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Everything we know about classic economic theory suggests the U.S. economy should be experiencing Zimbabwe-like hyperinflation right now, thanks to the nearly $2.2 trillion the U.S. Federal Reserve has pumped into the system.
But we're not…yet.
Classic economic theory says that money supply can be used to stimulate the economy and our central bankers seem to agree. That's why they've pumped more than $1 trillion dollars into the economy, engineered countless bailout bonanzas for zombie institutions, put Detroit on life support, and delivered a bunch of financial Band-Aids to the trauma ward – all in a desperate bid to make Americans feel better about the global financial crisis.
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Americans are by and large ignorant as to : Who is the "Fed's"… moreover the incredible power given to the Fed's, by a two party system who in all honesty has never had goodwill towards its people on their agenda, is as obvious as a nose on a face. Sadly the upper 20 % who make a living of the mass (this includes almost everybody who earns a living in the financial sector) will not call a spade a spade… Thank God, finally a few Americans are beginning to expose how they have been bamboozled by Democrats and Republicans alike…the… Read more »
Reason #3 (Consumers are still cutting back) is the major reason why inflation hasn't yet happened. When people don't have money, they're not going to buy your product. What good does it do to raise the price of it if the bottom line is that you'll generate less profit? Why don't people have money? Well, that's answered by Reason #4 – fewer people are working. Many have already exhausted all available unemployment benefits (and the Senate is stalling on passing the latest one). Go ahead corporate America – raise your prices. I dare you. I double dog dare you. There's… Read more »
Fourth reason!; the 'money supply' is not exactly honest. There is M1, M2, and M3. Printed money is only a small part of the total money supply. The remainder is unconstitutionally created by banksters and other counterfeiters, and that $651 TRILLION is vanishing now, no matter how hard they run the money printing presses. So they print a measly 2 trillion. So frigin what. Draw, hang, and quarter the crooks.
YOU FORGET….AS FAR AS THE LESSONS WE LEARNED FROM THE 1930s….
WE WERE A CREDITOR NATION THEN AND WHEN WE RAISED TARIFFS OTHER COUNTRIES STOPPED BUYING FROM US….
NOW WE ARE A DEBTOR NATION AND WE NEED HIGHER PRICES ON FOREIGN GOODS SO AMERICANS WILL CHOOSE A
PRODUCT MADE HERE…WHICH WILL PRODUCE MILLIONS OF NEW JOBS HERE….YOU AND ALL THE OTHER ECONOMISTS
HAVE IT BACKWARD….HIGHER TARIFFS ON FOREIGN GOODS
WILL MEAN INFLATION BUT IT WILL MEAN PROSPERITY HERE…
NOT DEFLATION AND DEPRESSION….LD
It's much worse than "Consumers are still cutting back," as if that was voluntary. 30 years of real wage stagnation due to "free trade" wage and job destruction has left American consumers deeply in debt while the government and Fed Res. keep handing cash support to the banksters. GNP=MV. Without velocity of circulation we get no growth. It's so bad we now have to extend taxpayer subsidized consumption from farm subsidies to tax credits for home purchases, cash for clunkers; next it will be appliances. O Bummer should have gotten an new Fed Chair, fired Geithner and started trying to… Read more »
Good article, excellent comments too.
I believe there is no way for the economy to begin to get healthy until one way or the other these bankers are forced to mark to market Their books, causing a lot of influential people to loose money.
A fifth reason we have not yet seen inflation is that, historically, there is always a significant delay. It would take about 18-24 months for monetary inflation to begin showing up in the consumer economy, even if none of the other factors were involved.
The United States exports inflation to China, which remains only too happy to continue to absorb it. What this means is that low priced products from China help keep prices down here. And this is critical to something that many in the "China-is-manipulating-their-currency" crowd fail to grasp. If China were to un-peg the yuan and let it rise by the 60% or more it's supposedly undervalued by, we'd see jump in prices here in everything from jeans to tennis shoes, toys, medical equipment, medicines, and anything else we import in bulk from China. Chances are, the shift would not be… Read more »
This is the first I've heard that Gary – but I hope it's true. I'd love nothing more than to see the prices of Chinese goods jump dramatically.
Sure, the prices at WalMart would sky-rocket overnight, but this would only be followed by sales volumes at WalMart plummeting.
"Mom & Pop" stores would once again stand a chance of succeeding.
