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WTF !! WTF !! WTF !! NO DEFLATION !! INFLATION DA !! MI MONETARY BASE INCREASE 45% IN...2 MONTHS !!

 
THE WTF GUY !!
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11/17/2008 12:21 PM
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WTF !! WTF !! WTF !! NO DEFLATION !! INFLATION DA !! MI MONETARY BASE INCREASE 45% IN...2 MONTHS !!
[link to seekingalpha.com]

Deflation? What Deflation?
by: Big Jake November 16, 2008

One now hears a lot about deflation, or the threat of deflation. Anyone lamenting the decline in the value of stocks, real estate, or commodities will reach for this word sooner or later. Everywhere, one is bombarded with phrases such as, “Deflation reared its head as the stock market sank further today.”

So what is deflation? At its root, it is a dis-inflation of the money supply. In other words, a diminution in the volume of available currency units, brought about through uninsured bank failures (a la the Great Depression) or some natural or unnatural catastrophe.

In an expanded meaning, deflation is a dis-inflation in prices. As the money supply shrinks, the law of supply and demand ensures that each remaining currency unit becomes more valuable. As the currency becomes more valuable, its purchasing power rises and prices decline.

Yes, prices decline—not merely asset prices, but those of all goods and services in the marketplace. So when are we going to see this?

Certainly, food and fuel have retreated following the bursting of the commodities bubble. Some retailers are holding sales. But what about health care or education, or barber services? The Hair Cuttery chain has just bumped its signature $14 haircut to $16. On an official note, government figures are still showing annualized urban CPI figures (food and energy excluded) in the three-percent range.

Clearly, we are not seeing an across-the-board reduction in prices. Neither is there a diminution of the money supply, as the below chart makes clear (click to enlarge image):



Data posted with this chart on the Federal Reserve Bank of St. Louis’s website shows that the nation’s monetary base or M1—the sum total of all domestic bank reserves, deposit accounts, and notes and coins in circulation—expanded by almost 45 percent between September 10th and November 5th of this year. In fact, the Fed has to adjust the scale of this chart every week, just to keep the trend line from shooting off into space.

So where is the deflation? Some people are focused on the deflation of Wall Street balance sheets, forgetting that the money was never there to begin with. Others point to the deflation of their stock portfolios and home valuations. Again, much of that virtual wealth was not real or could never be realized.

In both cases, the default remedy is monetary inflation via government “liquidity operations” on a multi-trillion dollar scale. Of course, this bailout of fake wealth is being effected with real money. More importantly, because money gets around, what inflates balance sheets and asset prices will eventually make everything else more expensive, too. In the long run, this may counterbalance any conceivable benefit from inflationary policies.

So long as Operation Liquidity is stymied by the reluctance of banks to do anything more than bury their digital cash in the cellar, monetary hyperinflation will not lead to price hyperinflation. But is anyone thinking over the horizon? What happens when a nation consistently expands its monetary base at the rate of five percent per week? Can we keep doing this indefinitely, with no long-term consequences for the value of our currency, our savings, and the continued appeal of our government and agency bonds?

One thing is almost certain—the cost of a haircut will not deflate for a long time to come
ANNONYMOUS
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11/17/2008 12:24 PM
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Re: WTF !! WTF !! WTF !! NO DEFLATION !! INFLATION DA !! MI MONETARY BASE INCREASE 45% IN...2 MONTHS !!
5a

SURPRISE SURPRISE NOT!
Anonymous Coward
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11/17/2008 12:42 PM
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Re: WTF !! WTF !! WTF !! NO DEFLATION !! INFLATION DA !! MI MONETARY BASE INCREASE 45% IN...2 MONTHS !!
Wouldn't the M3 going the exact opposite direction have a neutralizing effect on the M1? Just curious.
The_Venerable
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11/17/2008 12:44 PM
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Re: WTF !! WTF !! WTF !! NO DEFLATION !! INFLATION DA !! MI MONETARY BASE INCREASE 45% IN...2 MONTHS !!
After reading "deflation is dis-inflation" in the first line or two there is no reason to even read the rest of the article. That statement is completely false.
Anonymous Coward
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11/17/2008 12:45 PM
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Re: WTF !! WTF !! WTF !! NO DEFLATION !! INFLATION DA !! MI MONETARY BASE INCREASE 45% IN...2 MONTHS !!
the coming hyperinflation is going to be crazy
riker

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11/17/2008 04:20 PM
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Re: WTF !! WTF !! WTF !! NO DEFLATION !! INFLATION DA !! MI MONETARY BASE INCREASE 45% IN...2 MONTHS !!
the coming hyperinflation is going to be crazy
 Quoting: aznwarlord


Yep... I thought maybe biflation for a while...

But really we're going to deflate then explode. It will be an interesting ride. Working on not becomuing complacent and continuing with my preps.
You shall know the TRUTH, and the TRUTH shall set you free.
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rikerglp (at) gmail.com
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Anonymous Coward
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11/17/2008 04:32 PM
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Re: WTF !! WTF !! WTF !! NO DEFLATION !! INFLATION DA !! MI MONETARY BASE INCREASE 45% IN...2 MONTHS !!
Wouldn't the M3 going the exact opposite direction have a neutralizing effect on the M1? Just curious.
 Quoting: Anonymous Coward 553099


Yes but it's a very unstable situation. Which way will it tip ... slight deflation, or huge inflation? Who knows!
Anonymous Coward
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11/17/2008 04:35 PM
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Re: WTF !! WTF !! WTF !! NO DEFLATION !! INFLATION DA !! MI MONETARY BASE INCREASE 45% IN...2 MONTHS !!
DEFLATION HOAX
by Puru Saxena
Editor, Money Matters
November 14, 2008

The markets continue to bounce along the lows in what seems to be a base-building period. On Thursday, strong buying came in during the last hour of US trading and this reversed the day's losses, resulting in huge gains. At the close of the session, the Dow Jones, S&P500 and Nasdaq were up by more than 6%. Now, it is too early to say whether we have seen the lows of this bear-market, but the benefit of the doubt can be given to the upside for as long as the US markets remain above the intra-day lows recorded on 10 October 2008.

