Defensive Interpretation on GD?

[John]

> Only what I could understand from your quite log explanation is -
> that just with logic in NOT possible to understand GD theory.

> I (and everybody other) must read (if not write) at least 4-5
> books about GD and than perhaps (probably depending of
> intelligence) - we will "understand".

> With other words - there are NO simple understanding for
> GD!

That's right! If you want to understand macroeconomics, then you have
to study macroeconomics. If you want to understand the theory of
relativity, then you have to study the theory of relativity. If you
want to understand a foreign language, then you have to study the
foreign language. Nothing is free. That's life!

You say that you're an engineer. Did you actually study engineering?
How many years? When you applied for your job, did you say, "I don't
know anything about engineering, but I'll just use logic"? What are
the prerequisites for your job?

Once again, if you want to understand how the world works, then you
should at least read the two foundational books by Strauss and Howe,
and you should read the two books that I wrote, which can be read for
free on my web site.

The first of my books has a lot of historical examples, and writing
that book was actually an education for me to understand what was
going on. The second book is more theoretical, and integrates
Generational Dynamics with other disciplines, including history,
mathematics, chaos theory, sociology, population dynamics, system
dynamics, economics, macroeconomics, and even the theory of
evolution.

Then you should do some kind of research project -- perhaps take a
country of interest to you and do a 200-year generational analysis of
it.

I knew people like you in college -- they would come up with any
excuse whatsoever to avoid studying and doing homework. So stop
whining and start studying!!!

John

[malleni]

Finally John,
Since in my opinion you do not answer any of the question Mos fried - assigned...
I would like to ask you to do it now without anger.

You are already advocated GD with books and ability to understand it.
I would like to discuss with facts.
It would be much better way to advocate.
Please, do not be angry if anybody do not agree with you.

Those are the NOT answered in your previous discussion:

...
The central flaw in his thesis is this: he posits that deflation makes the US Dollar scarcer, ergo more valuable. In reality, it is NOT the current deflation making dollars "scarcer," rather it is the panic flight of all currencies into US Treasuries as an imagined flight to safety. Remove the panic tomorrow, and you will discover suddenly that the world is drowning in US currency, repeat, DROWNING. Because, as stated in previous theses I wrote elsewhere, most of those parking their monies in US Treasuries today are NOT doing so for investment purposes. Nobody rational of mind "invests" in financial instruments that effectively provide ZERO yield. Instead, nations/corporations/funds/people have been parking their monies in US Treasuries in hopes that this current financial storm will blow over quickly, then they can extract those dollars and use them to pay ongoing expenses, etc. In other words, most of those dollars will be withdrawn and aimed toward CONSUMPTION once the storm passes. Unfortunately, given the ongoing liquidity crisis, with one bankruptcy after another taking place throughout the world, the amount of goods and services available for consumption is dropping dramatically, even as I type this message.

Ergo, the current deflation will transmute overnight into a massive inflation of gargantuan proportions, that is the only possible destination of a currency that has been obscenely, digitally super-inflated by the mere "flick of a switch."
...

It would be interesting if you can discuss this statements.
In my point of view - there are no illogicality in it.
("flick of switch" is also discussed of other nicks here)

...
Xanakis forgets (or is oblivious) to the fact that we were in the throes of the Mother of all STAGFLATIONS when this crisis broke out. Certain sectors were deflating whilst simultaneously, others were inflating. It is simply impossible for a pure deflation to take place because of one notable anomaly that perverted all standard Keynesian economic theory: namely the fact that the worlds largest debtor nation controls the international currency regime. From this rather strange "logic," all market anomalies flow.
...

I do not know much about American economy.
Did it already been in "the Mother of all STAGFLATIONS when this crisis broke out"?
What is your opinion about the fact that - "the worlds largest debtor nation controls the international currency regime"? (And what you (GD) says about reaction of the other nations on this abnormality)?

...
We are experiencing existential, rogue wave events now, and who knows what is about to transpire. But one thing I feel certain is this: the status quo in which a consumerist nation (America) hands producing nations (e.g. China)
mere USA digits in exchange for real goods and services is likely about to end. Other nations will not stand for this ongoing status quo, in which their nations must suffer the most dire repercussions for US Dollar hegemony, whilst Americans remain relatively unscathed.
...

