15 replies to this topic

[Pht]

Something a little different for the MWO crowd:



This is the amount of currency in total that's in circulation, according to the Federal reserve - the chart covers the max they will show, from 1984 to december 2013.

Quite literally, this is the amount of dollars "out there."

Moving on: notice the spike about five years ago - that's the first "quantitative easing" by the fed - which is nothing more than when the fed "magically" makes currency out of nothing (this is done electronically at the start these days) and dumps it into the money supply.

The amount of currency the fed has dumped in the last five years started out at about 800 billion ... it's now 3.6 trillion five years later, with 1 trillion of that coming ... in the last year.

To make this connect somewhat, the government's own consumer price index inflation calculator lists the first 94 years the fed has been around - from 1913 to 2007 - as having inflation causing a dollar in 1913 to be equal in buying power to 20.94$ in 2007.

From 2007 to 2013, the CPI inflation calc lists a 2007 dollar as having the buying power of a dollar and twelve cents.

So what's the point? well, given that other ways of inflating the money supply are equal or worse, this means the prices we are going to be seeing should be in for a really, really, nasty rise. If 800 billion over 94 years (much of that when the fed was virtually the ONLY thing increasing the currency supply) caused 21 dollars worth of inflation, how much should 3,500+ billion over 5 years injected into the currency supply have caused? ... and yet the CPI is only showing ... a .12c bump in the CPI.

Crazy, no?

So, what's the stated reason for all of this? They say they're trying to keep the economy afloat by making the stock markets grow:

This is the stock index for the standard and poor's 500, with the dates for the currency injections superimposed (they call this inflation "quantative easing")



The currency injection is being put into the mortage markets - which, ironiaclly, means there is more money (but not value) chasing after mortgages... as if we didn't learn the first time around!

... But wait, isn't increasing the number of dollars out there a good thing?

No. Here's why:

Bubba at the corner store charges 50 widgets for a pack of gum. When he tries to charge more, he can't sell his gum; the customers just won't buy it.

Well, one day bubba's customers find a previously unknown stash of widgets, and go buy bubba's stock of gum... well, bubba, having sold all of his stock pretty quickly, bumps his prices up - why? Bubba may not even know it, but there are more widgets chasing bubba's stock of gum.

Yep - that's right. Inflation of the money supply directly causes prices to go up by causing the buying power of the money already in circulation to have less buying power.

This is a double whammy for anyone who can't increase their money intake (say, your grandparents, for example).

However, the guy who first gets the new currency can use it at it's full buying power (because nobody has realized yet that there's more money around)... and who gets the currency first?

Yep, you got it.

The individuals in government and their friends.

Edited by Pht, 03 January 2014 - 06:59 PM.

[Pht]

Just for horror movie giggles:

If 800 billion injected caused prices to go up x 20.94... (times 21, essentially)

...

How much does the 2870.209 billion added to the currency in the last five years cause, if it has equal effect?...

It's roughly 3.59 times the amount of pressure on the prices. Meaning prices would have to go up by seventy-five dollars to correct for the 2.87 billion added in the last five years.

---

Here's the link for the top chart that I forgot to put in:

http://research.stlo...ed2/series/BASE

And the page for the bottom chart:

http://awadvisors.co...itative-easing/

Edited by Pht, 03 January 2014 - 07:22 PM.

[Pht]

All that I will say for certain is that if current things continue the way they have, we are in for some massive price inflation.

How much exactly? Who knows .

However, remember, things can (and have in the past) changed massively, in completely unpredictable ways.

For instance, the people in government and society at large could get a sudden case of conscience, and realize that this inflationary silliness and massive spending of money we don't have is immoral.

Don't laugh. It could happen. Things like that have happened before.

If something like that doesn't happen ... well, the inflation of the money supply by the fed isn't the only part of the game, if my suspicions are correct.

I don't believe that the credit card companies actually have the widgets they let you use (I may be wrong, but I'm fairly certain on this) - and if the CC companies don't have the currency they're extending to people as credit, that means ... they are doing the same thing the fed is doing. Inflating the currency supply.

