BlackyBlack

Scary Drop in Velocity of Money: Is Deflation Knocking?

The future is here, and it wants its money back.

Is Inflation Dead?

My problem with the induced coma idea is that there is no way of inducing a coma without killing the patient. It's kinda a bad analogy that way.

If the idea is to slow everything down so that the banks have time to writedown all of their bad debts, then the real risk to the economy is that it will collapse in the interim. Economies, unlike some patients, can't be starved of cash flow. They will simple collapse. Here's where the analogy may work: it would be like trying to resuscitate a body that's been dead for months. It's just not possible in our physical universe.

It sounds to me like they are stalling and just papering over the problems until it won't work anymore. In the meantime the real economy is actually dying, bit by bit. It may be too late to avert the collapse. Instead they may be trying to figure out how to not make it collapse until at least the spring, when it's not really their problem anymore.

The Reykjavik Scenario (or How Interest Rates Can't Control Monetary Inflation)

The reason interest rates can't control monetary inflation is because interest rates only affect money created within the banking system. For the last twenty years anyone could create money through securitization. Very little of that money was kept on balance sheet. That's what hedge funds were created for - to hide er hold the newly created and unregulated money. Likewise with derivatives - anyone could create derivative products and trade them otc outside of the banking system. Sorry folks but that was money - and it wasn't being counted in the money supply figures. All that stuff was acting like money until a few weeks when suddenly it wasn't. The author is correct - since 1982 the actions of central banks has largely been to adjust the rates to match expections. We have had low relative price inflation because all that new money wasn't entering the real economy. It was supporting the ubermarkets and passing as reserves.

Buy the Rumors, Sell the Facts

I think they know what they are doing - killing the witnesses and burying the dead bodies. And buying time to do it in.