Hyperinflation

[Jerome Scuggs]

http://www.federalreserve.gov/newsev.../20081013a.htm

Release Date: October 13, 2008
For release at 2:00 a.m. EDT

In order to provide broad access to liquidity and funding to financial institutions, the Bank of England [BoE], the European Central Bank [ECB], the Federal Reserve, the Bank of Japan, and the Swiss National Bank [SNB] are jointly announcing further measures to improve liquidity in short-term U.S. dollar funding markets.

The BoE, ECB, and SNB will conduct tenders of U.S. dollar funding at 7-day, 28-day, and 84-day maturities at fixed interest rates for full allotment. Funds will be provided at a fixed interest rate, set in advance of each operation. Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction. Accordingly, sizes of the reciprocal currency arrangements (swap lines) between the Federal Reserve and the BoE, the ECB, and the SNB will be increased to accommodate whatever quantity of U.S. dollar funding is demanded. The Bank of Japan will be considering the introduction of similar measures.

Central banks will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets.

Federal Reserve Actions
To assist in the expansion of these operations, the Federal Open Market Committee has authorized increases in the sizes of its temporary swap facilities with the BoE, the ECB, and the SNB, so that these central banks can provide U.S. dollar funding in quantities sufficient to meet demand.

These arrangements have been authorized through April 30, 2009.

Behold.

[Nycle]

The injections that the central banks are giving are not in excess, but are meant to temporarily replace the currently immobilised private capital that usually keeps the capital market flowing.

Because of the immobilised state the private capital is currently in, the injections won't necessarily lead to the risk of inflationary pressure because they don't essentially add up to the amount of readily available capital which causes monetary inflation. The respective jurisdictions just need to make sure that once the unused private capital "breaks free" again, they will withdraw their participation from the capital market accordingly.

Fear for hyperinflation is therefore unfounded and the governments are right for doing this imo. The last thing we want is for the capital market to completely dry out, the consequences of which will have an even more detrimental and immediate effect on the real economy and our daily lives.

[Xog]

+950 points when wall street closed today.

the previous record in points was 400 something.

we're improving =)

[Fluffz]

they are improving =)

Fixed, unless you just gained 10% of your fortune. Those 10 % which you will lose as soon as the effects of this bubble occur because at that time you will have stocks in one form or the other. The mighty rip of the poor, always been like that.

[Nycle]

+950 points when wall street closed today.

the previous record in points was 400 something.

we're improving =)

...I wonder why!

For everyone who still thinks we can manage with as minimal government regulation as possible... I hope this will make you think again.

[Squeezer]

...I wonder why!

For everyone who still thinks we can manage with as minimal government regulation as possible... I hope this will make you think again.

you should probably get out of this thread before scuggs gets back unless you're prepared for the walls of text and myriad of links to obscure econonmists that be comin.

[kthx]

Nycle it is morons like who you jump up and down when they see a market go up 950 points, because "NOW EVERYONE WILL BE GETTING THEIR 401K MONEY BACK" however because of the bailout the 50k or so I have in my 401k might be 60k now, but its actually worth 20k once services go up because there is so much money floating around that it isn't valuable. Its like if you have gold bonds, and someone finds a gold mine with twice as much gold as there is currently in the world, you might say "yay now everyone can afford gold" when you should be saying "shit now my gold has lost half its value"

[Fluffz]

The current Nobel price winner approves the bailout. I still say companies should get credit from a new source which the market will create and not by inflating my money - but on the other hand i didnt study economy.

[Nycle]

Nycle it is morons like who you jump up and down when they see a market go up 950 points, because "NOW EVERYONE WILL BE GETTING THEIR 401K MONEY BACK" however because of the bailout the 50k or so I have in my 401k might be 60k now, but its actually worth 20k once services go up because there is so much money floating around that it isn't valuable. Its like if you have gold bonds, and someone finds a gold mine with twice as much gold as there is currently in the world, you might say "yay now everyone can afford gold" when you should be saying "shit now my gold has lost half its value"

lol... just lol. Have you read any of the arguments I put forward to try and explain why hyperinflation is not applicable in this case? You disregard a very simple explanation without even providing a rebuttal and immediately proceed to start flaming me. You don't even seem to grasp the basic economics of the money supply which any high school student can teach you.

kthx, everyone knows you don't really have 401k sitting around somewhere. I've seen you bragging about your "fortune" on this forum more than once but we all know that people who own that kind of money don't go bragging about it on an internet forum not the least because they have something better to do, but also because they're not retarded enough to make the kind of uneducated statements you make.

