Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed-induced Inflation - Pushing on a Rope or Lighting a Short Fuse

Economics / Inflation Nov 22, 2013 - 08:41 PM GMT

By: Dr_Jeff_Lewis

Economics

Many regard the risk of inflation as low, since the Fed's money distribution or credit mechanism is limited by how the banks decide to lend. While credit worthy businesses and consumers are still de-leveraging, the transmission mechanism will eventually come. This will occur, for the most part, thanks to the Treasury.

So then how can the Fed push money into the economy?


The government has no real limit on the amount they can borrow and spend. They have a debt limit but they increase it any time they get close - so it is not a real limit.

Unfunded liabilities, without taking into account the ongoing dollar debasement, will be a giant portion of future budget deficit. This government deficit spending is financed by the central bank making new money; it is the real source of inflation.

Even though the Fed is making lots of money, the banks are just hoarding the funds so that there is no visible inflation.

The Fed is making money and loaning it to the banks. The banks then use it to buy Treasuries or earn interest from the Fed on their excess reserves. In both of these instances, the money is out of circulation in order for the banks to earn interest.

And at some point, the banks will be able to earn higher interest by loaning to companies and people who will, in turn, distribute the money into general circulation. Then they will redeploy their excess reserves and the money from Treasuries as they come due.

It is estimated that the US has already spent more than $37 trillion dollars over the last few years.

ZeroHedge summarized recently:

In just the first 9 months of 2013, DM countries have injected $1 trillion in liquidity sourced exclusively by central banks; EMs have injected another $2 trillion driven by bank loan demand.

• The total global M2 is over $66 trillion, growing at an annualized pace of over 6%.

• The amount of excess liquidity, i.e. the infamous "liquidity bubble" in the global fungible system is "the most extreme ever in terms of its magnitude".

And that's really all there is to know: the music is playing and everyone has to dance... just don't ask what happens when the music ends.

While money velocity rates continue to fall (thanks to artificially low interest), there are at least 200 trillion reasons why the Treasury will be forced to open the flood gates.

Deflation or Hyperinflation?

Contrary to popular assumption, the Fed will get its inflation, along with every other central bank armed with an unbacked currency. But far from the inflation of flawed theory, what they will get is a stampeding heard of rhinoceros.

The establishment is blind to the issue.

Recent Nobel Prize winning economist Eugene Fama has stated on several occasions that either bubbles don't exist or they have little impact.

"I think most bubbles are 20/20 hindsight," Fama told Cassidy. When asked to clarify whether he thought bubbles could exist, Fama answered, "They have to be predictable phenomena."

Incoming Federal Reserve Chairwomen Janet Yellen could not see it and the current Fed Chairman, Ben Bernanke, famously assumed the housing crash would have limited impact.

The Velocity Mechanism

Rising rates caused by the gradual or sudden exit of captive buyers for government debt will leave the FED with very little choice but to print more and more of the deficit; thereby bidding up the prices of everything on its own.

Our monetary system of fiat money was created by a central bank. It is the same as the systems used in more than 100 cases of hyperinflation.

The current monetary system, where the currency is completely fiat, has been tried countless times and documented in more than 100 cases.

In every case, the government simply runs out of bond buyers and the central bank is captured to print the difference. For the most part, the currency is printed to worthlessness and dies.

Future obligations are real promises, regardless of the currency in which they are denominated.

As the government prints more money, the prices for these real world obligations go up. This means they have to print even more, which makes the prices go up further, etc. If the government just had debt, and no deficit for real world obligations, there would be no risk of hyperinflation.

In the end, we will find prices rising. This inevitability will not be the result of consumers bidding up prices using the very limited dollars they hold. Rather, it will be a consequence of the money printed and spent into the economy by the government.

What Do You Think?

Any thoughts about this? Share it!

For more articles like this, and/or for a breath of fresh silver market reality amidst the stench of denial and technically meaningless short term price obsessed madness, check out http://www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com

    Copyright © 2013 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dr. Jeff Lewis Archive

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


Post Comment

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