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Great news from America!

The Dow hit all-time highs today while house prices are roaring ahead, and all it took was this much newly printed money to achieve it:

fredgraph (19)

That’s all there is to it. There are no market fundamentals in play. All that new money had to go somewhere, and this time it’s the NYSE and housing. Behind it is the greater fool theory, the belief that you’ll be able to flip what you’ve bought at a higher price. There’ll be plenty of greater fools when Ben Bernanke stops the money presses. As well as housing and stocks, fuel and food are racing ahead too. At some point there will be price inflation generally, everywhere, and the only way back from that is for Bernanke to stop printing. That’s when the bubbles pop and the greater fools are revealed. The only certainty is that when it happens some will say that “free markets have failed”.

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  1. At some point there will be price inflation generally, everywhere

    But when? The Austrians promised super inflation in 2008. Where is it?

    Fortunately, some commodities are cheap. Gold has trended down, down over six months. Some time back, I was taking some abuse for saying that it was not my favorite investment.

    This is a weird economy, and to tell the truth no one knows what will happen over the next few years.

    Bernanke may have avoided a global depression, with unspeakable consequences for the world’s poor , and everyone else. Thank him very much!

  2. Bernanke may have avoided a global depression, with, which would have had unspeakable consequences for the world’s poor, and everyone else.

  3. Phantom –

    You don’t know what Austrians said in 2008. No Austrian would predict a level of inflation, in specific sectors, at specific future times. One of the basic premises of the Austrian School is that no-one can possibly know enough to say such things. This is why the Austrian School advocates organic markets rather than state-central control.

    What they did predict is price inflation as a result of money printing, generally. Where is that price inflation now? The Dow hit a recod high today; house prices are at almost double-digit inflation; bond prices are well up; oil, domestic fuels and food are significantly higher. Allowing for increased supplies in these areas, real price inflation is even higher.

  4. No one sees inflation in the near future. If it appears, interest rates will go up. In the meantime it is good to have money in the market. Some people are always looking for boogie men, whether it be the deficit, debt or inflation. This post is an example of boogie man fear.

  5. http://www.thestreet.com/story/11041675/1/ron-paul-predicts-hyper-inflation-says-dollar-will-be-rejected-as-reserve-currency-of-the-world.html

    I know what someone said in March 2011.

    If there had been hyperinflation, these guys would be calling Paul the oracle of all the ages now. But there hasn’t been an inflation problem.

    And we’ve been having this conversation for more than two years.

    Amid speculation of a third bid for the Presidency, Congressman Ron Paul revealed that growing concerns over U.S. monetary policies would drive him into the race. In a no-holds-barred interview on KSCO AM 1080 with the host of The Costa Report, Rebecca Costa, Paul said, “I think the wave of the future is inflation. It’s just beginning – to the point that the dollar will be rejected as the reserve currency of the world. If there’s a panic out of the dollar you will see the destruction of the dollar rather quickly. The end stages of a currency comes quickly.” He continued, “We’ve seen this in Zimbabwe, Mexico and Central America. Today there’s an illusion and false trust in our money.”

  6. Phantom –

    Did you read what Ron Paul said? Of course you didn’t. There’s not a thing in that piece which you can say is wrong and explain why. In 2011 Ron Paul did not predict hyper-inflation. He predicted inflation.

    What do you think is represented in the Dow hitting a record high today? He said that this is just the beginning. Implied in that is a future journey.

    He correctly explains that “If there’s a panic out of the dollar you will see the destruction of the dollar rather quickly. The end stages of a currency comes quickly.” I.e. hyper-inflation is not a mathematical calculation but a consequence of a loss of confidence in a currency.

    You should know this. I previously explained to you. Don’t dismiss what Ron Paul says. Read that piece and then read it again. You might learn something. You desperately need it. Really, you don’t have the knowledge to be so arrogant.

  7. Hyperinflation is, I think, a real possibility at some point, but not per-se because of money printing. Money printing certainly causes inflation (or to put it correctly, it IS inflation), but hyperinflation is primarily caused by a lack of confidence in a currency. Money printing can be the initial key which starts that lack of confidence, but the issue is, where does the newly printed money go? Who gets it first?
    To explain what I mean, imagine that wheatgrain is the accepted currency in a marketplace. Everyone knows roughly how much grain gets produced each year, and so there is some stability in the value of a sack of grain.
    But say my farm suddenly has a bumper wheat harvest. If everyone knows about it from the start, the value of wheat instantly comes down across the board, because everyone knows the supply has increased. However, if I keep my harvest a secret, then I am suddenly very rich, AT FIRST. I can start spending my grain at its old price, until gradually my spendings trickle down through the market, and people start realising there’s a lot more grain in circulation, and its value comes down.
    If every farm in the country had that bumper harvest, and everyone was aware of that fact, then nobody would be any richer or poorer, because the total supply of grain (as currency) would still represent the total value of everything else which people wanted. So, everyone’s grain supply would double, and so the price of every other commodity (expressed in terms of grain) would also double.
    It’s not the amount of QE, but the timing and the placing of QE which makes one party richer and the rest of the market poorer.

