With wages dropping/unemployment rising and people cutting back, restricted/expensive credit for consumers. Wont some form of deflation strike? It is a paradox deflation. Treasury yields are low, money printing keeps happening but somehow the money is not circulation so what is happening to all the money that is printed?
it is the velocity of money that is making the difference. price movement is based upon the amount of circulation x velocity, the turnover of money(how quickly it is spend). the amount in circulation is increasing but not as fast as the decrease in velocity. someday the velocity will increase and you will have hyperinflation because of the tremendous increase in money in circulation.
Its like if there is some kind of monetary black hole with a strong gravitational pull. So the escape velocity is so strong that the money printing is not enough to break out of this. I guess the bank bailouts and stuffing banks with money is not working since it just ends up sitting in reservers. The banks being the black hole. So if this is not working why not take a different approach? maybe a seigniorage program and just hand a check down to anyone earning less than 250-500K a year? like a 10,000 dollar check. That would force velocity up enough to counteract the bank blackhole.
Your getting two things confused. Money supply does not equal inflation or deflation. Inflation and deflation show the price of goods and the change from one period to another. Although the money supply can lead to changes in inflation and deflation it does not necessarily guarantee it. Money supply is the availability of wealth which can be spent. That does not mean it is. Money supply can fall and prices can rise because of international or supply factors. Conversely the opposite can happen. The two factors although often relate to each other are two seperate macro economic functions.
I am not saying money supply is the issue, but money in circulation amongst the population of US. There is massive money printing,QE etc.. but the bales of currency are locked up in some kind of monetary blackhole. You print, you increase the supply but it gets sucked into a a great blackhole and it sits stagnant not entering the general population. Thats the problem we are fighting the fire with the wrong tool. we keep aiming the monetary firehose at the blackhole and it just gets sucked in and locked away. Another example, lets say you are in the sahara desert and thirsty. Yo u keep asking for water, but the air force keep dropping water bottles in a deep 5,000 foot hole. yes the quantity of water has drastically increased but you cannot drink it and the water just sits in the hole providing no useful service.
The reason this is happening is not because they are using QE to stimulate growth but because they are building reserves because of the bad debt they know will hit. The money is not meant to increase output but to stop bank runs.
But that is the wrong solution. They should have handled it like the S&L crisis with the liquidations of bad banks, create an RTC etc.. The TARP/Bank bailouts was the wrong solution and now we have this money blackhole.
eventually the government debt will become a problem and inflation will begin to take its course or a debt default, regardless of velocity of money or not now that could be WAY WAY in the future
You are assuming the problem is purely a domestic one. The banks that are bad in America are only a small percentage of the global problem. It doesn't matter whether the banks are run well there if the shtf in the rest of the world they will need reserves to cover the loss. I think it is preparation for what they know is coming.
Think of the size of money as a balloon on multiple pumps with Gentle Ben red in the face pumping madly away on his really really big pump. Inflation and Deflation are obvious. Velocity of money is like the efficiency of the pump. One pump stroke gives you 10 units or one pump stroke gives you 1 unit. The pump gradually loses power due to many causes. (One is you can only fool some of the people ...) Assets are a store of money. Dollars are supposed to be a store of money. In a fractional reserve banking system should an asset be destroyed or instantly significantly dropped in price (say like through a housing price crisis) the balloon loses a lot of air that must be made up or the banks show losses on their "assets" from their own little pumps. Hyperinflation is what happens when the balloon pops. Deflation is when the balloon starts losing air. The solution is actually easy but unpalatable to banks and their friends. Socialists lie by the balloon and beg other people to pump for them. Capitalists are told to make a new pump and get busy pumping. Most of them gradually wear out. Everyone pumping knows what is eventually coming but we all play the game hoping that ti doesn't happen when we are here. (Tradgedy of the commons) Does that help any?