Do you think that some kind of status quo in which a consumerist nation (America) hands producing nations (e.g. China) is possible?
Do you think that "Other nations will stand for this ongoing status quo, in which their nations must suffer the most dire repercussions for US Dollar hegemony, whilst Americans remain relatively unscathed?

...
America has NO divine right or entitlement to be a consumerist nation, whilst expecting that the rest of the world is obligated to toil in sweatshops and make the goods that allow the nation to function. By way of analogy, imagine an heir who is handed millions of dollars from a hard-working previous generation, then spends his days playing tennis or attending sex orgies or whatever, while others all around him go off and toil in difficult jobs that enable the heir to live his rather decadent lifestyle. Do you not think that those around him might, at a certain point, greatly resent that heir's lifestyle, or his sense of entitlement that he has the divine right to "jerk off" and roll around "in the playground" while those around him toil for his benefit?
...

What do you think about this statement?



It would be enough for now if you answer any of this questions.
Again I expecting discussion with facts, but not with "hard" and "soft" events.
Just HARD - and those we ALL can see und understand.

[malleni]

...
I knew people like you in college -- they would come up with any
excuse whatsoever to avoid studying and doing homework. So stop
whining and start studying!!!

John

Thank you for advice John.

I am studding - each single day.
Yes. Regarding mechanics you have right. to be engineer you have to study 5 years on the university.
So - I have experience with study .
Be sure.

I am studding history by myself too. (because I like it)
That is the reason that I do not agreed with your perception of Balkans for example.
(BTW I think that your perception is not based on the facts - and generally - absolutely wrong)

Or our discussion about Germany lately...
You read only the book from Mr. Garrett.
I read it too and with knowledge from other sources - I understand it quite different!
For example:
- you see rightly similarities between Weimar Germany and USA as todays USA and China.
- but you absolutely ignored historical circumstances (even if Mr. Garett mentioned them couple times). The reason that USA and other capitalist states quit German debt - was because they were afraid (with reason) of communist movement in Germany (and SSSR at this time) and did NOT want to permit that Germany - defaulted!
Your explanation today (which you repeatedly) used is : "the other countries will find the way to bail out us!"... (Sorry. Do you see today a danger from communisms?)

Additionally, as said many times - Germany WAS broken country!... (without anything + huge war reparations!)
USA - IS the biggest Empire on the Earth and in history!
After bail out of German debt there came to totalistic regime (WITH HELP of the other capitalist countries mainly from USA)! The explanation was - danger of communism.
Today - everybody on the Earth (who WANT to know) - know also that USA IS the most aggressive Empire in the entire human history.
In the last 20 years - USA invaded or bombed at least 15 sovereign countries!!!
The USA intelligence agents are roll over the world and spreading "democracy".
You have today even people who work fr the US governments as "economic hit men", and they admitted the crime they made for government!
I know that you dismissed the others links, but anyway:
http://www.democracynow.org/2004/11/9/c ... ic_hit_man
It can not be that just "anti-Americans" see it. (or perhaps they are not "good Americans")
You can find thousand sites and people in USA who actually SEE it:
http://www.informationclearinghouse.info/

I do not know if you consider it, but with knowledge that USA is actually the most aggressive state on the Earth - not just to the other, but even against own citizens (Patriot act for example) - It would be interesting to see REAL similarities between Germany as 30-ties (totalitarianism) and USA today.

Your explanation on your site - as mentioned before - in my point of view it absolutely wrong. (simply because you do not considerate all facts... as than as also today)

So - when you talking of studding... hopefully, you understand that I do it too. Even with help of your site.
Only ONE thing you can NOT expect.
I will NOT "believe" in everything what anybody saying... especially if this has to do with "future predictions".
(BUT as Gordo says - perhaps you are absolutely right... Even Jesus war.)

[Higgenbotham]

Finally John,
Since in my opinion you do not answer any of the question Mos fried - assigned...
I would like to ask you to do it now without anger.

