No Fear Of Inflation; Threat Of Deflation
The Fed wants to have their cake and eat it too, but the cake is stale. Jerome Powell's remarks in testimony before the Senate last week provoked considerable attention.
Responses, interpretation, and analysis by observers were many and varied. Unfortunately, no one learned anything different from what they thought they knew before Powell's testimony.
The Fed is well aware of the problem. It is systemic in nature and goes far beyond corporate due diligence, bank liquidity, and the safety of your broker.
Most everyone else (with the exception of Janet Yellen, Ben Bernanke, and Alan Greenspan) thinks they understand the problem, but their limited understanding doesn't allow for the subtleties of Fed Chair behavior.
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Chairman Powell and his "inner circle" want very much for you to focus on inflation. By talking about inflation, they hope that possibly it will spur behavior that might provoke a resurgence of economic activity and stave off the coming economic collapse.
That last piece of stale cake is never as tasty and satisfying as the first piece, cut from that freshly baked culinary delight. It might do us all well to know what is in that cake.
The Fed's recipe has never changed. For more than one hundred years, they have been baking an inflationary cake that is making people sick. The cake is now old, stale, and crumbling.
Purpose Of The Federal Reserve
The Federal Reserve and all central banks, in conjunction with their respective governments, inflate and destroy their own currencies intentionally. It is a plan with purpose and real intent that allows banks to do what they do best - lend money.
The Federal Reserve was formed for the purpose of cultivating a financial system that would allow banks to create and lend money in perpetuity.
The Fed creates the money and the banks lend it. Even retail banks create inflation by making loans to their customers via fractional-reserve banking. The Federal Reserve also makes sure that the US government has all the money that it wants to spend.
What Inflation Is And What It Isn't
INFLATION is the debasement of money by the government. The action of expanding the supply of money and credit is inflation.
The debasement of money leads to a loss in purchasing power of the currency which shows up in the form of higher prices for all goods and services over time. In addition, decisions regarding financial planning, capital expansion, etc., become skewed. These effects of inflation are unpredictable.
Inflation is NOT a spontaneous event that just happens under certain conditions. Inflation is the conscious and intentional act of debasing the supply of money by those in charge; whether that be a central bank or a government.
Before digital money, even before paper money, inflation was a problem...
"Early ruling monarchs would 'clip' small pieces of the coins they accumulated through taxes and other levies against their subjects.
The clipped pieces were melted down and fabricated into new coins. All of the coins were then returned to circulation. And all were assumed to be equal in value. As the process evolved, and more and more clipped coins showed up in circulation, people became more outwardly suspicious and concerned. Thus, the ruling powers began altering/reducing the precious metal content of the coins. This lowered the cost to fabricate and issue new coins. No need to clip the coins anymore. (see History Of Gold As Money)
Fed Is Afraid Of Deflation
Deflation is the opposite of inflation. DEFLATION is a contraction in the supply of money and credit.
The effects of deflation result in fewer dollars in circulation and an increase in purchasing power.
The overwhelming effect of deflation would be a catastrophic economic depression, such as that which occurred in the 1930s.
Deflation is the Fed's biggest fear. It is the inevitable end result of too much inflation. Depression would not be good for banks and lending activities.
The problem is that the bond market is shouting that a credit collapse, deflation, and economic depression are on the horizon. The Fed knows this and can't do anything about it.
That is exactly why they want you to look the other way.
Kelsey Williams is the author of two books: Inflation, What It Is, What It Isn't, And Who's Responsible For It And All Hail ...
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Interesting and depressing, even rather alarming. I had not considered deflation as a threat or as a possibility. Certainly the supply of money can shrink if folks save instead of spend, but the banks are supposed to solve that problem by renting the money from depositors and then loaning it out and charging enough interest to pay for the rental. Presently banks are not offering any rental payments for money, and not charging rent on what they do pay out.That is not the way to gain any profit. And when a business does not make any profit, ususlly the result is a COLLAPSE.
The world economy is funded with cheap, over leveraged credit. A credit collapse this time around will likely overwhelm anything the Fed can do to stave off total economic collapse. End result would be full-scale depression.
I've always thought that there needs to be a period of deflation to wipe out inflation excess.
Can you provide examples of "bond market is shouting that a credit collapse, deflation, and economic depression are on the horizon." Would be nice to follow those indicators.
Interest rates on 20-year US Treasury Bond have more than doubled since last August from less than 1% to more than 2%. The corresponding drop in value of the bond itself is more than 20%. Those are huge moves in a bond market that is already over leveraged and teetering precipitously.