Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21
Bitcoin Halvings Price Forecast and Stock to Flow Analysis - 18th Jul 21
Dell S3220DGF Unboxing and Stand Assembly - 32 Inch 165hz Curved Gaming Monitor Amazon Discount - 18th Jul 21
What Does The Fed Mean By “Transitory Inflation” And Why Is It Important To Understand? - 18th Jul 21
Will the US stock market’s worsening breadth matter? - 18th Jul 21
Bitcoin Halving's Price Projection Forecasts Trend Trajectory - 18th Jul 21
Dell S3220DGF Price CRASH to £305! 32 Inch 165hz Curved Gaming Monitor Amazon Bargain - 16th Jul 21
Google, Amazon and Netflix are Scrambling For This Rare Gas - 16th Jul 21
Sheffield Millhouses Park New Children's Play Area July 2021 Vs Old Play Area - Better or Worse? - 16th Jul 21
Inflation Soars, Powell Remains Unmoved. What about Gold? - 16th Jul 21
Goldrunner: Gold Could Jump To $1,900-$2,100 In Next 30 days – Here’s Why - 15th Jul 21
Tips For Finding The Right Influencers - 15th Jul 21
ECB Changed Monetary Strategy. Will It Alter Gold’s Course? - 15th Jul 21
NASA And Big Tech Are Facing Off Over This Rare Gas - 15th Jul 21
Will the U.S. Dollar Lose Momentum In the Second Half of 2021? - 15th Jul 21
Bitcoin Stock to Flow Model Forecasts Infinity and Beyond! - 14th Jul 21
Proteomics: The Next Truly Massive Investing Opportunity - 14th Jul 21
Massive Solar Storm to Hit Earth 2025, Coronal Mass Ejection (CME) Danger and Protection Solutions - 14th Jul 21
Is This The Best Way To Play The Coming Helium Boom? - 14th Jul 21
Meet SuperMania and its Ever-Present Sidekick, SuperMeltdown - 14th Jul 21
How NFTs Are Shaking Up Arts Trading - 14th Jul 21
Gold: High Time to Move Out of the Penthouse - 13th Jul 21
Climb Aboard! Silver Should Run Up To $38 In Next 30 Days - 13th Jul 21
How Will Remote Work Impact the U.K. economy? - 13th Jul 21
Why Helium Stocks Are Set To Soar in 2021 - 13th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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