Choose your "inflation" In the midst of all the "optimists" who argue that the crisis is over and that recovery is around the corner, here is a "Cassandra" which warns us of what might happen in the future ...
Choose your inflation
Gary North
A touch us. That is if there will be things of luxury. If, however, will Precid as the Austrian theory of business cycle then there sip two or three.
Americans have experienced so far in the thick of money. Prices remained stable. In July the Consumer Price Index is the Median CPI was flat compared to June .
We consider five
inflation:
Deflation
Inflation
Stagflation
Inflation mass
Hyperinflation
E 'better consider all one by one.
inflation: monetary or price?
Dobbiamo sempre tenere a mente che ci sono due modi di definire una –flazione: (1) come un’alterazione dell’offerta di moneta; (2) come un’alterazione del livello dei prezzi.
Queste definizioni ci fanno considerare altre due questioni: (1) il poter definire accuratamente che cos’è la moneta; (2) il poter definire accuratamente che cos’è il livello dei prezzi. Entrambe le questioni sono problematiche.
La Federal Reserve tre anni fa ha messo da parte M3. Ci è stato detto che M3 è inutile come indicatore dei prezzi futuri. Ce n’è voluto di tempo. La Fed aveva ragione. M3 era la più ingannevole di queste M: M1, M2, M3, MZM. Ha sempre sovrastimato la possibilità di un’impennata nel CPI. Non c’è dubbio su quale sia la migliore M per effettuare queste previsioni: M1. Per leggere la mia analisi dettagliata sui perché, andate qui .
Inoltre ci sono molte più informazioni in una “M” che il only predict future consumer prices. There is also the problem of predicting the business cycle. There is no agreement among economists on this.
Then there is the level of prices. What basket of goods and services should use the statistics? What relevance should give every good and service, among the hundreds present? These weights will change with the changing consumer tastes. No index remains intact over time. All are reviewed when there are major changes, the CPI index Dow Jones.
I look for trends. M1 and then use the Median CPI.
The crucial issue is monetary policy. According to the Austrian business cycle theory, they are determined by monetary policy decided by the central bank. The periods of boom and bust are the result of monetary inflation created by the central bank, followed by a smaller expansion. The other schools of thought reject this theory. Well, they're wrong. For an introduction to the subject can then read the chapter of my mini-book Mises on Money.
Deflation
Many of those who expect deflation have in mind the price deflation. A few thought that it may be a deflation caused by the bankruptcy of banks, but it is a very difficult position to defend. The FDIC (deposit guarantee fund) can keep the doors open banks. There are no bank runs to withdraw cash. There are only "race" that concern the transfer of electronic money to other banks. This does not change the money supply.
The price deflation can occur within the free market. It 's the result of increased production in an economy where there is a stable currency. Hence my slogan: "More goods in return for the same amount of money." Economy in which money is gold provides this world, at least until the central banks do not protect the insolvent banks. The same thing happens in a banking system subject to 100%, which we never had. This is not the scenario offered by deflationists.
This is their scenario. Banks create credit. The paper money lowers the rate of interest. People borrow. So far the description is consistent with the Austrian school. This structure of credit is not sustainable. Even here we are.
But here is where opinions diverge. Deflationists I say that in general people can not pay its debts. They are bankrupt. Prices fall. Not only are the prices in those areas where it has developed a bubble but all prices.
There is a problem with this argument. If half the things you normally buy cost less, you still buy the same amount, or even something more, and then buy something else. This also applies to capital goods.
not put the money in the mattress. With that money buy something that falling prices have enabled you to buy. Buy more than B when the price falls to ... or buy more than A.
's simple, no? But those who call themselves deflationists do not understand or do not believe it.
The system is the same amount of money. Each owns a portion. Even you and me. Both of them would like some more ... price. But the contraction of credit markets after the bursting of a bubble is not going to affect the money supply if the central bank or the Treasury ol'FDIC intervene and prevent the fractional reserve banking system to implode and take with you all the digital money created.