You are already advocated GD with books and ability to understand it.
I would like to discuss with facts.
It would be much better way to advocate.
Please, do not be angry if anybody do not agree with you.

Those are the NOT answered in your previous discussion:

...
The central flaw in his thesis is this: he posits that deflation makes the US Dollar scarcer, ergo more valuable. In reality, it is NOT the current deflation making dollars "scarcer," rather it is the panic flight of all currencies into US Treasuries as an imagined flight to safety. Remove the panic tomorrow, and you will discover suddenly that the world is drowning in US currency, repeat, DROWNING.

malleni,

This guy has thrown so much garbage at the wall that it would take me days to go through it all, but let's start with just this bit quoted here. First, he talks about a flight into US Treasuries. In order to determine whether there has been a flight into US Treasuries, we would need to examine prices or interest rate movements along the entire duration of the curve from one month out (the shortest duration if we don't count Certificates of Indebtedness) to 30 years out (the longest duration). We would also need to look at the total amount of all government debt available at each duration. Generally speaking, more than half the marketable Treasury debt outstanding is in the form of notes, while bills and bonds each represent about 20 percent. Off the top of my head, the value of the Treasury bonds has been generally falling in the past few weeks, Treasury notes have been holding approximately steady, and Treasury bills have been increasing in value, indicating there has been no flight of money into the long end of the curve but, in fact, money has been leaving the long end of the curve. On the other hand, money has indeed been flowing into the short end of the curve (Treasury bills). What that means is that short term interest rates are falling, which is an actual symptom of deflation, and you can see that they fell again today, with the 3 month bill settling at about 0.35% or so, down about 0.20%. If it were simply a flight to Treasuries as described by the author of that quote, Treasuries along the entire duration of the curve would be going up in price. This is not the case. Now to see that the Federal Reserve would actually agree with what I am saying, you can go to their website and find a paper written in about the year 2000 which discusses what the options are that the Federal Reserve can pursue to hold off deflation when short term interest rates reach the zero bound. And what you will find when you read that paper is that is exactly what the Federal Reserve has been doing for the past year. I am pretty sure that if you type deflation and "zero bound" into google, you will come up with this paper at the Federal Reserve website.

OK, getting on to the next few words. The author of this quote above states that the world is drowning in US currency. Currency is paper money. In reality, there is very little paper money in the system compared to the other forms of money. At present, there is about $0.8 trillion worth of paper money in the system compared to $7.7 trillion in M2 and when counting other forms of money it goes up from there. The author probably is concerned about the increase in monetary base that has recently occurred. Monetary base is defined as currency plus bank reserves. He may think that the amount of currency has gone up a lot, but what the Fed has actually done is to increase bank reserves by about $400 billion, which many misinformed people believe is equivalent to "printing money" and throwing it out in the streets or dropping it from helicopters. I actually made a prediction several months ago that when deflation hits and the monetary base increased that ignorant people would begin to scream that hyperinflation is occurring. This is exactly what is happening. In reality, if we do find some months down the road that the amount of currency in the system actually has increased, which I expect, that will not necessarily indicate inflation is occurring. It could mean that people have withdrawn their cash out of the banking system and that is deflationary because then the banks no longer have as many deposits to loan out. As far as whether this increase in reserves can actually be successful in holding off deflation and generating some inflation as the Fed hopes, that is another long subject which many level headed people who are better qualified than me are currently debating, but in no way is there a consensus that these actions that the Fed is taking will be inflationary.

[Higgenbotham]

Finally John,
Since in my opinion you do not answer any of the question Mos fried - assigned...
I would like to ask you to do it now without anger.

You are already advocated GD with books and ability to understand it.
I would like to discuss with facts.
It would be much better way to advocate.
Please, do not be angry if anybody do not agree with you.

