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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: TimbaBear who wrote (50517)1/20/2006 7:04:38 PM
From: mishedlo  Read Replies (2) of 110194
 
In these definitions, is it true that lending from overseas is not considered part of the fractional reserve and therefore may not be part of the money expansion/contraction equations?

Also, in these definitions, if no one wants our money there is no increase or decrease, but there will be inflation, no? Sort of like Confederate dollars at the end of the Civil War, they didn't print anymore, but you surely needed a fistful to buy anything with them.

Timba

A dollar is a dollar is a dollar whether or not it is held in my mattress or overseas. Obviously the velocity of a dollar in my mattress stuffed there for say 10 years is zero. No one is extending credit agaisnt it nor is it being lent out or earing interest.

When people want (or need) to hold dollars (for example to pay back debts) and stop spending credit contracts. It is that contraction of credit that is in fact deflationary (if it happens in enough size). What Greenspan feared (but was years too early given housing was just starting to run), was that contraction in credit.

Now there is even MORE credit (tied to a housing bubble) but no possible way to pay it back except

1) rising wages
2) bankruptcies

Which one is inflationary which one is deflationary and which one is more likely?

Mish
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