This is economic logic. If the logic is correct then there should be a detailed theoretical criticism. Or, given the weakness of human thought, maybe the logic is not corresponds to reality. Economists are famous for constructing detailed theories that do not conform to reality. But the theory of prices in a market economy as a result of supply and demand of money in relation to supply and demand of goods and services is linear. It 's the basis of all economic theory. If we throw away what is left of economic theory?
If a central bank creates a boom in the currency of paper and then ceases to inflation can create deflation. How? By refusing to bail out the banks imploded. This allows the money supply to contract following the disappearance of the deposits commercial banks failed. A fractional reserve banking system can implode. This would create a negative pressure deflation. We have not seen anything like this since 1934, when the FDIC was created.
Do not count such a thing to happen. At least not yet.
Inflation
monetary inflation produces price inflation. On this both the monetarist Chicago School or the Austrians I agree.
If the central bank expanded the money supply, prices will rise. This process takes time. Economists debate about which is the delay: 6 months, one year, 18 months. But in any case, the monetary expansion will drive up prices. The new money must go somewhere, must go to the bank account of someone.
If the central bank expands the monetary base by buying the assets, it creates the currency in which it purchases. Who owned those assets spends that money. If instead the Treasury to be the recipient, is the Congress to spend. (Both in theory and in practice, if Congress puts its collective hands on the money it spends. All economists agree on this point)
Monetary expansion produced by the central bank is the cause of the economic boom and speculative bubbles. Economic expansion temporarily lowers the interest rate. Someone borrows the money you just created.
The United States has suffered monetary inflation from 1914 to 1930. Then, after a three-year break since the collapse of banks, we suffered again from 1934 to present. The dollar has lost 95% of its purchasing power since 1914. No, I do not think the CPI will tell us exactly that. But I can follow the trend. And the trend tells us that prices go up and the purchasing power of money goes down.
long as we have the Federal Reserve that creates money , we have price inflation. The only thing that can delay this process if the Fed increases the reserve ratio, or if commercial banks send their excess reserves in their accounts with the Fed L 'monetary effect is the same: to increase the reserves. This reduces the leverage of the deposits.
price inflation below 10% a year is what I call inflation. But before we get to this point, we will suffer stagflation.
Stagflation
This is the weight of the 70s. There has been a massive monetary expansion accompanied by huge deficits. The federal deficit in 1970 was 25 billion dollars and was the same the following year. Unthinkable!
The Keynesian theory that was dominant then argued that the federal deficit would have defeated recessions. The central bank had only to inflate enough to cover the deficit. But there were two major recessions in the 70s. Unemployment and the prices went up with her. The combination of these two events was called stagflation.
we can have economic stagnation in the world today is obvious. Almost all mainstream economists expect growth to slow next year. Provide for the family in recovery V is no longer in fashion nowadays. More typical is the prediction of Muhammed El-Erian, CEO of PIMCO, the world's largest bond fund. She called the "new normal".
Economic growth will be mitigated for a while 'and unemployment high, the heavy hand of government is evident in many sectors, the heart of the global system will be less cohesive, with the model Anglo-Saxon losing supporters, finance will not be given a more prominent role in post-industrial economies. In addition, the budget will shift the risk to the country risk over time, expectations of inflation and stagflation.
This scenario is a combination of slow growth and rising prices. Today we have no growth and stable prices. Then a slow growth and rising prices is nothing conceptually too different.
I think stagflation is likely once the recovery will come, but we are seeing a huge federal deficit. Ross Perot in 1992 spoke of a loud sound of sucking. He said that sound was the jobs lost to Mexico. But I think that's the sound of the federal government that sucks up all the excess capital in the United States and around the world. This money will not go to the private sector.
What are the basics is a sustainable economic recovery? An increase in the capital. But we're seeing a destruction of capital.
for a while 'suffer stagflation. It will not be stagdeflazione but staginflazione.
Che cosa mi aspetto? Crescita economica sotto il 2% annuo con i prezzi che aumentano del 5% o più all’anno.
