Do banksters really prefer inflation to deflation?

[jon_perez]

We're all familiar with the [cynical] explanation of why bankers want to inflate, e.g. those who get the newly printed money first (ostensibly their cronies) get to spend it before their devaluating effects kick in.

But in http://market-ticker.denninger.net/a...-Ben-Bah..html Karl Denninger explains why bankers may actually want deflation:

In a deflationary scenario,

So let's assume that the bankers lend you $300,000 to buy a house. You buy a house, but can't make the payments. This is a microcosm of what's going on right now.

The bankers have a choice - they can force foreclosure, in which case they own a house, or they can force hyperinflation, in which case you can pay them. Those are, in fact, the two options, although of course those are endpoints and "something in the middle" can happen too.

Which of the two would you, as a banker, prefer?

When you made the loan that $300,000 was, roughly, the equivalent of a small yacht, or a (very) fancy car.

In a deflationary environment the banker gets as much of your money as he can, and then he also gets the house! You lose big, but does he lose? Well, not really. He started with an asset (money) that was roughly the utility value of the home, and he ended up with the home itself, which has the same utility value. Further, the money he gets before you default goes up in value, as premium comes out of hard assets.

That is, he might have not only the house, but enough money to buy a yacht as well (at a distressed sale.)

The banker makes money in terms of real value in a deflationary environment. You, on the other hand, being in debt, get rammed.

In a hyperinflationary scenario,

Ok, now let's look at hyperinflation. Let's say that the government prints up $300,000 and sends it to everyone in the country. Hurray! You can pay off your mortgage, and you do so.

But what happens to the banker?

He gets reamed in both holes. Yes, he has his $300,000 back, but what does that $300,000 buy? Oh, not very much eh? Go look at Zimbabwe, Argentina, or any other place where hyperinflation takes hold. The banker gets stiffed in a big way (as does anyone else who's business it is to move and hold money) because what once bought a house now only buys half a house, or less.

See... the self-labeled "conservatives" think that going back to a gold standard is what sets things right and promotes virtue. But if you really wanted to be conservative and hew to "old-time values", it is not merely a gold standard you should be advocating. One would also heed the biblical and islamic proscriptions on the collection of any interest on money. (What the term usury originally referred to).

Fiat money is not the root of evil (just a branch). It is, rather, accepting the whole idea of levying interest on loans that can be seen as the Original Sin and the Fall.

[hugolp]

First one and then the other. They make money with the volatitlity. Producing bussines and the economy in general prosper with stability.

But the bankster rule the country.

[jon_perez]

Originally Posted by hugolp

First one and then the other. They make money with the volatitlity. Producing bussines and the economy in general prosper with stability.

Nah.... volatility tends to hurt everyone except the speculators. Bankers are generally NOT in the speculative business.

Cynical analysis does not equal intelligent analysis.

[hugolp]

Originally Posted by jon_perez

Nah.... volatility tends to hurt everyone except the speculators. Bankers are generally NOT in the speculative business.

Cynical analysis does not equal intelligent analysis.

You allways with your wishfull thinking. No, bankers are not specullators, not at all... When will you wake up?

BTW, the KDenninger article is bullshit, utter bullshit, as usual when he talks about inflation/deflation.

Bankers dont want lowering prices (what he calls deflation) because under that scenario the debt becomes unpayable, there are masive defaults, and the bankers end up with a lot or worthless houses, and a big whole in their accounts. Lowering prices (what he calls deflation) would make the banks go bankrupt. But of course, KD missed that observation... You should not read only to people that know about economy. You should read to people that know about economy and are honest. KD is not honest and will fool you for his interests.

[stag15]

Originally Posted by hugolp

You allways with your wishfull thinking. No, bankers are not specullators, not at all... When will you wake up?

BTW, the KDenninger article is bullshit, utter bullshit, as usual when he talks about inflation/deflation.

Bankers dont want lowering prices (what he calls deflation) because under that scenario the debt becomes unpayable, there are masive defaults, and the bankers end up with a lot or worthless houses, and a big whole in their accounts. Lowering prices (what he calls deflation) would make the banks go bankrupt. But of course, KD missed that observation... You should not read only to people that know about economy. You should read to people that know about economy and are honest. KD is not honest and will fool you for his interests.

What are his interests?

[hugolp]

Originally Posted by stag15

What are his interests?

He invests in the dollar or in dollar related assets.

[MelissaWV]

That depends. Are these bankers part of an international organization, with access to other nations' wealth?

One can speculate with currencies quite easily. One can also nab up currency from foreigners who come to the USA to buy all these fallow houses and pretend they can revive the American Dream. Look around now, and see who's snatching up those good deals.

There are always deals to be had during any instability. Bankers are usually the first to hear about it, so long as we're discussing top level bankers. We're not talking about Tina Teller down at the local branch. The more the boat rocks, the more the passengers beg the captain to stop it. Bailout, anyone? The strings attached to that money, as we've seen, were not particularly taut or effective. The fact of the matter is that there is more opportunity in instability than stability.

As for inflation, it tends to be the way bankers and politicians cover their asses, since the "common folks" don't understand it so much. When someone gets a check in the mail, they don't pause to realize almost everyone else got that same stimulus check. It's the same money or, worse, it's newly-printed money... numbers that came out of thin air. The other nations' bankers, not as easily fooled, will either continue to put faith in the future of the nation printing up their money like it's going out of style, or they won't.

[jon_perez]

Originally Posted by hugolp

Bankers dont want lowering prices (what he calls deflation) because under that scenario the debt becomes unpayable, there are masive defaults, and the bankers end up with a lot or worthless houses

Houses are not worthless, depreciating currency is what's worthless. For someone who rants endlessly about "worthless paper", you sure do seem confused as to where real wealth lies. Real wealth is in tangible goods, and houses are tangible (or maybe you didn't know that??)

As I have observed before, you have uncritically swallowed so much ideology that it runs roughshod over your common sense.

Lowering prices (what he calls deflation) would make the banks go bankrupt.

Really? How so?

[puppetmaster]

Well inflation or deflation, what does it matter. The banks are the tool used to maintain power by a certain class.

[hugolp]

Originally Posted by jon_perez

Houses are not worthless, depreciating currency is what's worthless. For someone who rants endlessly about "worthless paper", you sure do seem confused as to where real wealth lies. Real wealth is in tangible goods, and houses are tangible (or maybe you didn't know that??)

As I have observed before, you have uncritically swallowed so much ideology that it runs roughshod over your common sense.

Really? How so?

Yeah, yeah, yeah, whatever.

I told you why. Because defaults will be huge, huge if prices start going down. Nobody would be able to pay its mortgage. Try reading next time.