flow5

Obama Honeymoon Likely To Be Cut Short By Bond Market

The prudential reserves of the E-D banks consist of various U.S. dollar-denominated liquid assets (U.S. Treasury bills, U.S. commercial bank CDs, Repurchase Agreements, etc.) and interbank demand deposits held in U.S. banks. These are liquid balances in the U.S., or any other major currency country. If a bank’s balance is inadequate to meet a specific payment in the E-D system, it borrows in the London money market at or near the LIBOR rate (the London Interbank Offering Rate), a rate substantially below the prime rates of most banks. By both promulgating excessive money and credit creation, and avoiding statutory reserve requirements, E-D banks are able to preserve their competitive advantages with lower interest rate loans.

The volume of prudential reserves held by each E-D bank presumably is dictated by “prudence” – not by any legal requirement administered by a monetary authority. All prudential reserve banking systems have heretofore “COME A CROPPER”. Money creation by private profit institutions is not self-regulatory- the “unseen hand” simply does not function in this area.

Invariably the systems created too much money, speculation became rampant, inflation distorted and destroyed economic relationships, confidence that the banks could meet their convertibility obligations eroded, “runs” on the banks caused mass banking failures, and entire economies were left in ruin. Déjà vu

Time to Buy the Emerging Bond Spread?

go for it. the trend rate in inflation tops in mar.

How Long Will This Bond Bubble Last?

May or June

Inflation Fears May Curtail Fed's Rate-Cut Flexibility - WSJ

Under current institutional arrangements ongoing/long-term disintermediation translates into stagflation. Why?

(1) Because the utilization of commercial bank credit to finance real investment or government deficits does not constitute a utilization of savings, since bank financing is accomplished through the creation of new money. I.e., lending by CBs is inflationary.

(2) Because savings impounded within the CB system are lost to investment (and to any other type of expenditure) so long as they are so held.

(3) Such a cessation of the circuit income and transactions velocity of funds, funds which constitute a prior cost of production, cannot but have deleterious effects in our highly interdependent pecuniary economy.

(4) If, in due course, it is decided to maintain excess reserves at a higher level, that is, to follow an easier (or less restrictrive) monetary policy, this is presumably undertaken to counteract recessionary tendencies in the economy.

Disintermediation shrinks the supply of loan-funds (available savings)It unravels the flow of savings into investment. It is the root of stagflation.

Inflation Fears May Curtail Fed's Rate-Cut Flexibility - WSJ

"I see little chance of the kind of wage-price spiral that has set off inflation in the past," said former Treasury Secretary Larry Summers."

Summer's vacuous

Inflation Fears May Curtail Fed's Rate-Cut Flexibility - WSJ

The lesson to be learned here is that inflation is basically a monetary phenomenon. Price increases attributable to the exercises of monopoly powers applied to specific commodities, are of temporary duration, create price distortions that forester stagnation and unemployment and generally lower prices if not “validated” bay an offsetting expansion of monetary flows. Unfortunately, this “validation” in the present mix of economic forces seems to give us stagnation and inflation. Or “stagflation”.

Although there is a price-wage spiral, or even a wage-price spiral, the spiral is the consequence of, and is validated by, ever increasing monetary flows. The spiral is not the cause of inflation; it is the evidence of inflation.

Economists See GDP Rising Steadily; Inflation Peaking Soon, Then Falling

#1 06-28-07, 04:09 PM
Inflation Peaks/Real-gdp Peaks/Interest Rates Peak
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The rate-of-change in the proxy for real-gdp (monetary flows MVt) peaks in July. The rate change in the proxy for inflation (monetary flows MVt) peaks in July. Therefore it should be obvious: Interest rates peak in July.
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Oct. 07 is the bottom. real-gdp bottoms; inflation bottoms; Then the economy rebounds sharply through the holidays. Their consensus for gdp looks believable but their consensus for inflation is too high in 3 & 4qtr's 07. Their consensus for inflation is too low for 08.