This is why you're still somewhat confused and looking at long winded explanations. The fed, at least the REAL owners and decision makers of the Fed, are never behind. This has been planned for decades if not centuries. The system has evolved so much, yet still operates on the same basics that are the roots of fractional reserve banking. Great Depression was a straight forward cutting off of the money supply. All other periods since 1913 were a straight increase of money supply. The 1970s were a hybrid, while money supply was building, cost of capital was high. What you are seeing now is a credit contraction that pinpoints all but the elite, while a humongous supply of credit is stockpiled. The most shocking part is that the huge supply of credit plain robbery of taxpayers. It's pure genius, as so few can even see what the f**k is going on, while it is right in front of their face. There is deflation, but it is very temporary and selective. Food prices are not dropping, that's a key sign. USD will be devalued hardcore, if not made near worthless. All currencies are being devalued actually. Sitting in cash is a sucker move.
As far as I can tell, everyone on this thread makes the oddball assumption that the supply of money is the sole determinant in how high inflation is going to go. In the early US there was no control over the supply of money, and until the Civil War any state bank that wanted to issue bank notes could. On top of that, you had a wild amount of counterfeiting going on, because of the proliferation of different bank notes. In effect, the money supply's expansion was braked only by the printing presses at these various banks, and the counterfeiters who took advantage of this situation. Over this time period, the average yearly growth of US GDP was higher than it has ever been. But yet, with all that growth and all that money printing going on, net, the US had deflation during this period. So much for the twin platitudes, both unproven, of economic thought: 1 - Growth inevitably leads to inflation over the longer term, and 2 - Deflation leads to depression. I'll leave with that thought. I have my ideas as to why the early US had high growth, wild money printing, and deflation, but that really doesn't matter for the purposes of this thread. My only point is that a lot more goes into whether we'll have inflation than just how much "money" is floating around.
The industrial revolution was dominated by deflation because technology increases (productivity) and population growth are both very deflationary forces. You need to print a lot of money to overcome those forces.
Yep. Economies that are innovating rapidly and throwing up new industries for people to work in have high population growth because, not surprisingly, people flock to where there is work. They also need, in order to function at anything like their full potential, a rapidly growing money supply. The solution, then, is to focus on getting our innovative groove back. That will mean we'll need credit - lots of it. It will only be inflationary to provide that credit if we don't provide, as well, the necessary backing for innovation, and instead let that credit go towards mortgage refis, as was constantly happening, in wave after wave, in the recently demised real estate debacle.
Yes. We need increased credit to accomodate investment (to furthermore increase aggregrate supply), that way the new money won't merely be chasing asset prices up. Imagine this in energy -- everyone talks about how the oil move of recent was driven by excess liquidity (as well as real demand). I imagine if we had a plan and deployed a massive amount of nuclear power plants and electric cars to reduce oil demand, event amongst larger money supply and credit issuance, the oil market would have looked a lot more like sugar, never catching a bid because there were no genuine supply fears. With that, disposable income and business profit margins wouldn't have been squeezed, and thus additional risk to credit repayment would not have existed. My mantra is that within a fiat system, it can perform its best if we take advantage of the gifts it gives by pre-emptively identifying problems on the supply side to avoid bubbles. Just as central bank activities are centrally planned, I see no reason why government policy couldn't attack these problems. Free markets signal us effectively where the problems are (just as they did with this oil spike). Now we have an opportunity to solve it. Of course it introduces a new problem of excess liquidity finding the next convenient home. What happened in energy though shows how poorly we've managed energy resource supply internationally over the last 2 decades.
I hate it that we have to hope that the Fed and the gov't can get their timing and quantity of stimulus anywhere close to correct as to when to stimulate and when to withdraw and how much........especially since their past performance is to more often get it wrong. I like Milton Friedman's idea of putting money supply growth on automatic pilot with yearly growth at a set % of economic and population growth. That way businesses, investors, government, etc. would be better able to forecast and make adjustments rather than have to rely on the questionable wisdom and foresight of our ever changing leadership. Stosh
What about the possibility of deflation in some areas and inflation in some other areas of the economy? Ron