero growth.
Well, it could be net growth, net contraction or net zero growth. But, that’s besides the point. The liquidation of credit, no doubt, would be much more dramatic if not for the massive credit creation induced by the Federal Reserve. There is still inflation in the sense that the rate of deflation is not in line with what it would be if the market was left to its own devices at this current point in time.
I have no idea what you’re talking about.
You are trying to pinpoint an exact date to the “end of credit inflation”, when there obviously still is credit inflation. The Federal Reserve is still increasing controlled reserves with artificial credit. If the rate of deflation, the market unhampered, was -6%, but with credit expansion by the Federal Reserve is at -2%, there is still inflation. In net terms, the money supply is still contracting, but the Federal Reserve is still trying to inflate its way out of monetary contraction. In that sense, there’s still inflation of the money supply.
It’s this argument which Murray Rothbard uses in his book America’s Great Depression to disprove the theory that the Federal Reserve allowed a monetary contraction to take place in 1929. There was a net deflation in terms of controlled reserves and uncontrolled reserves, but the Federal Reserve still pumped credit into the banking system.
That’s not obvious, no.
How can anyone say there is net deflation in the money supply? I have seen no measure of the money supply that doesn’t show a steep increase in the last year, whether it be the base, the M1, M2, MZM or TMS. Where is this net deflation everyone talks about?
The Rev
It was a hypothetical example, to show the difference between controlled and uncontrolled reserves.