Good piece...and check out the pdf below! Holy See Batman!
Hat Tip to ZHger NoDebt for the following... Modified for clarity...
Although the US Treasury does have complete control over the printing of M1 money (CASH), the US government does not have complete control of the Dollar.
M2 and M3 money are controlled in part by the Federal Reserve but their control is not 100%... Actually any bank and indeed many private firms (who aren't officially 'banks' at all) create and destroy M2 and M3 money through the use of their ‘legal’ right of fractional reserve loan creation.
Although the Fed has the power to restrict the amount of money THOSE private entities can create, it HAS NO ABILITY TO FORCE THEM to create that money or force them to lend it.
It is wrong to think the FED’s money supply determines inflation, it does not. If the Fed creates money by buying securities (crap assets like subprime CDOs) from any bank, and the bank turns around and parks that new cash revenue (new excess reserves) back at the Fed, of course that FED newly created money has NO inflationary impact. It's velocity is zero because it's not chasing any assets. It's not in the marketplace at all. It's not being used to buy anything !!!!
We can see this directly by looking at a chart of the monthly or yearly M3 money supply from the Fed: If the supply of money directly caused inflation, product price levels would have doubled or quadrupled and much more since 2008. They have not.
On the contrary, that FED money game play is being enacted for precisely the opposite reason, it's purpose is to prevent any CRAP ASSETS from having to be sold in a free market which would constitute REAL price discovery.
The Real Picture...
Yes the dollar is doomed and Yes there will be massive inflation… That is correct.
But How.. ?
The mechanism will be a another shock credit event with the FED now exponentially overextended with QE to infinity. It will not happen because more money is chasing the same amount of goods.
The credit event will force all banks to cover huge monstrous reserve losses. To do that they will take out the held reserves they've hoarded and start using them to fill-in their balance sheet liability holes. So when the Banks start to tip-over they have to NOW (when before they did not) sell some (a lot) of these assets into the public market outside of the Fed internal money flows game.
THAT'S THE MOMENT WHEN PRICE DISCOVERY COMES BACK.
It is important to note that initially prices will FALL. Once prices of assets begin falling, other financial institutions will become insolvent and then they will have to sell reserve assets and then more prices will fall. So, paradoxically, it will begin with a deflationary rout.
When this shock credit event + deflationary cycle get's underway, governments will be utterly desperate to save their banking clients. (aka the people they truly serve)
They will move unlimited new money into the banks, and the BANKS WILL HAVE TO HAND IT OVER TO PEOPLE, who will now know the banks are insolvent and will want their cash… Now!.
So that USD will NOW have velocity and so real inflation will begin to explode.
It will NOT be mild inflation, it will be Zimbabwe inflation, and it will sound the the dollar's imminent demise which will be obvious to everyone.
In your planning you should have some cash ready for the initial deflationary rout. That will be the first time we've seen real prices in many years. It will be a good time to buy an asset that has an economic return.
Also recognize that by the time you see the trouble at the bank and start thinking it's a good idea to get some of your wealth out of there - you'll be very, very late.
What would you like to have your savings in if the dollars in the bank start losing value at 15% a year or more? Would you rather own gold? Or a profitable business that does not depend on financial shenanigans to make money?
Attachments coming