Those are the NOT answered in your previous discussion:

...
The central flaw in his thesis is this: he posits that deflation makes the US Dollar scarcer, ergo more valuable. In reality, it is NOT the current deflation making dollars "scarcer," rather it is the panic flight of all currencies into US Treasuries as an imagined flight to safety. Remove the panic tomorrow, and you will discover suddenly that the world is drowning in US currency, repeat, DROWNING. Because, as stated in previous theses I wrote elsewhere, most of those parking their monies in US Treasuries today are NOT doing so for investment purposes. Nobody rational of mind "invests" in financial instruments that effectively provide ZERO yield. Instead, nations/corporations/funds/people have been parking their monies in US Treasuries in hopes that this current financial storm will blow over quickly, then they can extract those dollars and use them to pay ongoing expenses, etc.

malleni,

OK, moving on to the next part here, we're now to the part that is underlined. This is kind of funny in a way. He presumes to know why people are "parking" their money in US Treasuries. I had 80% of my net worth "parked" in US Treasuries (6 month T-bills) from last November until about 2 weeks ago. Now it is down to 60% as I bought some stocks last week and the week before. Instead of having him tell you why I did it, I will tell you why. First, I was in the real estate business for about 20 years and sold all of it by May of 2004. So I knew quite a bit about real estate and knew that real estate was going to turn out to be a terrible investment once the bubble popped because that was where all the debt was going. Second, I felt that the general stock market was too high (and still is too high), but some stocks may do OK from here so I bought a few last week, but not too many. Third, commodities were in a bubble and it didn't make any sense to invest there. Cash in the form of short term T-bills is an investment position just like anything else. It does not have to be someplace where you "park" money any more than buying a stock is someplace where you "park" money.

Now as to whether I have a rational mind. It is much better to get your money back than to lose part of your money in an investment that is likely to go down in value. So for as long as it appears that assets other than cash will likely lose value, cash is a rational investment.

As far as time frame, why do I care how long it takes for this financial storm to blow over? I can and will wait as long as it takes. As far as extracting those dollars to pay for ongoing expenses, that is a complete joke. For as long as I will need to keep the money there, my expenses will be going down. Gasoline has already fallen 50% in the last year and if that continues, it will work through the economy in the form of lower food prices just the same way it worked in reverse on the way up.

[Higgenbotham]

Finally John,
Since in my opinion you do not answer any of the question Mos fried - assigned...
I would like to ask you to do it now without anger.

You are already advocated GD with books and ability to understand it.
I would like to discuss with facts.
It would be much better way to advocate.
Please, do not be angry if anybody do not agree with you.

Those are the NOT answered in your previous discussion:

...
The central flaw in his thesis is this: he posits that deflation makes the US Dollar scarcer, ergo more valuable. In reality, it is NOT the current deflation making dollars "scarcer," rather it is the panic flight of all currencies into US Treasuries as an imagined flight to safety. Remove the panic tomorrow, and you will discover suddenly that the world is drowning in US currency, repeat, DROWNING. Because, as stated in previous theses I wrote elsewhere, most of those parking their monies in US Treasuries today are NOT doing so for investment purposes. Nobody rational of mind "invests" in financial instruments that effectively provide ZERO yield. Instead, nations/corporations/funds/people have been parking their monies in US Treasuries in hopes that this current financial storm will blow over quickly, then they can extract those dollars and use them to pay ongoing expenses, etc. In other words, most of those dollars will be withdrawn and aimed toward CONSUMPTION once the storm passes. Unfortunately, given the ongoing liquidity crisis, with one bankruptcy after another taking place throughout the world, the amount of goods and services available for consumption is dropping dramatically, even as I type this message.

Ergo, the current deflation will transmute overnight into a massive inflation of gargantuan proportions, that is the only possible destination of a currency that has been obscenely, digitally super-inflated by the mere "flick of a switch."...

malleni,

OK, Continuing to work our way down to the next underlined part. It's getting kind of late here, so maybe it would be best to skip the first 2 sentences for now and go to the sentence that begins with "Ergo,..." This seems to be the crux of the hyperinflation argument and, of course, is the same one that Bernanke basically used in his "helicopter drop" speech.

This is an extremely complex issue, certainly not as simple as those who are sure it will be this way or that way make it out to be.