[Jerome Scuggs]

you should probably get out of this thread before scuggs gets back unless you're prepared for the walls of text and myriad of links to obscure econonmists that be comin.

You sound like a republican

Nycle: how do central banks not cause inflation? How is their policy of credit expansion not inflationary? How is unlimiting the lines of credit, not a situation that puts us on the brink of hyperinflation?

[Zerzera]

Nycle: how do central banks not cause inflation? How is their policy of credit expansion not inflationary? How is unlimiting the lines of credit, not a situation that puts us on the brink of hyperinflation?

Because the dollar could as well become useless paper overnight if the people aren't set at ease. If you panic and withdraw all your wealth en masse you wouldn't even be able to buy a bread with it the next day.

[D1st0rt]

I'm pretty sure this guy is retarded

[Nycle]

You sound like a republican

Nycle: how do central banks not cause inflation? How is their policy of credit expansion not inflationary? How is unlimiting the lines of credit, not a situation that puts us on the brink of hyperinflation?

Because it's not the nominal money supply that causes monetary inflation, it's the available supply of money that causes it. It is absolutely necessary that you understand the difference between these two or you won't understand how monetary inflation works. The available money supply is part of the nominal money supply, but not all of the nominal supply is available.

Before the credit crunch started, the supply of money on the capital market was provided for by private (non-government) entities like banks, who in turn have money entrusted to them by other private entities (consumers, corporations). A bank uses all of this money to fulfill its main task: to bring supply and demand together on the capital market. This is all done on the basis of confidence, the confidence that the money you lend plus interest will be paid back for by the receiving party.

But what if this confidence disappears, which is what the credit crunch has done? Banks are scared to death to lend other banks any money because no one knows for sure whether they will get their money back. Because how do you know that the bank you lend your money to is not on the brink of collapse and won't be able to repay you? The inevitable result is that interbank money flows and credit lines are severed; banks hold on to their money, the capital market dries out, the available money supply to fill demand shrinks. This has the added effect of less insolvable banks not being able to refinance their debts, which is the cause of many, but not all recent bank failures.

So this is where the governments and central banks come in to replace the private available money supply by injecting money into the system and thus keeping the capital market flowing. Since this money is there to replace the private money that no banks want to lend out to each other anymore, on a net basis there is effectively no change in the amount of the available money supply. This money is literally being created out of thin air, or being pulled out of their asses, so to speak, and there is no gold or dollar bills to back it up (only a fraction of the total money supply is cash, the rest is virtual). This is the very essence of capitalism. People have confidence that the money that is being "created" is worth anything, and that everyone will attach the same nominal value to something that does not exist.

Aside from that, as you can see, the available money supply has not really increased as the central banks pour in dollars to keep the capital market flowing and to restore confidence. As confidence is gradually restored, the private money supply that became immobilised due to the distrust will slowly become mobile again, and this is where the governments and central banks will withdraw money from the market (by selling securities on the open market, but that's a different topic) and thus making sure the available money supply doesn't increase as the previously immobile capital starts flowing again. The result: No increase, no decrease, no inflation. The money that is being poured in right now shouldn't be viewed as unlimited, but more like "as much as is necessary to keep the available money supply on the capital market on healthy levels".

[Squeezer]

You sound like a republican

Nycle: how do central banks not cause inflation? How is their policy of credit expansion not inflationary? How is unlimiting the lines of credit, not a situation that puts us on the brink of hyperinflation?

nah man I get it. You're reading a lot lately about the economy and you want to share. Rock on wit ya bad self. Not really my gig though (I admit I don't understand macroeconomics as well as I should).

[Liquid Blue]

I was actually talking about this with a 25 year old chick I was working with at a festival this past saturday

so many kids our age don't even know what's going on with the economy, they just vaguely know it hasn't been doing well recently.

I got interested in finance and economics back in late august/early september right before the shit hit the fan. It's been a blast learning about all this stuff.