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Tuesday, December 16, 2008

Welcome To A Free Money World!

Welcome to a free-money world!

After this there ain't nothing left in the arsenal but to print bling directly and to cram that green straight down your throat... whether you like it or not.

Fed Cuts Rate to Zero-0.25%, Will Use All Tools (Update1): "The Federal Reserve cut the main U.S. interest rate to “a target range” of between zero and 0.25 percent and said it will do whatever is needed to end the longest recession in a quarter-century and revive credit.

The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Federal Open Market Committee said today in a statement in Washington. “Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”"

Relax. This isn't inflationary at all. Not right now. Not yet.

“Forget about inflation. There has never been in the history of the world an inflationary run while land prices were declining. The amount of debt being destroyed as the monster of a debt bubbles implodes will suck down all asset prices and just absolutely collapse the velocity of money.” -TheFinancialNinja, 09/10/08

Well, we now have sufficient data to see the absolute collapse of money velocity. Just take a look at the M1 Money Multiplier (MULT) from the Federal Reserve Bank of St. Louis. Stare into the abyss of deflation. All the money in the world is useless if it doesn't move...

From the post Money Supply, Hoarding, Gold, Deflation: Tin Foil Hats: "For the hyperinflationists out there, a massive increase in money supply IF IT IS HOARDED would still result in deflation."

I repeat what I said in Inflation, Deflation, Money Velocity and Gold: "I’m firmly in the deflationist camp.”

Related Posts:
I Give You The Stupidity Trap... Errr... Liquidity Trap
Fed Admits Quantitative Easing
Zero Rate World, The Age of Free Money: We’re Doomed
ZIRP, Zero, Nada, Free Money and a Big Mess
Money Supply, Hoarding, Gold, Deflation: Tin Foil Hats
Japan Stuck, Quantitative Easing in the US
Closer to ZIRP, Liquidity Trap, Lost Decade
Japan v2.0: GLOBAL Liquidity Trap
Japan v2.0
The Lost Decade
Stimulus Package: Does it Even Work


Unknown said...

I agree that all the data is deflationary right now, and probably will be for a while. But wouldn't you think the risk of hyperinflation is becoming more realistic and less of a tin foil hat theory?

Consider as the government keeps printing money, and a larger and larger portion of that printing goes to paying off a larger and larger debt load.

If the dollar reaches the level of devaluation to the point that people stop keeping the sovereign debt bubble afloat and decide to spend their money now vs spending their devalued dollars later, and the cost of borrowing for the gov't starts jumping, wouldn't you agree that the gov't is risking a choice down the road between:

a)Total collapse if they decide to eventually default on their growing debt
b)Hyperinflation if they just continue to print.

Vijay said...

If you're selling gold Ben, I'm buying it!

I totally agree with you about the deflationary prognosis, but gold is being bought because of the worry of the future collapse of the dollar. This worry will increase as the Fed gets more and more desperate and starts doing all sorts of crazy things to get money moving again.

And IF they get money moving again, prepare for the greatest inflation this country has ever seen.

Anonymous said...

Free money = super hyper inflation

New highs for the stock market and gold/silver coming soon.

Tord Steiro said...

1. Has Japan seen much inflation since they started their quantitative easing? As far as I know they have also been printing money, and there has been very little inflation for a decade. And growth, that is.

2. The velocity appears to have peaked around 1987, and then declined steadily since then. Am I totally off here, or could that be due to foreign central banks hoarding dollars as forex reserves?

3. If #2 is correct, what will then happen when the dollar is useless as a forex reserve? will we see V jump back to 2.7?

4. If #3 is correct, I suppose we will see a inflationary hangover all the way from the late 80's. that should be pretty bad. Zimbabwe?

Thai said...

Ben, do you think you can have deflation AND a dollar that falls dramatically simultaneously?

I think this is where people like me are confused?

How could BOTH occur simultaneously?

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Anonymous said...

key words are 'if it is hoarded'

Anonymous said...


I agree with the previous post. "If it is hoarded" is indeed the key here.
Can you make a post on what would it take for the banks to stop hoarding and start lending like there is no tomorrow.
I think the Fed is intent on doing whatever it takes on stopping this hoarding for better or worse.
If they succeed we all might as well get as many loans as we can, since no one will ever pay them back.

Anonymous said...

The Fed's announcement is an acknowledgment (by deed rather then word) that we're well on our way to a global deflationary depression.

All other central banks around the world will follow the Fed's lead. Currency valuations will fluctuate wildly, which will have the effect of inhibiting global transactions of all sorts.

Why would banks lend to other banks when they all keep moving assets to mark-to-myth Level 3? There is no transparency!! They're pouring their money into US treasury debt for short term profit rather than lending to each other or lending to you and me.

Credit is declining faster than other forms of money are moving in to take it's place. Velocity is being sucked into a big black hole of insolvency expectations.

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