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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (22548)	2/1/2005 8:49:13 AM
From: Elroy Jetson	Read Replies (4) \| Respond to of 116555

This morning a CNBC talking-head and make-believe economist asked, "Why has the interest rate, on 2 year loans from a commercial bank, risen only 0.04% over the same period that the Fed has allegedly 'increased rates by 1.5%'." Once again, the real answer is the Fed is not really raising rates. Although they have increased their "Discount Rate" by 1.5%, a rate which applies to absolutely no one, they have not restricted the growth of the money supply. The Fed has very few mechanisms for actually raising interest rates apart from restricting the growth of the money supply, aka the creation of new debt. CNBC chat came close to the answer when a couple of people mentioned there seemed to be "a large amount of available funds floating around in the banking system." The *real question* is, why does the Fed want to appear to be raising rates - when in fact they are not? .

To: mishedlo who wrote (22548)	2/1/2005 9:33:34 AM
From: russwinter	Respond to of 116555

He describes the situation perfectly. It's totally a function of the response. Print in abundance, it will destroy the USD as money. Destroy money and you have inflation, period. On the otherhand if the Wizards continue for some time with the post-Dec 8th printing press hiatus, you could start to see today's strong inflation (or reflation) abate. I would say the chances for a deflation are slightly higher today than they were on Dec. 7th, but that's only if they hold course. Puplava is saying they won't change spots, and only know plan A: print money. He is probably right, but I'm not married to any doctrine or assumption, but am watching the monetary response (action, not words) daily and closely. Everybody should be doing the same. What all of this means is that the next inflationary wave is about to begin. It will begin during the next downturn in the markets and the economy. It will be caused by explosive money growth with the Fed operating the printing presses in a way never seen before in history. Each new economic cycle over the last fifty years has required more money and credit to fuel it. As for the deflationists among you, it is time to rethink your position. Debt may be a catalyst for deflation when money has a value as it did when we were on a gold standard. Today under our present fiat money system currencies have no value other than the faith of the beholder. When most debt is backed by government guarantees and that same government is in possession of a printing press, debt produces an inflationary response.