boneyard bill
08-02-2015, 11:18 AM
The Chinese stock market is in free fall. Commodity prices are plunging world wide. The Baltic Dry Index is at pre-2009 levels. The transportation index is also way down. We seem to be experiencing a world-wide deflation even though the world's central banks have been creating money like crazy for the past half-decade. All of this should seem very puzzling to mainstream economists who, filled with the Keynesian notion that deflation was a cause, rather than an effect, of the Great Depression have sought to avoid it all costs.
So why hasn't all that money printing worked? The answer, I believe, is in deleveraging. Deleveraging is simply the business world's term for paying off debt. The US government debt has doubled under Obama's watch, but private debt has declined even more. All that government money printing hasn't been able to stem that tide. Of course, the government doesn't actually "print" money. In a fiat money system, money is created by debt.
The problem is that the money created doesn't go into debt reduction. About half of all the dollars in existence are off-shore, so about half the new money created has gone overseas, some has been left with the Fed as excess reserves have risen to nearly two trillion dollars, but much of it has gone into financial speculation. So we've had lower than expected inflation, but we've still had some inflation which masks the real process of deleveraging which is ultimately deflationary.
Individuals in this country are not buying because they're paying down debt. Businesses aren't investing because they're also paying down debt and because consumers are not buying.
Are we in the end game? Are we reaching the point where deflation can no longer be hidden? The dollar is already at 100 on the dollar index (up from about 80 not too long ago). If private deleveraging outpaces government borrowing, it could go still higher and would certainly go higher if the Fed raises interest rates. But a higher dollar means higher import prices which would mean higher prices, not lower. Modern economists would call this "inflation," but it isn't really inflation since it isn't caused by an increase in the money supply. Price increases due to currency revaluation are actually recessionary. It is like a tax increase only the money goes overseas instead of to Washington. The rising dollar would also make US exports more expensive which would also lead to less manufacturing activity.
It is my opinion that we have never recovered from the recession of 2007. GDP numbers have been slightly positive only because government statisticians understate inflation. If the current trend in commodities and in investment continue for much longer, we could be headed into a downturn that would be even bigger than the Great Depression and which I would call, "The Greatest Depression."
So why hasn't all that money printing worked? The answer, I believe, is in deleveraging. Deleveraging is simply the business world's term for paying off debt. The US government debt has doubled under Obama's watch, but private debt has declined even more. All that government money printing hasn't been able to stem that tide. Of course, the government doesn't actually "print" money. In a fiat money system, money is created by debt.
The problem is that the money created doesn't go into debt reduction. About half of all the dollars in existence are off-shore, so about half the new money created has gone overseas, some has been left with the Fed as excess reserves have risen to nearly two trillion dollars, but much of it has gone into financial speculation. So we've had lower than expected inflation, but we've still had some inflation which masks the real process of deleveraging which is ultimately deflationary.
Individuals in this country are not buying because they're paying down debt. Businesses aren't investing because they're also paying down debt and because consumers are not buying.
Are we in the end game? Are we reaching the point where deflation can no longer be hidden? The dollar is already at 100 on the dollar index (up from about 80 not too long ago). If private deleveraging outpaces government borrowing, it could go still higher and would certainly go higher if the Fed raises interest rates. But a higher dollar means higher import prices which would mean higher prices, not lower. Modern economists would call this "inflation," but it isn't really inflation since it isn't caused by an increase in the money supply. Price increases due to currency revaluation are actually recessionary. It is like a tax increase only the money goes overseas instead of to Washington. The rising dollar would also make US exports more expensive which would also lead to less manufacturing activity.
It is my opinion that we have never recovered from the recession of 2007. GDP numbers have been slightly positive only because government statisticians understate inflation. If the current trend in commodities and in investment continue for much longer, we could be headed into a downturn that would be even bigger than the Great Depression and which I would call, "The Greatest Depression."