I know for a fact that the banks are allowed to loan out money the DO NOT have. The magic words being "fractional reserve." I think the current allowed multiplier is about nine times ... so for a hundred actual dollars, they can loan out 900 dollars in bank loans. The real bite in this bank loan thing is that the bank actually secures their loans backed by ... nothing ... with things ... like, say ... your car, if you fail at payments... or the value of your work, if you make the payments anyways, covering the interest.

So who the heck knows how bad It could be if we all freak out over something and the prices suddenly correct for how much currency there really is floating around out there.

What's really scary is ... IF ... there is another of these panics (depressions), we may be towards the weimar republic after WWI scale of things, when you got your paycheck, cashed it into a wheelbarrow (yep. A WHEELBARROW) ... and ran to the nearest place you could to buy something, literally anything, with tangible value, trying to keep a hold of your buying power.

We used to call these events panics.

Now you know why!

---

On a related note, storey's guide to raising chickens is the best book I have found on the subject: http://www.amazon.co...n/dp/1603424695

On another side note ... if you want to do some good for yourself, stop using any and all forms of credit, if you can help it at all. You'll have to live frugally; but you can see the downsides of not living within your means above.

Another little hint: constantly buying stuff doesn't drive economic growth. If only this did, how did we ever grow before people constantly bought stuff they didn't need with money they didn't have?

Yeah, like, holy flaming bags of poop batman, this means video games should be well worth the money we put into them.

In the great depression, the movies industry did WELL. People wanted some escapism. Take note of the quality of the movies back then, writing wise...

Edited by Pht, 03 January 2014 - 08:12 PM.

[Alaskan Nobody]

Pht, on 03 January 2014 - 08:02 PM, said:

On another side note ... if you want to do some good for yourself, stop using any and all forms of credit, if you can help it at all. You'll have to live frugally; but you can see the downsides of not living within your means above.

Chiming in to say that it was a fun read - and yeah - my income isn't steady enough for credit usage.

Even if it was I probably wouldn't though - inflation was as much going to come after massive credit booms (as in, people started using them) as boating PPCs and the like was going to follow the lack of heat penalties.

[Heffay]

Don't use credit? That is horrible advice.

[Alaskan Nobody]

Heffay, on 04 January 2014 - 02:20 PM, said:

Don't use credit? That is horrible advice.

Not "don't use credit" but rather, "be careful with credit"

Edit: yes it says to stop completely, but that is rather unfeasable in quite a few situations

IE: My father's work truck broke down some months ago - we use almost no credits cards when possible, and live fairly frugally - but there was no money to fix the truck, so the credit card came out - one of the only times it has, and the big reason he has one in the first place.
Without credit it would not have been fixed as we would have had no way to earn money to fix it with.

On the other hand, as shown by the OP - credit is just as much a danger as it is a help - I know a lot of people who live on pure credit - and use one credit card to pay off their others - and that kind of living works very quickly into the dangers the OP talked about.

Edited by Shar Wolf, 04 January 2014 - 03:16 PM.

[Vanguard319]

Heffay, on 04 January 2014 - 02:20 PM, said:

Don't use credit? That is horrible advice.

Not at all. I don't have a credit card, and live within my means, I have no outstanding debt either, because I'm not spending money I don't have, and what little debt I do accrue, I can pay back in a relatively short time. If you can't do that without a credit card, you should not get one.

[Heffay]

Vanguard319, on 04 January 2014 - 03:16 PM, said:

Not at all. I don't have a credit card, and live within my means, I have no outstanding debt either, because I'm not spending money I don't have, and what little debt I do accrue, I can pay back in a relatively short time. If you can't do that without a credit card, you should not get one.

He didn't mention credit cards. He said every form of credit. All at the same time saying runaway inflation is around the corner. If that was the case, then he should be leveraging himself to the hilt buying property and other real assets with fixed interest credit (mortgages and such).

You should have a credit card and pay it off each month. You need to establish credit history so in the future if you need to get a loan for a car or house, you have a great credit score that gets you the lowest interest available.