We can look to history for clues. mannfn11 has done this in other parts of this forum, pointing out the fact that the Fed fought the early 1930s deflation tooth and nail, which is absolutely the correct interpretation. Similarly, the Bank of England pulled out all the stops after one of their bubbles burst in 1825 and there is a good historical record describing that failure. That example is also highly relevant because Britain had the world reserve currency at that time and in order to make a proper historical comparison that needs to be the case. Has a central bank ever been able to reverse a debt bubble once it has burst? There are many historical examples of this and not once has a central bank ever been able to do so, despite heroic attempts to do so.

Another way to look at this is to study how the Fed actually operates, what its mandates and legal contraints are, and how the Fed has stated a potential deflationary crisis can be ameliorated or potentially reversed. There is approximately a year of history in this particular episode with which to compare promised actions, statements and predictions from Fed and Treasury against actual actions and outcomes. That could then be related to what Fed and Treasury are potentially up against as this derivatives bubble continues to unwind versus what the remaining options are. To give you an idea, though, the Fed has already used up enough of its balance sheet that an independently operating Fed is out of options, so much of what Bernanke previously said could be done to hold off deflation has already been done. That is why the Treasury and Congress had to get involved by passing the bailout. As far as what the author of this statement means by digitally super-inflated by the flick of a switch, we can only guess, but vis-a-vis actual Fed mandates and legal constraints I can only take it to mean that he is talking about how the Fed (I think, not Treasury) pushed reserves into the banking system recently. That is the classic "pushing on a string" and those reserves wil need to be loaned out in order to generate inflation. From what I understand so far, the Administration has stated that the banks are holding onto the cash and is demanding that the banks start loaning the money out. I don't even think the banks necessarily want the money. What would they loan it against, falling real estate? Who would be crazy enough to sign for a real estate loan in this environment? Can the bank package it into a derivative and dump the loan package off on a foreign country? Hasn't that game already played out???

A third way to look at the question is to look at what may happen if Fed and Treasury deviate from their mandates and legal constraints in a desperate attempt to avoid deflation. Some believe they already did with the TSLF. What are the risks and rewards of doing so? How might they do it? Will it work? Which would the Fed rather have, hyperinflation or deflation? Are they willing to destroy their own institution to achieve it?

[malleni]

Thank you Higgenbotham.
This can be called - a discussion!

So I try to roll it further:

...
This guy has thrown so much garbage at the wall that it would take me days to go through it all, but let's start with just this bit quoted here.
...

Not necessary.
You already put clearly your stand points and of course - those are YOUR stand points.
Definitely NOT the things all must "believe in".
So the first step is quite OK.
"The guy has thrown so much garbage" - mean probably HIS garbage, because it is obviously that you do not agreed with him in all aspects, but that is a reason for discussion.
Even if he "throwing garbage" in your opinion - that would be just easier for you to "sweep off" this garbage with facts.

...
First, he talks about a flight into US Treasuries.
...

Obviously.
And even you further in the text when you mentioned YOUR reason for "flight".
As I understand this text before - the flight is aimed to be short... "in hopes that this current financial storm will blow over quickly".
So "quickly" probably meant - short term T-bills.
You explained your reasons later on - and it looks quite logical for me. I do not see the huge difference at this point between you and Mos-friends explanations.
Perhaps you were not in panic, but the results are the same.
Anyway I do not know so much about US treasuries charts so I agreed - I am not the one who can qualified discuss this issue.

...
The author of this quote above states that the world is drowning in US currency. Currency is paper money.
...

That is not first time that you using this phrase and I always been surprised by it.
Perhaps I do not understand you or my English is so bad...

But in further text you explained in detail your stand point regarding "currency"...
And - IT made me - paafff!
I cannot really understand that you believe that "currency is ONLY paper money"!!??

