"The U.S. government and the Federal Reserve have spent, lent or committed *more* than $10 trillion to stem the economic downturn since the financial crisis began. Fed Chairman Ben Bernanke said in a speech Friday that he expects the gradual resumption of sustainable economic growth is coming."
>>Okay, that is what Benny said on Friday. Never mind anything he ‘thinks’ will happen – it’s basic, $10 Trillion Dollars to ‘save’ the economy will drive us into hyper-inflation once the deflationary trend reverses... the donuts who are running Washington and Europe figure they can head off inflation at the pass – letting it run up to five or six percent before reigning it in. This will not work, the numbers are just too big and the game to sophisticated. It would be like handing the keys to a Formula One car to a retarded teenager who claims to have glanced at a blueprint for making a soap-box car. And while on the way to the F1 car, he is handed a fifth of Scotch. No way Benny, Timmy and the Bumbler will be able to ‘reign in inflation’. If we get real lucky, we might catch a hard landing at 12 to 15%...but I’m not holding my breath. I just hope we don’t turn into the United States of Zimbabwe.
This is from a friend today, responding to a news item. He's right, of course.
What I don't understand is how Helicopter Ben and the rest of the whirlybirds in DC can delude themselves into thinking that they can "control" the rate of inflation. If you dump $10T into the economy (I never, ever, thought I would routinely be using "T" for quantities of money) and if the existing money in circulation is $10T, then prices *have* to double (at least) given enough time. No matter how long it takes, they have to double.
Of course, the actual dollars in "circulation" depends on which measure of total dollars you are talking about. Wiki says
- M0: currency (notes and coins) in circulation and in bank vaults, plus reserves which commercial banks hold in their accounts with the central bank (minimum reserves and excess reserves)....
- M1: currency in circulation + checkable deposits ... + traveler's checks. M1 represents the assets that strictly conform to the definition of money: assets that can be used to pay for a good or service or to repay debt. ...
- M2: M1 + savings deposits, time deposits less than $100,000 and money market deposit accounts for individuals. M2 represents money and "close substitutes" for money. M2 is a key economic indicator used to forecast inflation.
- M3: M2 + large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets. M3 is no longer published or revealed to the public by the US central bank.
I love that part about M3 no longer being revealed to the public. There must be a reason. The same article shows
For my purposes, I think M3 is the appropriate measure of the total money suppy -- about $10T, which matches my assumption.
So, *if* you add $10T to the money supply and double the money in circulation according to the M3 measure, prices *must* at least double not too long afterwards, when that money is fully dispersed into the economy via loans. If it takes (let's assume) 2 years for this to happen, I'd give it one more year for the dust to settle and prices across the board to have doubled.
Now... to expand on my last post (see www.robbservations.blogspot.com), what "rates" of inflation give you a doubling of prices in 3 years? Lessee... 1.2 x 1.3 x 1.3 = 2. Or maybe 1.1 x 1.3 x 1.4 = 2. I like that one. 10%, 30% and 40%.
But if, in year 3, the rate is 40% inflation, it damn sure ain't gonna be 5% in year 4. The maroons in the Fed (as Bugs Bunny would say about this Loony Tune) will drive up interest rates frantically starting in year 1 to stop this juggernaut, while totally ignoring Robb's Law of Conservation of Money (prices = total money in circulation divided by total goods).
So if the Fed is charging 0.25% interest right now for short term loans to banks (the so-called "discount rate"), I'd guess they'll attempt to tamp down inflation with 3.5% by end of year 1 of the inflation (end of 2009), in the cautious hope (not expectation -- they have no clue at all what they are doing) that it will "slow things down".
When that doesn't work, the Fed will be a little more desperate and a little less cautious and try 7% in year 2. Ain't gonna help.
Then, realizing they're having no effect at all, even though the economy is doing a swan dive into a toilet bowl after every Fed announcement of a "rate hike", the Feds will try 14% in year 3 (2011). And when THAT doesn't work (if we aren't all dead from starvation), in year 4 they will throw off the shackles of sheer stupidity and go for broke like shysters at a bad credit card company -- 28%.
Meanwhile, the only thing working in their favor will be massive declines in demand as the economy dies a gurgling death, offset by massive declines in supply as businesses are pushed to extinction. Accelerating the juggernaut of this apocalypse will be higher and higher taxes on everyone because there damn sure will a determined effort to cut NO government programs, except maybe the most important one of all, national defense. (Protecting us will be a luxury, you see, as evidenced by Obumbler's avowed goal of unilateral disarmament, announced in Prague yesterday -- another post.)
The only thing that will probably save us is a massive terrorist attack on the Treasury Department, made possible by the defense cuts. Then we'll all be forced onto a gold standard because the printing presses will no longer exist.