In my view, the economic news will continue to disappoint in the months ahead, business activity will remain sluggish and corporate earnings will shrink. However, the financial markets are a discounting mechanism and I suspect most of the bad news has already been absorbed by this market. Furthermore, investor sentiment is horrendous today and we have witnessed genuine distressed selling in the past few months. So, I wouldn't be surprised if we get a rally from these oversold levels. Now, whether or not this rally will fail in a few months time is anybody's guess but I suspect the financial markets will be significantly higher in 4-5 years from now. I must admit that I don't have a clue about the short-term prospects (neither does anybody else) but I do know that stocks are now poised for above-average long-term gains.

Central banks and governments are printing TRILLIONS of paper currencies around the world, the US has now become a socialist society and all this money-creation should result in a huge inflationary tsunami in the future. In my opinion, those who are forecasting deflation, don't understand our monetary system. What we have seen in the recent past is not deflation but a contraction in asset prices due to liquidation. Today, governments and central banks have the ability and motive to expand the supply of money ad infinitum and you can bet your house that paper currencies will lose tremendous purchasing power over the next decade. So, cash and fixed income assets will probably turn out to be the worst assets to own. In fact, I would argue that US Treasuries are grossly overvalued today and they are likely to crash somewhere down the road. In a few years from now, long-term interest rates in the US will go through the roof as the US Dollar and its overvalued bond-market collapses.

In such an inflationary environment, commodities are likely to provide the best returns. Now, I am aware that most commodities have faced intense selling pressure in the past few months but it is worth noting that all assets have been sold indiscriminately over the same period. Despite the recent rout, the underlying fundamentals of most commodities remain strong. And even today, top-quality resource stocks are announcing record profits and cash flows. When the dust settles, the enormous amount of cash sitting on the sidelines (US$4.5 trillion) is likely to rush towards the only profitable sector within the economy.

A couple of days ago, the International Energy Agency (IEA) released its World Energy Outlook report. According to the IEA, our existing oil fields are depleting by a shocking 6.7% per annum and we would need to find an additional 60 million barrels per day of new oil supply in 20 years to meet global demand. Now, it is worth noting that it has taken out world roughly 100 years to produce 86 million barrels of oil per day and this includes crude oil, natural gas liquids, hydrocarbon processing gains and bio-fuels. So, it is highly unlikely if not impossible that we will be able to find new supply of 60 million barrels per day in 20 years time! Given the harsh realities of Peak Oil, I find it absurd that the price of oil has declined by roughly 60% in the past 4 months. In any event, I don't expect this correction in energy to last forever so this may be the final chance you'll get to load up on quality energy stocks which are being given away at today's prices.

Moreover, agriculture is another area worth looking at. Global stockpiles of food are at multi-decade lows, food usage is rising and supplies of agriculture should remain tight for many reasons. First and foremost, arable land is shrinking, we have water problems in several nations and shortages of farm equipment, energy, fertilisers and farmers. So, the recent decline in agriculture stocks could turn out to be a fantastic buying opportunity for the long-term investor.

Finally, I think it is only a matter of time before gold and silver power ahead. Precious metals were hit hard by global deleveraging and they should shine again; thanks to the money-printing abilities of the establishment. These ridiculous government bail-outs are hugely inflationary and will further erode the purchasing power of paper currencies. I urge you not to be fooled by the recent strength in the US Dollar. This is nothing more than a short-covering rally and the American currency is likely to witness an epic crash in the future. There is no way you can have a strong currency when you are the greatest debtor nation in the world (debt of US$54 trillion). Furthermore, the Fed has recently expanded its balance sheet by US$1 trillion and in my view, the US has now embarked on a hyper-inflationary road to nowhere. As the jokers in Washington continue to 'save' the US economy (i.e. bail-out their rich friends on Wall Street), the US Dollar will eventually become worthless or it may be replaced by another currency. So, I would suggest that you take advantage of the recent rout in the markets by converting more of your cash to hard assets. If you are fully invested, please do not buy into the deflation hoax and simply ride out this weakness which should prove to be temporary.

[link to www.financialsense.com]
Anonymous Coward
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11/17/2008 04:41 PM
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Re: WTF !! WTF !! WTF !! NO DEFLATION !! INFLATION DA !! MI MONETARY BASE INCREASE 45% IN...2 MONTHS !!
Wouldn't the M3 going the exact opposite direction have a neutralizing effect on the M1? Just curious.
 Quoting: Anonymous Coward 553099


i was thinking about the same thing. the conclusion i came up with is that

m0=1T=monetary base
m3=14T=total money supply

so yes, m0 will be increasing while m3 will be decreasing. the deflation of the CREDIT market driven by a reverse fractional reserve process is countering the increase in m0.

i'm just wondering with the 2T projected 09 deficit, who the heck is going to finance the govt? direct fed monetization is apparently a major no-no and would prompt other nations to likewise devalue and then we're all at a race to zero. or dollar collapse, bond yield spike and we're an iceland to the 1000th power.

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