  8. “Really, you don’t have the knowledge to be so arrogant.”

    Well that’ll raise the prices of irony meters at least, as bang goes another one.

  9. Ooops, I think I have made a mistake, strictly speaking, when I said “the total supply of grain (as currency) would still represent the total value of everything else which people wanted”. For the purpose of the analogy I was making, it pretty much holds true, but I was ignoring the fact that grain, as real money, has its own inherent value (there’s an actual demand for it as food) quite apart from what it represents as a currency.
    We don’t want dollar bills because they are dollar bills. They have no value in themselves; we only want them for what we can buy with them. So with a FIAT currency, the total amount in circulation can only ever represent the total of our demand for other things. This is why, if governments had chosen (instead of bailing out the banks) to distribute the newly printed money equally to everyone in the country, it would ultimately have no effect at all on peoples’ wealth. That’s not necessarily true if wheatgrain was the currency.

  10. Thank you, Peter. Like most subjects, I muddled around with economics, thinking to myself “wow, this all so complicated…credit default swaps, derivatives, hedging instruments… how on earth does it all work?” – until I read a book about three fishermen on an island, which took the subject right back to its basics. Once you understand the absolute basics of any subject, everything else flows from those foundations (as long as the basics have been taught correctly, which, in Schiff’s case, I believe they have been).

  11. I very specifically predict that there will be a new Pope, er, quite soon. I can’t tell you the precise date, but the way things are going, I reckon there will be a new Pope quite soonish.
    Now, stretch that whole timeframe out, because what is happening with currencies is happening far more slowly than what has happened in the Vatican. But it IS happening, and so we can predict that hyperinflation is very likely to occur at some point, we just can’t say what month it will happen.

  12. There will indeed be hyperinflation at some point.

    There will be deflation at some point.

    There will be a boom at some point.

    There will be a depression at some point.

    The sun will rise in the east every day, too.

  13. The graph in Pete’s article is that of inflation. The real value of the product of the US is not going up and is probably falling as industry departs therefore the money quantity is going up but the value of the economy is going down. Somewhere, whether the falsified inflation index mentions it or not, that created money (but without the corresponding wealth) has caused prices to rise because the real value of the money has fallen.

    The mansions in the Hamptons have gone up in price but not in real value. This means that if the item being bought today is essentially the same as that 5 years ago but its price has doubled, this means that the value of money has halved. I doubt that the ‘inflation’ index measures this.

  14. No it isn’t. It’s money supply. The graph itself says this!

    How can you lot talk about inflation / hyperinflation when you don’t even know what it is?

  15. Phantom – let me explain AGAIN, and read what I wrote. The graph is of money supply (money quantity – as I wrote above). If the money supply goes up, as that clearly shows, and the real product of the nation remains static or declines, then the ratio of money to wealth goes up accordingly i.e. inflation or, more precisely, loss of value of money.

    Read it – read the second line of my post of 11.15pm and once you’ve read it, read it again!

  16. “No it isn’t. It’s money supply.”

    That’s inflation! It’s not what the NYT or Krugman calls it. Inflation has always been an increase in the supply of money. Rising prices are a consequence of inflation.

  17. Money supply is money supply.

    Inflation is what people pay in the shop. Its not just Krugman. Its all the British and American and German and Japanese and other people in the universe.

  18. Phantom doesn’t get it: he can’t get it. If money supply increases without a corresponding increase in value i.e. in real wealth, then the value of money has decreased and that is inflation. Inflation can be measured as prices rising but, if a house for £100,000 last year is now £150,000 then the value of the house hasn’t gone up, it’s the value of money which has come down.

  19. Exactly.
    Why are the prices of bread/eggs/petrol/diesel/milk/tomato ketchup/houses/you-name-it ALL rising and rising inexorably? Are ALL of these things becoming scarcer suddenly, or more difficult to produce? NO. The reason is, There is more and more fiat currency in circulation due to QE, and so the price of everything is naturally increasing, because, as I explained above, the total quantity of dollar bills in circulation can only ever equal the total demand for everything else people want.
    Print off £50bn more dollars: the total price of everything in the market will rise by £50bn dollars. You can’t create asctual wealth by simply printing more money. All you do is increase the price of everything.

  20. That is not inflation as the educated person on the street uses it.

    You guys are trying to manipulate the language.

    You lose nothing by using the term ” money supply ” so it is recommended that you do that, so people will know what you mean.

  21. …But by printing off £50bn more dollars, and by giving it to a specific person (or bank), you CAN make that person (or bank) richer in the short-term (at the expense of everyone else), because they gert to spend it first, before the inflationary effect has distributed itself equally intro the marketplace. THAT’S the trick that’s being done.

