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Old 12-17-2012, 05:56 AM
Danny B Danny B is offline
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Join Date: Oct 2012
Location: L.A. Ca.
Posts: 3,461
Inflation, deflation and the 2 loop economy

Inflation only has one definition: an increase in the supply of currency and credit.
Deflation is, of course, a decrease. Price-inflation is an independent animal.
When GOV prints and banks lend, they must do so to create the currency to pay for both principle and interest. Keynesian economics demands a continuous increase. They need enough inflation to keep the system running.
This also serves to keep repayment easier. GOV debt is alleviated 50% on average by currency inflation.

As global wage competition lowered American wages, we still got price inflation commensurate with currency inflation but, we learned a new term.
Stagflation is a wage-price spiral without the wage part.
Currently, we learn another term, Biflation.
Everything you own goes down in value and everything that you buy goes up in cost.

When the housing bubble petered out, the consumer was no longer able to make the credit-and-money supply grow. The housing bubble was the jump-start to the economy after the tech bubble burst. The bond bubble is the jump start that was necessitated after the housing bubble burst. This is the last bubble. The FED admitted that it was doing things that it would have considered crazy 10 years ago.

To keep Keynesian credit growth going for the banks, GOV (you and me) gave them ABOUT $27 trillion. That didn't begin to fix things. The FED said that it is going to print an extra $ trillion.

Consider that unfunded GOV debt is at $ 202 trillion and grows by about $ 7 trillion a year. To put that in perspective, GOV claims that there is about $ 2 trillion in the SS fund. Actually, the SS fund holds that sum in NON-negotiable treasury debt. GOV needs to rollover about $ 2.8 trillion in debt. The FED is already printing about 80% of that and the percentage is expected to rise. It remains to be seen just how long this can go on.

One would think that with huge amounts of currency inflation, there would be dramatically higher price inflation. While the currency inflation is on a tear, there are 2 reasons why price inflation is muted.
Prices are influenced by the amount of money in circulation and also the velocity that this money changes hands. So, while supply is up, velocity is down. This dampens price inflation.

The financial people need inflation but, hyperinflation would destroy the currency and society. They have just the plan.

We live and operate in a 2-loop economy. GOV and banks move around
$ trillions every day. This moves in the upper loop. The PTB created about
$ 51 trillion worldwide for this crisis. GOV pisses and moans about $2 billion spent for food stamps. Bernanke promised to drop currency from helicopters. He did that alright. He dropped it to bankers.

The lower loop is starved out. Look at the austerity that is demanded by the bankers who lent imaginary money to the PIIGS. The job of a bankers is to convert imaginary money into tangible rewards. Since the imaginary money is ALWAYS deposited into a bank somewhere, it doesn't matter how much they create. The bankers get quite irate when the punters are no longer able to make the conversion. The bankers went overboard and created TOO much imaginary money.

The bankers are currently in the process of starving the goose that lays the golden eggs. They like to imagine themselves as being productive but, that is not the case. They would like to think that the trickle-down from their loop is enough to sustain the lower loop. This is no longer the case. Globalism took the wind out of the lower loop and it can no longer sustain the upper loop. Like a plane with shrinking wings (shrinking employment), it will no longer fly.

They got carried away in their greed and all their precious paper is in danger. Their cure is to create more paper. They certainly can't create wealth and they can't get us to create adequate wealth.
They have meetings and they announce that they have fixed the problems.
You're on your own.
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