Deflation and Print Away

It would be deflation. Paying off debt causes money to “go nowhere” if that debt was created by the process of fractional reserve banking. If the money came from nowhere it goes back to a bank when paid off and more imaginary credit is loaned out. If the banks do not loan money, this money remains out of the market — nowhere/deflation.

The market appears to be demanding money, which makes sense because we haven’t yet come out of the credit contraction thanks to stimulus actions by congress and the Federal Reserve. Most are expecting inflation to occur out of fear the reserves will not be recalled in time; the debt will be monetized to pay for the wars; the excess reserves injected will begin to become credit-currency. Unfortunately, I cannot explain the rise in demand for money by an a priori statement as I can’t read the minds and know the intentions of all market participants. My “evidence” is the recent action in the bond market and a few news stories (i.e. the small businesses desperately need loans; people with good credit scores can’t buy a house). Neither are reliable sources of what “the market” believes, so I won’t even bother linking to them.

The savings rate has fluctuated between near zero and a negative rate for the last decade. There is little supply of loanable funds, which is why the Fed’s radical injection policy was needed during 2008.

Interest rates will not go lower than zero, which means they must go higher. Therefore everything with a price based substantially on credit will begin to correct again.

Most importantly, the foreign exchange market favors the United States dollar relative to other currencies such as the Euro. The more uncertainty the market has in other countries, the more they save in US dollars. This causes a relative increase in the value of the USD and thus deflation.

Further, I say the solution IS inflation. It’s this generation that made the mess. Nobody has any savings accumulated except a few powerful oligarchs and special interests. The millenials shouldn’t be expected to pay the value of the wars plus deflation. Rant, rant, rant! Maybe now is a good time to start paying off the debt with fake money while gradually moving into a full reserve system. Print some then increase reserves 8% a year? This would pay off the debt, increase “savings” (if a law was made that there was a maximum amount allowed to be put in non-money market savings accounts (nowhere)), and … in time, reduce the cost of living so that the baby boomers and generation x – who saved no money – would be able to retire and all at the expense of the countries and oligarchs from whom we stole the money. Hunters and gatherers!? NAY! Bandits and a mulligan!

Keynes counseled Hitler (see his preface to the German edition of his GENERAL THEORY) on economics. The primary objective of Keynesian policies found in Keynes GT is “full employment,” whatever that means. Keynes never really defined it, but Hitler certainly achieved it through the most drastic of economic measures–war. Keynes also counseled Roosevelt. When in 1938, after nearly six years at America’s helm, the number of unemployed in the US was the same as it had been when Roosevelt first took office, FDR began preparations the ultimate weapon in a Keynesian’s toolbox to address sticky unemployment. He began secretly preparing for war while publicly professing devotion to neutrality, which was what most Americans wanted. Roosevelt finally got what he wanted to shift the sentiment of Americans away from neutrality when the Japanese attacked Pearl Harbor. With that attack, Roosevelt’s unemployment problem was quickly solved by drafting many of the unemployed into the military, establishing a vast military-industrial complex that is intact to this day to produce stuff to be blown up. The war also reduced the number of job seekers by killing many off in the war. Read Percy Graeves PEARL HARBOR, THE SEEDS AND FRUITS OF INFAMY, and decide whether Roosevelt in effect invited Pearl Harbor to bail himself out of his unemployment dilemma, which would likely have brought his presidency to an early end in 1940. Both Hitler and Roosevelt pursued Keynesian economic policies, which failed to relieve unemployment until they adopted the ultimate Keynesian solution–WAR!

Is it possible that another American president pursuing Keynesian economic policies would deliberately lead the nation into war if milder Keynesian measures failed to relieve the recession and unemployment,? Obama has promised to end unemployment and has been unsuccessfully trying to do so with pure-Keynesian measures. Paul Krugman, a confessed Keynesian who seems to have the president’s ear has referred to World War II as “an enormous public-works project…which finally provided a fiscal stimulus adequate to the economy’s needs.” (See http://www.nytimes.com/2008/11/10/opinion/10krugman.html) Obama already has two wars, and has already escalated one of them. Will he, like Hitler and Roosevelt, use war to finally achieve “full employment?” If he continues to follow the economic advice of Keynes and Krugman, that is likely where Obama and the nation are headed.

These are political and economic issues, although I learn engineering, but personally I feel sometimes inflation is inevitable, it is in the specific conditions.