The reason the "models" (as an engineer, I use the term very loosely when it comes to economics – macroeconomic models are crap uniformly) say one thing but don't, is that they do not model reality very well in the first place. Most (all?) monetary models make a simple assumption of Supply-Demand equilibrium. This gets hard coded into the model, usually somewhere in the math there as an implicit D=S identity. Same is true for endogenous and exogenous growth models. The problem is that this one little assumption is far from trivial. Having deflation? Guess what? D!=S at all. That's… Read more »
Another reason is the U.S. dollar carry trade. Dollars are leaving America to inflate other asset classes: emerging markets, oil etc. (please search the web for recent comments by Nouriel Rubinni)
Regards
The US economy is moving in the right direction: slow growth. According to the experts, we are out of the recession since June 2009. Second quarter growth is estimated at about 4%. The higher powers couldn't have made better decisions than what they did and doing in managing our economy. We would be facing a depression if the Feds had not stepped in and saved the big banks, AIG and the auto companies. Let's face it, the US is in a huge financial and economic mess and it must muddle its way out. It is not over. We are still… Read more »
Back in the 1980s, when we were having another government-created financial mess, I was looking to purchase a new car. I was in the showroom of an American car dealer. The salesman gave me his sales pitch. I said that I could buy a Japanese import for a $1000+ less. Could he match the price? To which he said no but this was an American made car and I should support America. To which I responded, I am an American and you should support Americans. At the end of the day all that counts is buying the best goods and… Read more »
Indian Govt just bought 200 tonnes of gold. China is now the fifth biggest holder of gold reserves in the world. China is doing direct currency swap deals with other countries bypassing the US dollar reserve. Oil is being traded in Euros and other currencies. The US dollar is being undermined daily. The GFC was the bursting of a bubble that has now been re-inflated by trillions of dollars of new paper currency. The same people who didn't see the GFC coming are now telling us everything is all right again. The Fed has just kept its proverbial finger in… Read more »
French philosopher Charles Montesquieu writing in 'The spirit of the laws', over 250 years ago said: 'If the republic is small, it is destroyed by a foreign force, if it is large, it is destroyed by an internal vice' . US Vice President John Calhoun indicated from where that internal vice may be derived hinting strongly that it was held together by the cohesive power of the vast surplus in banks. 'Economic hit man' John Perkins confesses the system is fuelled by something more dangerous than a conspiracy, it is driven by an ideology. Gordon Gekko would say that ideology… Read more »
So the hyperinflation is no longer to be or postponed and for how long?
This is an excellent article. It is the HUGE chinese shock absorber that saves the day and also the third world. Products, services, all made in china, latin america, india, asia. There will never be inflation as long as US continues to live at the expense of the poor. China is dead poor, don't be fooled by flashy Shangai and Beijing where less than 10% of a middle class population lives. Go to the mainland and look at the sweatshop factories of 1 dollar a day wage. Go to mainland India and Vietnam, go to mainland Colombia. The empire is… Read more »
We,ve all heard the saying, "money doesn't grow on trees." Some of the economists and politicians appear to think it does. Suggestions to accelerate retirement rates by moving more to Social security ignore the fact that there is already a problem with a lack of funding. An economist stated that the US is big enough to fund whatever they want, and we should go ahead and do that. If he is right, Why do they need to raise taxes? They should be able to eliminate them instead. Taxes remove money from the economy, weakening it. Government spending does not add… Read more »
Spoken like a true Keynesian, James.
Nope all around. First, the core inflation numbers are inaccurate. Real Inflation is mostly hidden right now and is at about 17%, not the visible core stuff, Second, while it is true that banks are hoarding cash, they never should have gotten the bailouts in the first place–if anybody, the taxpayers should have. All the hoarding cash does is create a slow rise to the hyperinflation instead of a fast jump, but it will happen nonetheless. We're currently in the saddle of a double-dip recession, but nobody in DC dares admit it for political reasons. The bailouts were a horrible… Read more »
While agreeing with all the facts cited in the article I am much less panicked about the prospects of hyper-inflation. For one, China isn't going to revalue the yuan by 60% over-night but allowing for a gradual adjustment over time. Domestic production , i.e. jobs, would take up the slack here. There'll be a new equilibrium in world commerce. The dollar should rise relative to other currencies, such as the Euro and Yen etc. The Fed will mop up the excess liquidity. The only worrysome item in my view is unchecked spend and tax policies pursued by the present administration… Read more »
@ Tannim
An A+ for your analysis. Great.
I would like to see some real employment numbers, such as: Out of all tax returns submitted by Americans, deduct all 1099s, deduct all government workers (police, politicians, teachers, postal workers, etc.), then deduct all those working in health care. Now, how many people are left? These are the folks actually "producing" productivity. I'm curious to see what the percentage is. That's the number of actual jobs you have. As the cost of insurance and insurance mandates & regulations skyrockets, w-2 jobs decrease drastically, and there is strong disincentive to have older employees. Once one's age is over 50, you… Read more »
We have been a debtor nation since the Revolutionary War !! So. you have to choose Hamiltonian policies or Jeffersonian policies <Hamilton historian (B.O.) now occupies the Whitehouse? The 20% wealthy/elite is more like 5% of the population. Inflation is the cure for our present economic demise….except, double digit inflation will be the U.S. economy demise as it is unmanageable by all. Employment, income, hires always trails any economic business upturn. BETTER THAN SOCIALISM IS CAPITALISM. If that $2 trillion "stimulus" plan was substituted with the NoBAMA stimulus plan-we would not have been here/now. NoBAMA Stimulus Plan = $50k to… Read more »
you hit the nail on the head, I can't understand way some many people are to what is really been going on, and the facts. Even with facts and proof. They don't believe or are blind. All i can see and say is 80% of people are brainwash controled, and hide in disney land.
I don't see long term improvement in North America at all. The base of strong (country) economy is a strong manufacturing sector. Service is nothing when not provided to other countries. We gave up manufacturing sector to Asiatic countries in late eighties and early nighties instead of solving our problems internally. Nobody can reverse it now. Internet plays a huge role this days. It is harder to take advantage of others. CIA 7 KGB do not play any role in economics internationally any more. The trouble is unavoidable without strong manufacturing sector!!! We just have to accept it. Old days… Read more »
Obama looks like the child of Andreas Papandreou (20 yrs ago in Greece): promise "change", print money, inflate the public sector, kill the industry, cause high prices (due to inflation) and doom the country.
The Chinese cannot buy all US debt. Thus the inflation (credit expansion) will definitely cause higher prices.
Deflation is not low prices. Someone explain to me why we' re talking about "no inflationary pressures" when food and energy prices are going up.
In conclusion: Economies based on services and high taxation are high cost of living economies. That's where the U.S. is heading.