Hopefully we can clarify it in further discussion.
Now, since my English is not so good, I am using explanation from another site which is in my point of view correct:
( http://cij.inspiriting.com/?p=336 )
"
...
Today, we live in a time of fractional reserve banking system. Put it simply, if you deposit $100 into a bank account, the bank is going to lend out a large proportion of your $100 and keep the rest as reserves, in case you decide to withdraw some of your money as cash. The proportion that the bank is going to keep as reserves is the reserve ratio. Let’s say the reserve ratio is 10%. After depositing $100, the bank is going to keep $10 and lend out $90. The $90 that someone borrowed from the bank will again be deposited, resulting in $81 being lent out and $9 keep as reserve. At this point time, how much money has you original $100 multiplied into? In terms of the amount of bank deposits, there are now $100 + $90 + $81 = $271 of ‘money’ in the financial system. This can go on and on, until the quantity of money swell to the theoretical limit of $1000 (based on reserve ratio of 10%)...."

In this example, the original $100 is known as the “base money.” In the Austrian School of economic thought, “base money” is called the “standard money.” The $900 worth of money, according to the Austrian School terminology, is known as the “fiduciary money.” In common terms, that is called “credit” (which is “debt” from the viewpoint of the counter-party).

What happens, for whatever reason, there are bad debts? In that case, the value of credit has to be written off, resulting in the cascading contraction of fiduciary money in the economy i.e. deflation."

Further on:

...the central bank cannot control the demand for money and credit. It can supply whatever amount of them that it wants, but it cannot force business and people to desire them. Put it simply, you can lead a horse to the water, but you cannot force it to drink.

So obviously is that currency in NOT "only paper money".
More over - for simplicity we can divide whole amount money i two groups - according to the Austrian school:
“standard money” - the base (REAL) money
“fiduciary money.” - credit (DEBT) money.

In one point I think you are agreed with this Austrians logic:
Namely - in generation mechanisms for - deflation.

But I agreed too with you:

..., but in no way is there a consensus that these actions that the Fed is taking will be inflationary.

So, since we agreed at this point - which mean that nobody playing "the prophet" - we can calmly discuss this issue further.
Unfortunately - the future will give us "the ANSWER".
We both know that "The ANSWER" is not nice in any case.

[malleni]

...
This is an extremely complex issue, certainly not as simple as those who are sure it will be this way or that way make it out to be.

We are already agreed in previous discussion that this is point where things are not so clearly.
BUT, I understand that you supporting your deflation theory.
And that is in my point of view - absolutely correct and right.
... UNTIL the point when you projected YOUR picture - as ONLY correct.

Yes, we can always look at the history. I agreed, because that is ONLY "hard facts". (You understand me. )

The very good examples of such deflation are the Great Depression of the 1930s and the Japanese recession of the 1990s and you described them very detailed on your site.
(Even if I do not agreed with all historical circumstances and implications for today - generally the historical events are correctly described).
Additionally, you are absolutely correct here:

That example is also highly relevant because Britain had the world reserve currency at that time and in order to make a proper historical comparison that needs to be the case. Has a central bank ever been able to reverse a debt bubble once it has burst? There are many historical examples of this and not once has a central bank ever been able to do so, despite heroic attempts to do so.

... BUT again - ALL historical circumstances MUST be considerate in serious discussion:
Which "cover" was behind British currency at this time, i.e. which standard the people "measured" the value of the currency than?

Even for - inflationary scenario there are many examples too, such Weimar Germany 1920, Milosevic Serbia 1990,or Zimbabwe today...

I am taking again "help" from previous site:
"...
Given that under today’s fiat money regime, central banks have the sole authority to create money out of thin air. Such authority entails vast power. To illustrate this point further, imagine you are the only person in town who has the authority to create money out of any piece of paper with your own signature. Wouldn’t this make you a pretty powerful person in town? With such power, you can acquire anything you wish at the expense of others. Likewise, the paper money that we have today is exactly such money. Look at any piece of paper money today and you will find the words of a government decree (e.g. “This Australian note is legal tender throughout Australia and its Territories”) and perhaps a signature or two.
Therefore, some kinds of ‘rules’ are necessary to fetter and curb such vast power. Without these ‘rules,’ it is impossible to maintain the integrity of money. If money loses its integrity, the financial system and economy will break down and we will be reduced to primitive bartering.
..."