  22. The educated person on the street, with all due respect, does not understand the basics of what is happening. No, it is not us that are “manipulating the language”, but rather, the media has manipulated and obfuscated your understanding of what is happening, by turning your understanding of “the language” into something false.

  23. My definition of ” inflation ” has been used by the general public in all lands, forever.

    You guys are monkeying around with the language.

    Based on your technical doubletalk, Pete and the Schiff types can say that hyperinflation has already happened! ( should have thought of that one Pete )

    You boys have fun with this. I hope that it makes you happy.

  24. Even the most ignorant idiot ought to be able to understand the utter absurdity of fiat currency and of money-printing, if I put it into simple enough terms:
    OK, so there’s this huge debt crisis. Surely, if the government simply prints off $1000,0000,000,000,000,000,00 X 10^1M dollars, and distributes the cash equally to everyone in the country, then the whole problem would be solved? No? Can’t you even begin to understand why not? Wealth has to equal real assets of real value. You cannot simply create wealth by printing dollar bills!

  25. Yes, the government could do away with tax and print money to cover all its spending.

  26. Phantom, you are simply WRONG in your assertions at 23:47. Inflation has always been defined as an increase in the money supply, until recently, when the MSM has sought to deliberatelt obfuscate the popular understanding of the word. There’s no debate about this, you’re wrong, period.

  27. That is not inflation as the educated person on the street uses it.

    The person ‘in the street’ is ignorant. Even those in education are being taught falsehhod. One of my colleagues is studying for an MBA at Aberdeen Uni and he has only just found out about fractional reserve banking, but not through his economics lecturer – no chance. It was because a student in the lecture raised the matter. These ‘educated’ idiots have no idea where money comes from, who controls it when its created, and where it goes when it’s created. The likes of Phasntom are happy for it to remain that way – but it won’t. Increasing money supply without corresponding increase in productive wealth IS inflation. The fake indices used by government are lies.

  28. OK you guys keep speaking your secret monetarist language, wilfully making your own argument less persuasive.

    . Don’t complain to me when you continue to get no significant support in any of our countries.

  29. The person ‘in the street’ is ignorant. Even those in education are being taught falsehhod.

    But you’re the diamond in the rough who can see through it all? *snigger*

  30. Yes we have a few self annointed ” economists ” who see truths that the rest of humanity ,does not. They must all be billionaires, they are so much smarter than all others.

  31. It is almost as though they don’t want to persuade any others.

    You know how you often spot a master of a subject? When they can make the complex easy to understand, in a conversation that is largely free of inside jargon and buzzwords. These guys do the opposite. Its all pig latin. Sounds like English, but its not.

  32. You’re just not smart enough to understand it Phantom. What’s more, you’re not smart enough to realise that you’re not smart enough.

  33. Petr and Phantom – the left and right of the idiot spectrum, have jumped to the defence of created-money-as-debt economics yet neither of them understand any of it. If they did, then they would be asking specific questions instead of indulging themselves in an argument-free ‘debunking’ of the case made by Pete, Tom and me.

    The Fed creates money but there is no corresponding creation of wealth (industry has departed). As there is more money in the economy but no corresponding increase in real wealth, then the value of money declines – known as inflation. However, the measurement of inflation is debased by the government which can create any false index that it chooses, and it does exactly that.

  34. Oh dear, I’m sorry that my analogy using farmers and sacks of wheat was too complex and full of insider jargon. I thought I had made it as simple as possible, but obviously not. Let’s try and explain the concepts of money, supply and demand again, in more simple terms:

    Baby A and baby B both want a new rattle. Me wanna rattle, wanna, wanna, wanna! Waaaah-haaah-haah, boo-hoo, me wanna rattle! (demand).
    Mummy gives new rattle to other baby. Me cry, me want his rattle! Waaah! (Rattle is valuable, since only one rattle). But then mummy say, “Look, I buy you a rattle too! See, see!” I take rattle, and I stop crying. Me no longer want brother’s rattle now, me have own rattle. Me happy!
    Then mamma says “you want chocolate?” Me says “goo goo yeah!” Mummy says “will cost you one rattle”. Me sad, me like rattle, only have one, dont wanna give it up, will only give it up for lotsa lotsa chocolate. Rattle valuable because only one.
    Them mamma gives us both ten rattles, in case we break first ones. Mamma says she has lots more rattles too. Cooo! oogoo gaga! NOW I will give up one rattle in exchange for chocolate bar. No problem, as me have ten rattles. Rattles less valuable. But mamma not pleased, she also now has ten rattles, and only one chocolate bar. One rattle not worth one chocolate bar any more, because lots and lots of rattles. Mamma now says wants 5 rattles for chocolate bar. Not because chocolate more valuable, but because rattles LESS valuable in exchange, because we all have more of them.

    – Hold on a second, before I go on, is this still too complex, too full of jargon? Am I concentrating too much on hedging derivatives, or talking too much about M1 money supply as a proportion of off-balance sheet debt? Just point out the bits you’re having difficulty with.

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