And some items you should buy on credit. If you think getting a 1% loan on a big purchase and keeping your investments in the bank is worse than paying cash, you are being stupid with your money.

Credit is essential to maximizing your financial success.

[Snowcrow]

Basic economic theory states that printing lots of money helps economic activity in the short term. It can help avoid a deep recession. This cannot be used permanently though, as it will lead to increased inflation and the boost to the economy will be lost.
Printing money is a great tool for central banks around the world to temporarily boost the economy. It's not some conspiracy theory like op is suggesting.
In addition to this, the fed's massive printing has caused the dollar to weaken against the euro, as the germans refuse to start the presses. This makes american exports more competitive, boosting the american economy.

One point op makes is very real though. Wage vs inflation. It can be painful for people if inflation rises more than wages.
But in the last year, real wage(wage adjusted for inflation) has risen.

Real average hourly earnings rose 0.9 percent, seasonally adjusted, from November 2012 to November
2013. The increase in real average hourly earnings, combined with a 0.3 percent increase in the average
workweek, resulted in a 1.1 percent increase in real average weekly earnings over this period.
source: http://www.bls.gov/n.../realer.nr0.htm

If you have debt and a job and your wage keeps up with inflation, you should hope for as much inflation as possible as the real value of your loan will decrease.

One of the reasons that inflation isn't very high even though the fed is printing lots of money is because of something called the phillips curve.
Historically, unemployment and inflation is inversely related. Meaning that when unemployment is high, inflation is low, and vice versa.
In the future, when unemployment lowers again, inflation will rise.
The central bank can counter the inflation with a higher interest rate and by taking money out of circulation.


Hope this sheds some light on the issue.

Edited by Snowcrow, 05 January 2014 - 08:51 AM.

[Warblood]

The Debt Limit Explained



just incase any were wondering

[Pht]

Heffay, on 04 January 2014 - 02:20 PM, said:

Don't use credit? That is horrible advice.

Heffay, you left half of that sentence out ... "if you can help it at all."

Maybe a little more clarification - (and you really should have asked before presuming something I hadn't posted) - in running a business, for instance, sometimes it's necessary to take a loan to get some product for a big order in order to make a profit - and there's nothing wrong with that.

I also have no problem with taking interest on business loans for a profit (and I don't call profit greed - the two are not the same thing).

What is wrong is that it's very very hard these days to get geniune loans that are actually backed by value... IE, honest loans that aren't based upon value-theiving others by inflating the currency supply.

When the currency is inflated in this sort of manner, this actually takes away buying power from people at large - without their consent. It's theft. We shouldn't be basing our economic growth on theft.

What we call credit or loans these days ... ISN'T credit or loans.

Besides this, when there isn't actual value backing a loan, you are building your economy on a house of ghost-cards - prod it just a little bit and the whole thing folds - and when businesses take loans out instead of waiting till they actually have the profits (when it's at all possible to do so ... and it's not common to do this anymore) to back the growth pretty much any serious upset can bring the whole structure down. It's just bad business practice.

Vanguard319, on 04 January 2014 - 03:16 PM, said:

Not at all. I don't have a credit card, and live within my means, I have no outstanding debt either, because I'm not spending money I don't have, and what little debt I do accrue, I can pay back in a relatively short time. If you can't do that without a credit card, you should not get one.

Amen. Or if you simply must have one, at the very least, get one that forces you to pay back whatever you take out every thirty days, or they come for your kneecaps. I seem to recall that the amex business cards are somewhat like this.

Marack Drock, on 04 January 2014 - 04:17 PM, said:

I tell you guys. We should all team up to turn this into a horror movie and show it off to congress. They will quail in fear after watching a movie about Credit issues and rising prices.

Actually, on this realm it's a bit worse than you seem to think it is.

You see, the government does not follow the rules for accounting tha it sets for everyone else and enforces for everyone else. It doesn't follow GAAP (generally accepted accounting procedures). They can - and do - play a shell game with the numbers in order to keep everyone not in government in the dark. Witness the monthly corrections to the unemployment numbers as an example of this. Why mention this? I've heard serveral interviews, especially with freshmen legistlators, in which they have said with absolute conviction that when they finally saw the actual numbers it scared the feces right out of them.

