Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Three M's of Hyperinflation : Milosevic, Mugabe, And Maduro - 26th May 19
Global Multi-Market / Asset Charts Review - 26th May 19
An Oil Shock Could Be the Black Swan That Finally Drives Gold Higher - 26th May 19
Brexit Party Forces Theresa May to Resign, Boris Johnson Next Tory Prime Minister? - 26th May 19
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Inflation Fears: Real or Hysteria?

Economics / Inflation May 11, 2011 - 06:01 AM GMT

By: Ellen_Brown

Economics

Best Financial Markets Analysis ArticleDebate continues to rage between the inflationists who say the money supply is increasing, dangerously devaluing the currency, and the deflationists who say we need more money in the economy to stimulate productivity.  The debate is not just an academic one, since the Fed’s monetary policy turns on it and so does Congressional budget policy.


Inflation fears have been fueled ever 2009, when the Fed began its policy of “quantitative easing” (effectively “money printing”).  The inflationists point to commodity prices that have shot up.  The deflationists, in turn, point to the housing market, which has collapsed and taken prices down with it.  Prices of consumer products other than food and fuel are also down.  Wages have remained stagnant, so higher food and gas prices mean people have less money to spend on consumer goods.  The bubble in commodities, say the deflationists, has been triggered by the fear of inflation.  Commodities are considered a safe haven, attracting a flood of “hot money” -- investment money racing from one hot investment to another.  

To resolve this debate, we need the actual money supply figures.  Unfortunately, the Fed quit reporting M3, the largest measure of the money supply, in 2006. 

Fortunately, figures are still available for the individual components of M3.  Here is a graph that is worth a thousand words.  It comes from ShadowStats.com (Shadow Government Statistics or SGS) and is reconstructed from the available data on those components.  The red line is the M3 money supply reported by the Fed until 2006.  The blue line is M3 after 2006. 


The chart shows that the overall U.S. money supply is shrinking, despite the Fed’s determination to inflate it with quantitative easing.  Like Japan, which has been doing quantitative easing for a decade, the U.S. is still fighting deflation.

The part of M3 that collapsed in 2008 was the “shadow banking system,” including money market funds and repos.  This is the non-bank system where large institutional investors that have substantially more to deposit than $250,000 (the FDIC insurance limit) park their money overnight.  Economist Gary Gorton explains:

[T]he financial crisis . . . [was] due to a banking panic in which institutional investors and firms refused to renew sale and repurchase agreements (repo) – short‐term, collateralized, agreements that the Fed rightly used to count as money.  Collateral for repo was, to a large extent, securitized bonds.  Firms were forced to sell assets as a result of the banking panic, reducing bond prices and creating losses. There is nothing mysterious or irrational about the panic.  There were genuine fears about the locations of subprime risk concentrations among counterparties.  This banking system (the “shadow” or “parallel” banking system) ‐‐ repo based on securitization ‐‐ is a genuine banking system, as large as the traditional, regulated banking system.  It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend, and credit, which is essential for job creation, will not be created.  [Emphasis added.]

Before the banking crisis, the shadow banking system composed about half the money supply; and it still hasn’t been restored.  Without the shadow banking system to fund bank loans, banks will not lend; and without credit, there is insufficient money to fund businesses, buy products, or pay salaries or taxes.  Neither raising taxes nor slashing services will fix the problem.  It needs to be addressed at its source, which means getting more credit (or debt) flowing in the local economy. 

When private debt falls off, public debt must increase to fill the void.  Public debt is not the same as household debt, which debtors must pay off or face bankruptcy.  The U.S. federal debt has not been paid off since 1835.  Indeed, it has grown continuously since then -- and the economy has grown and flourished along with it.   

As explained in an earlier article, the public debt is the people’s money.  The government pays for goods and services by writing a check on the national bank account.  Whether this payment is called a “bond” or a “dollar,” it is simply a debit against the credit of the nation.  As Thomas Edison said in the 1920s:

If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also. The difference between the bond and the bill is the bond lets money brokers collect twice the amount of the bond and an additional 20%, whereas the currency pays nobody but those who contribute directly in some useful way. . . . It is absurd to say our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people.  

That is true, but Congress no longer seems to have the option of issuing dollars, a privilege it has delegated to the Federal Reserve.  Congress can, however, issue debt, which as Edison says amounts to the same thing.  A bond can be cashed in quickly at face value.  A bond is money, just as a dollar is. 

An accumulating public debt owed to the IMF or to foreign banks is to be avoided, but compounding interest charges can be eliminated by financing state and federal deficits through state- and federally-owned banks.  Since the government would own the bank, the debt would effectively be interest-free.  More important, it would be free of the demands of private creditors, including austerity measures and privatization of public assets.     

Far from inflation being the problem, the money supply has shrunk and we are in a deflationary bind.  The money supply needs to be pumped back up to generate jobs and productivity; and in the system we have today, that is done by issuing bonds, or debt. 

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com.

Ellen Brown is a frequent contributor to Global Research.  Global Research Articles by Ellen Brown

© Copyright Ellen Brown , Global Research, 2011

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Ernie Messerschmidt
12 May 11, 08:46
Ellen Brown gives the facts

Here Ellen Brown establishes the facts of our present situation:

1) we are in a deflationary bind as the M3 money supply graph shows -- the shadow banking system, half our money supply, has deflated, as has the housing sector , and

2) we need to get more money – credit—into the system so that businesses can thrive and people can get back to work. As she says, “Neither raising taxes nor slashing services will fix the problem. It needs to be addressed at its source, which means getting more credit (or debt) flowing in the local economy.”

The nation is not like a household that needs to feel guilty because the books aren’t balancing, but can and should make sure there is enough money in the system for business to thrive and people to be full-employment prosperous. We can choose prosperity. The “money” is only accounting numbers that serve as a medium of exchange. Inflation fears are false-to-fact, and self-punishing austerity policies are tragically wrong-headed and based on ignorance.


Dave Baran
12 May 11, 14:17
Fed interest rates . . .

Hello, Ellen:

I am a Canadian but it puzzles me as to why is the US Govt paying interest

rates of any more than one percent to the big banks? Why doesn`t US Govt.

set new rates at say half percent to the big banks? Borrow to the big banks at one percent and buy US Treasuries at one and one half percent. Would that not help thecause?

Dave Baran


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules