Consumers are hanging on to lots of dollars... they have to get into a more expansive mood before the economy can.... well, start expanding..
PONZI SCHEMES very often show their first signs of weakness when their is an uncontollable imbalance in the cash flow structure of the scheme.....
I too agree with Rothbard. There may be a semantics problem. The second derivative of the inflation rate may be negative, but as long as the first derivative, i.e., price increase per annum, is positive, I consider that to be positive inflation. I do not see any net real deflation in the overall economy yet, and I don't expect to. As more and more of the Fed money finds its way into deeper layers of the economy I would expect inflation to pick up, eventually to double digits. I don't think that can happen before employment picks up however. I'm not one of those predicting hyperinflation. Not unless the U.S. can't sell its bonds.
Do any of you guys know what the "velocity of money" is? Or what changing the reserve requirement does? Evidently not. Because no one is spending anything they don't have to, the Money Supply has been falling. Did you know that people in the American Colonies originally printed their own individual money? Each person or business printed coupons that were good for redemption by that person or business, those coupons were backed by the business's production or the person's services. When King George forced the Colonies onto the Gold Standard it caused a general depression which led to the Revolutionary War.
There seems to be general agreement with your contention. This discussion, and points of disagreement have more to do with where the U.S. economy may be headed; not so much the current situation.
That is saying that the Fed gives a shit about the 'deeper layers' of the economy... Once the big FIs are bailed out and back in black for good, they (the Fed) will take all the excess liquidity back.
Money is created from: 1) The FED 2) Commercial Banks. The FED buys Government debt (creates money), and lends to Commercial Banks (creates money via debt). Commercial Banks then explode that base money supply via debt creation (loans) to consumers and business. This is known as fractional reserve lending. Banking capital requirements just mean the dollar percentage banks must hold with the FED to support loans on their books. For example, in the case of a Commercial Bank, if the reserve requirement is 7%, that bank must have 7% cash with the FED to cover outstanding loans. So if a new bank opens with 10 Million in capital, it can loan out (create), 142 Million in loans (new money). Incidentally, this is why the Banking system is a fraud. Create money from nothing and charge interest on it. It should be noted the real value at risk for any bank is their capital requirement expressed as a percentage of a loan. If Bank A only ponies up 7% and conjures the rest, it only risks 7% of whatever the loan value is. The rest is just fake money it creates. This is also why the banking system is extremely leveraged and where all leverage in finance, real estate, futures and other markets derives from. At a 7% capital requirement @ 3% interest rates, Bankers really make a 42% return on their actual money at risk. Thats why banks make a sh*tload of money, Quarter after quarter = legalized counterfeiters. To recap - money supply comes from two places. The FED. And Commercial Banks (via fractional reserve loan creation). Debt = money. M1 (Fed money supply) has doubled. M3 (total money aggregates - includes loans made by commercial banks), has shrunk. Which is why we're seeing deflation in broad areas (real estate, consumption, employment). D-DAY comes when Banks resume normal bank lending to consumers and business. Then the Total Money Supply will Explode and we get Massive Inflation. Bernacke has ordained it.
The vast majority of Americans are living paycheck to paycheck, and off their credit cards. Pay cuts are now typically at 25% among people I know that still have jobs. The ones who have been laid off are only getting unemployment, which is not enough to live on. Add to that, credit card co's have reduced credit available and increased both rates and minimum monthly payments on most people, and most Americans carry significant credit card debt. Put it all together, and basically Americans have no money because they spent what they had, and then some. As a result, 75% of U.S. dollars are in foreign hands. Americans will need to get jobs and/or pay raises, and/or pay off debts for the situation to improve.