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Politics : THE WHITE HOUSE

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To: GROUND ZERO™ who wrote (23857)	10/14/2008 10:17:46 AM
From: DuckTapeSunroof	Read Replies (1) of 25737

Re: "Wouldn't that have the same effect, "hyper inflation?" And if so, then how come the gold market isn't half way to the moon by now?" Not if bank lending itself is still CONTRACTING. (Under our economic system... banks 'create' money by their lending. Since their capital reserve ratios are under pressure right now, even though the government is flooding the system with liquidity... it's still out-matched by the even greater DECLINE in liquidity caused by the bank freezeup.) Now... once banks finish the deleveraging process, however long that takes, (remember: the Investment banks were running at 30-to-1 leverage, non-bank unregulated mortgage lenders at even greater financial leverage... while commercial banks are limited to no more then 13 or 12-to-1 leverage), the fed will have to start 'mopping-up' the liquidity that they have been injecting --- or else we will certainly have much higher levels of inflation. (Long-run, I'm still counting on higher inflation around the world. But, in the short-run we have recession, which is deflationary.)

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