Why don't they do anything about it? Simple. Like everyone else, they want to keep their jobs, but the only fixes they can see basically require them to ... be willing to lose their jobs and never get elected again. They literally have to cut the entire spending pie massively, and that includes things like SSI, Medicare, the pentagon, Government parks, you name it. Who's going to tell millions of voters and more potential voters that "we have to cut your benefits" ... ? Sad thing is, one way or another, the piper will force us to pay. Even if he has to take our economy out in the back alley and break every bone in his body as payback - as has happened in every other country that has gone the route we're going.

Heffay, on 05 January 2014 - 06:41 AM, said:

All at the same time saying runaway inflation is around the corner. If that was the case, then he should be leveraging himself to the hilt buying property and other real assets with fixed interest credit (mortgages and such).

I'm on fixed income - namely, zero (besides room, board, and meals), because of a family situation that doesn't look to be ending any time in the near future.

Otherwise I would be looking into preserving buying power outside of the rediculously dishonest currency we have right now.

Quote

You should have a credit card and pay it off each month. You need to establish credit history so in the future if you need to get a loan for a car or house, you have a great credit score that gets you the lowest interest available.

Credit is essential to maximizing your financial success.

Credit (real credit, which is, again, almost impossible to find) is necessary in businesses. However, it should NOT be necessary for household economies - and in fact, outside of buying land to live on, a house (or land with a house), and a car, it shouldn't be necessary even in our screwed up economy.

"Credit" as it exists these days is somewhat of a self-reinforcing thing - as credit allows bigger purchases for people who really don't have the means on hand... it drives the prices up, making credit necessary for more and more people. The same sort of thing has happened with our healthcare industry with the way insurance has been done, btw.

[Pht]

Snowcrow, on 05 January 2014 - 08:24 AM, said:

Basic economic theory states that printing lots of money helps economic activity in the short term.

Which is wrong - because inflation doesn't make any new buying power. It simply dilutes the buying power of the entire currency pool and gives the amount the pool was diluted by to the person who first uses the new currency; it's mere theft is what it is.

Quote

It can help avoid a deep recession.

As long as there are no external pressures and nobody realizes what's going on, it may work, but even short term it fools people into thinking they can buy more than they actually have the value to do so with, so people take on risks without knowing their actual risk level. Right now the people getting fooled would be the mortgage security markets, to the tune of 85 billion dollars a month.

Quote

Printing money is a great tool for central banks around the world to temporarily boost the economy.

It doesn't boost the economy. It fools people by pulling a robin-hood game, allowing those with currency injection powers to spend the currency at full power before everyone else realizes there's more money floating around.

Quote

It's not some conspiracy theory like op is suggesting.

I did not suggest that it's a conspiracy theory. If you're going to say things about what I've posted, at least get it right.

Quote

In addition to this, the fed's massive printing has caused the dollar to weaken against the euro, as the germans refuse to start the presses. This makes american exports more competitive, boosting the american economy.

No. It doesn't boost our economy. If it did, and this were a sound idea, than it would be best to inflate the currency pool until we could sell everything at .00000000000000000000001 cents, and suck in everyone else's currency - but that doesn't work.

Quote

One of the reasons that inflation isn't very high even though the fed is printing lots of money is because of something called the phillips curve.
Historically, unemployment and inflation is inversely related. Meaning that when unemployment is high, inflation is low, and vice versa.

False - we all know this one as "correlation does not equal causation."

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Warblood - yep, we effectively don't have a debit limit. Every time it has come up it is bumped up. It's a rubber-stamp vote.

Edited by Pht, 05 January 2014 - 12:05 PM.

[Heffay]

Well, this thread went full tinfoil hat fast.

[Pht]

Heffay, on 05 January 2014 - 03:04 PM, said:

Well, this thread went full tinfoil hat fast.

Thread ... doesn't contain any conspiracy theories ...

Doesn't state anything other than the obvious by quoting directly from hostile sources....

...

TINFOIL HATTERY!