Beware Relief Rallies - Eric Janszen

[friendly_jacek]

Re: Beware Relief Rallies

... debt deflation, yes. ... monetary deflation, no. ...

Lets see, debt=money, thus debt deflation=monetary deflation, right?
But who cares about logic?

[metalman]

Re: Beware Relief Rallies

Lets see, debt=money, thus debt deflation=monetary deflation, right?
But who cares about logic?

a common error among the deflationistas.

debt≠money

[Rajiv]

Re: Beware Relief Rallies

In a fractional reserve system, the vast percentage of money is in fact debt! See A Primer on Money

See also Money and Debt - Part I Political Money and the Debt Imperative
Money and Debt - Part II - Freedom and the Monetary Ideal
Money and Debt - Part III - Segregated Monetary Functions

See also
Fractional-reserve banking

Money creation

The process of fractional-reserve banking has a cumulative effect of money creation by banks.^[4] In short, there are two types of money in a fractional-reserve banking system:^[6][7][8]

1. central bank money (money created by the central bank regardless of its form (banknotes, coins and electronic money loaned to commercial banks))
2. commercial bank money (money created through loans in the banking system) - sometimes referred to as chequebook money^[9]

When a loan is funded with central bank money, new commercial bank money is created. As a loan is paid back, the commercial bank money disappears from existence.

Debt Deflation is in fact money disappearing from existence!

Hence Debt Deflation = Monetary Deflation!

[photoncounter]

Re: Beware Relief Rallies

What are you talking about? There is not supposed to be depression or deflation! ;)

Depression does not have to be deflationary, there can be inflationary depression too, no ?

[metalman]

Re: Beware Relief Rallies

Depression does not have to be deflationary, there can be inflationary depression too, no ?

not in f-j's world. he hasn't read The truth about deflation or Does the New York Times confirm deflation spiral theory or signal the end of disinflation? or Deflationista takes on iTulip to prove deflation is here! etc, etc, etc.

[friendly_jacek]

Re: Beware Relief Rallies

In a fractional reserve system, the vast percentage of money is in fact debt! See A Primer on Money

See also Money and Debt - Part I Political Money and the Debt Imperative
Money and Debt - Part II - Freedom and the Monetary Ideal
Money and Debt - Part III - Segregated Monetary Functions

See also
Fractional-reserve banking



Debt Deflation is in fact money disappearing from existence!

Hence Debt Deflation = Monetary Deflation!

Ya, this is a simple economic concept that is either unknown by big itulipers or a big taboo.

[friendly_jacek]

Re: Beware Relief Rallies

not in f-j's world. he hasn't read The truth about deflation or Does the New York Times confirm deflation spiral theory or signal the end of disinflation? or Deflationista takes on iTulip to prove deflation is here! etc, etc, etc.

Ya, I read all those and and they are convincing by the power of browbeating and clapping of itulip vigilantists but not logic.

[metalman]

Re: Beware Relief Rallies

Ya, I read all those and and they are convincing by the power of browbeating and clapping of itulip vigilantists but not logic.

huh? all logic, data, and evidence. if there is a flaw, why not point it out?

[friendly_jacek]

Re: Beware Relief Rallies

huh? all logic, data, and evidence. if there is a flaw, why not point it out?

Huh? reread my posts above.

[metalman]

Re: Beware Relief Rallies

Huh? reread my posts above.

huh? all i see is some vague comment about debt = money. that false premise leads to the false conclusion that if less debt then less money.

read any of the analysis i linked to and the evidence is that this is not the case.

if it were, then how did the gov't engineer a 41% inflation in 1934?

[Rajiv]

Re: Beware Relief Rallies

I think there is much confusion in the minds of many people -- if we look at Fisher's Debt-Deflation Theory of Great Depressions, and his 9 factors leading to create the mechanics of boom to bust for a Great Depression as per the London Banker namely

Assuming, accordingly, that, at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links:

(1) Debt liquidation leads to distress selling and to

(2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes

(3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be

(4) A still greater fall in the net worths of business, precipitating bankruptcies and

(5) A like fall in profits, which in a “capitalistic,” that is, a private-profit society, leads the concerns which are running at a loss to make

(6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to

(7) Hoarding and slowing down still more the velocity of circulation.