Further it is already discussed (previous discussion) we can find the simple scheme for function of the system:
"...
1. The creation of fiduciary money (credit) lies in the power of the banking system through the granting of credit. Today, with the proliferation of non-bank financial institutions and financial ‘innovations,’ the central bank is not able to control the supply of fiduciary money.
2. The central bank sets the target price of money (interest rate), which influences the quantity of standard money (base money). Setting the target price of money involves open market operations. Injecting or draining base money from the financial system involves buying and selling government bonds and entering into repurchase agreement (repos).
...
Such scheme of arrangements is just a tiny fraction of ‘rules’ that ‘govern’ the vast power associated with the authority to create money. Now, imagine that those above-mentioned ‘rules’ are being relaxed such that the government can order the central bank to bail out everyone and every business that is financially insolvent by giving them freshly printed money. Overnight, this will solve the problem of bad debts and we will not have any credit crisis to worry about. Everyone will be happy right?

Wrong.
...
Take the example of Japan in the 1990s. As this article from the Ludwig von Mises institute said,

If banks held 100% reserves, this would not sound the death knell. But for a fractional-reserve system, it’s institutional death. Only the central bank can prevent total collapse. It must act as a lender-of-last resort. Yet, when the credit expansion of the boom has been particularly extreme, making good on all bad loans with monetary inflation is something the central bank dare not do for fear of hyperinflation.

The current [1995] level of bad debt in Japanese banks is estimated to be between 50 and 80 trillion yen, which translates to a 30 to 50% increase in the narrow money stock. The Bank of Japan simply cannot bail out the system with this level of monetary inflation.

The main point is, once those ‘rules’ are rolled-back to give the government more power and authority with regards to their monopoly on money, the slippery road towards the ultimate loss of confidence in the integrity of money begins. A very fine example is Zimbabwe. With an autocratic despot in power, such loss of confidence is manifested in the form of hyperinflation.
...

"

As said before - neider me or you (or anybody) have "RIGHT" on "future prediction".
We can only discussed - different options.
Nothing more- nothing less.

Are we moving towards such a scenario?


One thing we have to be clear. Assuming that the ‘rules’ are strictly adhered to, there will only be one outcome for the current credit crisis: deflation.
But alas, we live in a democracy where the mob rules.

"...
Even if Ben Bernanke is an Austrian economist, political pressure alone will do the job of forcing him to act otherwise. This is the Achilles’ heel of democracy. The mob will scream at the Fed to bail them out by ‘printing’ money (i.e. pump liquidity into the economy in the form of cutting interest rates). Should the Fed refuse to comply, we can imagine the mob storming the Federal Reserve to demand the head of Ben Bernanke. Therefore, the Fed will have no choice but to acquiesce to the desire of the mob, whose aim is to avoid immediate pain as much as possible."

There is no way any politician can sell the message that America needs a severe recession (or even a depression) to cleanse the economy from the gross excesses, imbalances, blunders and mal-investments.
Thus, it is very likely that they will have to fight deflation till the very bitter end, till the last drop of blood from their last soldier.
Since the current structure of ‘rules’ will be too restrictive in such a war against deflation, there will be popular momentum towards the bending and rolling back of these ‘rules.’
If they press on relentlessly till the final end, there can only be one outcome:
the US dollar will be joining the long list of failed fiat paper money in the annals of human civilization.
Since the rest of the world’s currencies are as fiat as the US dollar and are based on the US dollar standard, you can be sure the result will be ugly for the global financial system.

Period.

[malleni]

Still, you never answer or discuss this main abnormality of the today system:

...
It is simply impossible for a pure deflation to take place because of one notable anomaly that perverted all standard Keynesian economic theory: namely the fact that the worlds largest debtor nation controls the international currency regime. From this rather strange "logic," all market anomalies flow.
...

(I do not found it anywhere - perhaps you did)
How this simple fact (abnormality) can be without discussion in this rotten system?

[Higgenbotham]

Thank you Higgenbotham.
This can be called - a discussion!

So I try to roll it further:

...
This guy has thrown so much garbage at the wall that it would take me days to go through it all, but let's start with just this bit quoted here.
...