Inflazione di Massa
Questo fenomeno apparirà quando il deficit federale non potrà essere più coperto dagli investimenti dei privati e dagli acquisti delle banche centrali straniere. E’ quasi certo che questo accadrà entro dieci anni. Penso che probabilmente potrebbe verificarsi prima della fine del prossimo incarico presidenziale. Penso che il fondo della Social Security cesserà di avere un surplus che oggi viene usato per comprare titoli del Tesoro. I gestori del fondo dovranno anzi vendere alcuni di questi titoli di debito al Tesoro e quest’ultimo dovrà emettere altri titoli per coprire queste restituzioni.
Questo stadio sarà l’indicatore che il modello odierno “prendi in prestito e spendi” è fallito. La FED dovrà intervenire per fornire la differenza tra i titoli di debito comprati dal pubblico ed i prestiti richiesti dal governo. Quando ciò accadrà il tasso di inflazione aumenterà e con esso anche i prezzi.
I define inflation as massive double-digit inflation above 20% but below 40%. The Americans have never had. No industrialized nation has seen a thing until after a major military defeat.
capital markets will be destroyed. The government will absorb virtually all the new capital format. There will be no net increase in capital. We will only use the capital.
The international value the dollar will fall. But other Western nations will stand by following similar policies. It is unclear what the dollar will fall. It depends on the level of competition that the various nations will have to destroy its currency. Every Western country will face the day of reckoning: the bankruptcy of the pension / health.
Then the Fed will have to make a choice: press on the brake or destroy the dollar.
Hyperinflation
The worst scenario is hyperinflation. Ludwig von Mises called this stage "crack-up boom." Leads to the destruction of the currency. The economy will move to an alternative currency or barter. The division of labor will collapse.
No modern industrial nation that has suffered since the Second World guera. The West is not Zimbabwe. It is not un'arretrata agricultural nation that has a tribal system still working to help its members.
think about the implications of the fact that your money can not buy anything. How would you live? Suits in the city. You are dependent on a complex system of computerized forecasting and distribution. All this is governed by the system of profits and losses. This system will cease to function at some point. And that's where the economy moves to a monetary system alternative.
This means destruction of wealth scale comparable to that of a war. It would create a new social order.
not I think the Federal Reserve permits. This would destroy our banking system. The purpose of the Fed's unofficial, but that is his primary job is to preserve the largest banks in the banking system. If the alternative is to provide between paper money to finance government debt and the destruction of the dollar, the Fed cease to buy debt securities.
That will be the turning point.
Deflation
Ed allora avremo il crash. La Fed proteggerà le banche più grandi, che inghiottiranno tutti gli asset delle banche più piccole. Un sacco di piccole banche andranno sotto e con esse i loro depositi.
Avremo corse agli sportelli. La gente vorrà denaro contante. L’FDIC andrà in bancarotta. Le banche pure. E con esse il denaro dei correntisti. Sarà come in “It’s a Wonderful Life” ma senza la scappatoia delle 6 di sera (orario di chiusura).
E 'better than the day you have your money in the bank of Harry Potter rather than in the Bedford Falls Building & Loan.
The contraction of the digital money will be accompanied by a very serious recession. The failures are common. Unemployment may not rise, but only because he was already risen so much during the final stages of mass inflation.
There will be a period of recovery. The cost of recovery will depend on how the poor have been displaced during the period mass inflation. If they are very serious, as I expect, the period of recession will be acceptable only if you have money and a job. But the investment strategies for salvaguardasi against inflation mass produce losses. A set of strategies appears opposite. Being a debtor during the inflation mass. Being a creditor in the second half after inflation.
If the Federal Reserve speak again, you repeat the cycle beginning. But the numbers will be larger.
Conclusion
Choose your inflation. You may try to beat them but each subsequent inflation threatens your capital.
We are entering a period of capital consumption in the United States. I think this problem will plague the West. The same political promises were made. They will be betrayed.
Who will maintain its standard of living during these inflation will be truly blessed. Who will get rich has done a miracle
