Just kidding.

I disagree.

Money used to fill a black hole no longer exists. Some of it, to be sure, DOES still exist. And it can and probably will eventually find its way into the useful money pool and will cause inflation. But a lot of it won't.

It is very similar to the hyooge foreign currency reserves that people are now starting to talk about. It has tremendous inflation potential but as it is tucked away (after its use to devalue foreign currencies) the jolt has yet to occur.

This is where the dam is vulnerable. When other countries decide that devaluing to run a trade surplus is no longer the goal they start to exit. This has started but may take decades to come to fruition... or it may take a year.

Almost impossible to predict. At least I think it is but I ain't the last word or even close to it on this issue.

Will

This simply defies logic. If the new currency has no value, it wouldn't be created, since it would then serve no valuable purpose. If it has value, then that value didn't appear out of the blue (otherwise a nation could increase its total prosperity by merely increasing its currency supply). The value in the newly created currency was stolen from the value of preexisting currency units. Had it not been created, what would have been sucked into the black holes you describe? Preexisting currency is the answer. Zero sum game.

I never said it never had any value I said that it no longer exists.

It was used to cancel out an existing negative on the balance sheets of the major banks and those holding overpriced securities manufactured in the housing bubble. It was used to PREVENT a rise in currency values as deflation would have dictated.

What would have been sucked into the black hole in it's place? Every major bank and MBSs securities holder in America. One hell of a lot of personal balance sheets as housing prices taken off life support would have crashed and taken their owners into this hole.

Make no mistake there was a decision to be made. Someone had to be thrown under the bus. When Paulson walked into congress with the demands from the large banks the die was cast. Those of us not saved by the central bank and GSE housing price/MBS bailout were the ones thrown under the bus.

Will

i agree with aspects of "the black hole" that has helped to damp down inflation. that is debt disappears off the books during bankruptcies, and there's been quite a few of those.

when houseng and other real values decline, that's a form of deflation, or could be. when grocery prices rise, it could be bacause of increased demand, and the creation of markets for farmers by increasing the issuance of foodstamps to the poor and/or unemployed.

the flow of money, or it's velocity through the system is always important. if money doesn't flow, then those at the far edges of the economy go without.

more to be said is that the current low interest rates makes me recall relative deflation, and not relative inflation. one effect would be the cost of holding precious metals is reduced. when the i rate rises, the cost of holding assets increases.

in the uncharted waters of the post-modern era, the game appears to be on.

If it was used for a valuable purpose, that value was permanently extracted from preexisting currency. You say, to fill a vacuum, but that vacuum didn't come into existence from outside the system within which we're operating, i.e., it would otherwise have been filled by preexisting currency, which would have operated against price inflation. So the value of the new currency was in its capacity to nullify an operation against price inflation. Zero sum game.

There's no cheating in math, and monetary economics, once you cut through all the BS, is essentially just math. All that smoke and mirrors accomplishes is to manipulate the results in terms of who gets screwed by bad policies, i.e., it can alter who gets left holding the bag, which usually works out to you and me, leaving the banks and the "too big to fails" in the clear.

Yeah but the result of it is totally different. You speak as though all of the money created has the potential to create massive inflation at any moment. Fact is that a lot of it no longer has that ability as its potential has already been spent to prevent a deflationary event. Some of it can still cause inflation but a whole lot can't.

There is a whole other set of currency that is stowed away by those who hold treasuries. That inflation potential is real and still exists. But that is a different story.

It is kind of funny to me that everyone slept right through the biggest inflation event of my lifetime, the housing bubble. Rent replacement in lieu of housing prices lulled away the devastating effects of asset price inflation while ignorant know it all pundits and political hacks spoke of the great moderation and the Bush Miracle. Bwahahaha! :p

It is all part of the mutated economy. Getting this beast healthy and on its feet is going to be quite the shock to the system. It is too bad we can't make a list of all those coin operated economists and pundits who have been wrong almost all the way along the line and pass a law that they be silenced on matter economics. It would be nice to have some responsibility brought into that profession... and silence a lot of the self serving foolishness that hinders truth finding.

Will

Good grief Gus you can type something that we can all understand! : grin:

There's always a lag time, but whenever the currency supply is increased, there's no getting around the fact that it decreases the value of each unit of currency by simple operation of math. It doesn't matter if it was printed and then not placed into circulation. It was placed somewhere where it filled a hole that would have otherwise been filled by preexisting currency. Thus it had an inflationary effect perfectly in mathematical accord with the extent to which it increased the currency supply.

Maybe, but if you sit around waiting for the inflationary impact of a lot of that 'stimulus' you'll never see it. It has already had its impact... Preserving a previous inflationary event, the overpricing of housing.

A hell of a lot of money was used for this purpose, to prevent price discovery in housing. It was extinguished in cancelling deflation. It may still no be enough, we may still see downward pricing in housing if the central bank or the GSEs pull their support for the MBS market.

Will