Not necessary.
You already put clearly your stand points and of course - those are YOUR stand points.
Definitely NOT the things all must "believe in".
So the first step is quite OK.
"The guy has thrown so much garbage" - mean probably HIS garbage, because it is obviously that you do not agreed with him in all aspects, but that is a reason for discussion.
Even if he "throwing garbage" in your opinion - that would be just easier for you to "sweep off" this garbage with facts.

...
First, he talks about a flight into US Treasuries.
...

Obviously.
And even you further in the text when you mentioned YOUR reason for "flight".
As I understand this text before - the flight is aimed to be short... "in hopes that this current financial storm will blow over quickly".
So "quickly" probably meant - short term T-bills.
You explained your reasons later on - and it looks quite logical for me. I do not see the huge difference at this point between you and Mos-friends explanations.
Perhaps you were not in panic, but the results are the same.
Anyway I do not know so much about US treasuries charts so I agreed - I am not the one who can qualified discuss this issue.

...
The author of this quote above states that the world is drowning in US currency. Currency is paper money.
...

That is not first time that you using this phrase and I always been surprised by it.
Perhaps I do not understand you or my English is so bad...

But in further text you explained in detail your stand point regarding "currency"...
And - IT made me - paafff!
I cannot really understand that you believe that "currency is ONLY paper money"!!??

Hopefully we can clarify it in further discussion.
Now, since my English is not so good, I am using explanation from another site which is in my point of view correct:
( http://cij.inspiriting.com/?p=336 )
"
...
Today, we live in a time of fractional reserve banking system. Put it simply, if you deposit $100 into a bank account, the bank is going to lend out a large proportion of your $100 and keep the rest as reserves, in case you decide to withdraw some of your money as cash. The proportion that the bank is going to keep as reserves is the reserve ratio. Let’s say the reserve ratio is 10%. After depositing $100, the bank is going to keep $10 and lend out $90. The $90 that someone borrowed from the bank will again be deposited, resulting in $81 being lent out and $9 keep as reserve. At this point time, how much money has you original $100 multiplied into? In terms of the amount of bank deposits, there are now $100 + $90 + $81 = $271 of ‘money’ in the financial system. This can go on and on, until the quantity of money swell to the theoretical limit of $1000 (based on reserve ratio of 10%)...."

In this example, the original $100 is known as the “base money.” In the Austrian School of economic thought, “base money” is called the “standard money.” The $900 worth of money, according to the Austrian School terminology, is known as the “fiduciary money.” In common terms, that is called “credit” (which is “debt” from the viewpoint of the counter-party).

What happens, for whatever reason, there are bad debts? In that case, the value of credit has to be written off, resulting in the cascading contraction of fiduciary money in the economy i.e. deflation."

Further on:

...the central bank cannot control the demand for money and credit. It can supply whatever amount of them that it wants, but it cannot force business and people to desire them. Put it simply, you can lead a horse to the water, but you cannot force it to drink.

So obviously is that currency in NOT "only paper money".
More over - for simplicity we can divide whole amount money i two groups - according to the Austrian school:
“standard money” - the base (REAL) money
“fiduciary money.” - credit (DEBT) money.

In one point I think you are agreed with this Austrians logic:
Namely - in generation mechanisms for - deflation.

But I agreed too with you:

..., but in no way is there a consensus that these actions that the Fed is taking will be inflationary.

So, since we agreed at this point - which mean that nobody playing "the prophet" - we can calmly discuss this issue further.
Unfortunately - the future will give us "the ANSWER".
We both know that "The ANSWER" is not nice in any case.

malleni,

Currency is paper money, That's the way the Federal Reserve defines it. I don't know if they include coins in that definition or not, but I don't think so. One thing that might help there is to go to the Fed's web site and look at their reports. Here is an example of something I referred to before called M2:

http://www.federalreserve.gov/releases/ ... 6hist1.txt

These are not terms that I am defining. The Federal Reserve defines these terms. You will notice that one of the components of M1 and M2 is currency. The Federal Reserve defines currency as paper money. That's the way our banking system works. The Federal Reserve runs the show and they define the terms. Nowhere in any of the Federal Reserve's measures of money will you find the terms "standard money" or "fiduciary money", but the general process described in your quote above is correct (the part highlighted in blue).