St. Louis Fed: Velocity and Reserves
Posted by The Interest on February 9, 2009
Continuing this discussion about velocity, the below chart is making its rounds on the Interwebs. What it appears to show is that velocity is negative which is to say that people are hoarding money and either not borrowing or banks aren’t lending.
The money isn’t changing hands.
Another chart below shows reserves increasing at the banks. To me, what this means is that people have a lot of cash in their mattresses.
Now, let’s momentarily hold the conversation about money as debt and that interest dollars are not created. What would you do if you wanted to pry the dollars out of the hands of people who are hoarding it?
You’d devalue the dollar. Kill it as a currency. Question: Would the banks allow debts that originated in US dollars to be paid back with worthless US dollars? That would reduce the debt over night. We’ll see if they’re willing to do that.
If you saved your money, it is now worthless. Is this hyperinflation? No, this is just criminal.
christian said,
Perhaps it would be surpising for some to here that the fed benefits both from inflaton and deflation.
At the on-set of debt driven financial crisis the fed can often benefit from a period of deflation ……this strengthens the benefits to the Politically influencial creditors in the “industry”……..and in order to get this benefit it would be important to Delay any plan such as temporary nationalization or receivership (swedish model) and then spewing forth a new good bank….because the new good bank may increase lending to business and consumers ( at the same time the gov’t may pitch in and lower business tax and possibly corporate gains tax) to make the lending more tempting to banks……but should we do this the creditors would not benefit from the “consolidation of power” that can occur during a debt deflation (where gov’t can pick winners and losers as well)……Regardless remember it is not in the Fed’s interest to let the dollar fall TOO much……they don’t want to kill the golden goose (petro dollar) …..and the gov’t and military industrial complex should back them up on this end…..The question i have is at what point in time will the shift back to inflation be beneficial and when it does what sort of world fixed currency regime will be the most beneficial to maximizing debt generation…..will it still make sense for the U.S dollar to have the crown….or will the U.S consumers debt overhang make other country’s citizen’s (china?) potential to be saturated in debt(future debt slaves) tempting enough to create a new economic and currency order to do just this
christian said,
(cont). ….of course with most debts denominated in dollars …..and the huge debt overhang…..the temptation to co-ordinate a devaluation among several currency’s (especially the dollar) may well be the trigger for change to a modest inflation and the associated benefits……currently policy makers have been trying to get the best out of debt deflation cycle(consoldiate power…….keep intrest rates low to finance spending….even artifically maintain the value of certain (debts) for their creditors who value the assets the debts are standing behind…..this may make it more palitable to buy the time for those to take advantage of a good crisis and (deflation) create a solution which gives governing bodies more authority and power……until the co-ordinated devaluation which of course the politically connected will make the most of
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