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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Fiscally Conservative who wrote (71449)	10/8/2006 11:11:45 PM
From: mishedlo	Read Replies (1) of 110194

Does anyone "control it"? In a fiat regime the Fed is not really in control. GSE's can create credit at will. So can many other places. The Fed clearly "influences" inflation by trying to make sure it stays positive. The Fed does not control it. In a sense it is out of control. Inflation will expand as long as banks are willing to lend and consumers are willing to borrow. If you look at monetary base and look at credit you will see that lending has vastly exceeded money supply. In a gold backed regime with no fractional reserve lending, that would not happen. As it is, credit will keep expansing without control (the Fed only THINKS they are in control), until as I said creditors are no longer willing to lend or borrowers are no longer willing to borrow. The Fed can influence that point by raising or lowereing short term interest rates, but the Fed can not dictate where the money goes nor can the Fed force it to go anywhere at all. As it sits, no one "controls" inflation. Inflation (or deflation) will control the Fed. Mish

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