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Politics : American Presidential Politics and foreign affairs
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To: RMF who wrote (37050)9/14/2009 8:39:54 AM
From: DuckTapeSunroof  Read Replies (1) of 71588
 
RMF, I think you need to get a handle on the economic concept of "monetary liquidity".

In our modern 'fractional reserve banking system' commercial banks CREATE MONEY when they lend money out.

The measure of HOW FAST money circulates in an economy (thus directly impacting how much money is 'created') is known as the "velocity of money".

Typically it rises during boom times (when banks are making many loans), and falls during busts (when banks don't loan much --- regardless of how low the Fed drops Fed Fund rates too...)

That latter one is the situation that we find ourselves in RIGHT NOW.

Monetary Velocity has dropped off of a cliff (thus the 'amount of money' in our economy has contracted in a very major way --- despite the fact that reserves held on the books of the Federal Reserve have *soared* to new highs.) This is because banks have pulled back on lending to conserve capital.

We are CURRENTLY experiencing actual DEFLATION (the exact opposite of the inflation you were worrying about.)

Actually, what would help the most right now would be at least a whiff of some normal amount of inflation... but that could be some considerable amount of time in coming. (After all, very similar conditions in Japan allowed deflation to roll on for nearly a decade.)
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