The above eight changes cause

(9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

Fisher then sums up his theory of debt, deflation and instability in one paragraph:

In summary, we find that: (1) economic changes include steady trends and unsteady occasional disturbances which act as starters for cyclical oscillations of innumerable kinds; (2) among the many occasional disturbances, are new opportunities to invest, especially because of new inventions; (3) these, with other causes, sometimes conspire to lead to a great volume of over-indebtedness; (4) this in turn, leads to attempts to liquidate; (5) these, in turn, lead (unless counteracted by reflation) to falling prices or a swelling dollar; (6) the dollar may swell faster than the number of dollars owed shrinks; (7) in that case, liquidation does not really liquidate but actually aggravates the debts, and the depression grows worse instead of better, as indicated by all nine factors; (8) the ways out are either laissez faire (bankruptcy) or scientific medication (reflation), and reflation might just as well have been applied in the first place.

I believe that the items in bold are already occurring. The main question is whether the attempts to reflate by the FED will work before a deflationary spiral sets in! The laissez faire people say no, while most of the people at Itulip think that the FED may be successful (perhaps too successful!), leading to the POOM and stagflation.

[metalman]

Re: Beware Relief Rallies

I think there is much confusion in the minds of many people -- if we look at Fisher's Debt-Deflation Theory of Great Depressions, and his 9 factors leading to create the mechanics of boom to bust for a Great Depression as per the London Banker namely



I believe that the items in bold are already occurring. The main question is whether the attempts to reflate by the FED will work before a deflationary spiral sets in! The laissez faire people say no, while most of the people at Itulip think that the FED may be successful (perhaps too successful!), leading to the POOM and stagflation.

this fed has stated emphatically since 2002 that no way, no how will it allow a deflationary spiral to set in.

the only question to debate is which lever(s) are they gonna pull and when...
1. currency devaluation
2. unsterilized debt monetization
3. both

[vinoveri]

Re: Beware Relief Rallies

.

if it were, then how did the gov't engineer a 41% inflation in 1934?

uh, something to do with calling in and repricing gold wasn't it?

This time its even easier ... print; the real question in my mind is how long will it take for this to feed through and unleash POOM?

[friendly_jacek]

Re: Beware Relief Rallies

I believe that the items in bold are already occurring. The main question is whether the attempts to reflate by the FED will work before a deflationary spiral sets in! The laissez faire people say no, while most of the people at Itulip think that the FED may be successful (perhaps too successful!), leading to the POOM and stagflation.

Good post. The events in the last couple of months clearly showed that the FED and Treasury were behind the curve on huge credit destruction (deflation). At some point they will succeed but perhaps not so much due to their actions but merely due to the fact that deflation burns out all susceptible fuel (speculative money/credit). That will suddenly leave a huge net inflationary force. This is what exactly happened 2000-2003 and 1929-1934. Yes, the scales of events are different but mechanics are the same. I don't see a reason why it would be different this time?

So, yes Ka-Poom is a valid theory, but with a caveat that there are and will be major deflationary scares interrupted by bear rallies and eventually terminating in major inflation.

[friendly_jacek]

Re: Beware Relief Rallies

this fed has stated emphatically since 2002 that no way, no how will it allow a deflationary spiral to set in.

the only question to debate is which lever(s) are they gonna pull and when...
1. currency devaluation
2. unsterilized debt monetization
3. both

Yes, they worked very hard since 2007 and around the clock since september 2008. Somehow, the early success in debasing dollar backfired and now dollar is back to the 2003 levels (in dollar index terms, not FDI). They cannot do miracles yet, and government intervention can only work short term on FOREX. Did you know how big FOREX trade is? FED budget is nothing compared.