New Speak... Can You Say Hyperinflation or Depression?

[louis c]

or both.

Do you remember your history courses in High School (1967-1970)?

Well, after the Great War (WWI), Germany printed paper money to cover its debts. They printed so much that there were pictures of men paying their bills with money literally carried in wheelbarrows. Folks had to get paid twice a day to buy food before the prices went up. This hastened the great world wide depression of the thirties and the emergence of Adolf Hitler.

Isn't that what "injected liquidity" is. On Friday, as the Stock Market was poised to plunge at the opening bell, the Federal Reserve "injected liquidity" into the struggling financial markets to the tune of $56 billion. The Europeans did the same so that as much as $100 billion was "injected" in a single day.

Isn't the same economic principal that Germany applied in the 1920's? If it is, why would we have a different result?

[enid602]

1. bad omen

A bad omen for those who hope our long national nightmare will be followed by rational government. Maybe an international coalition of creditors will force us to pay down our debts, just as the Teaty of Versailles demanded reparations of Germany.

[mrcheerful]

2. Remember conservatives haven't had a new ideal since 1790, everything Repiglicans do are just more

attempts at making failures into successes without changing direction. They continue to make the same mistakes expecting different results, insanity at it's best.

[Speck Tater]

3. "Injected Liquidity" is a short term LOAN from the FED

to enable banks to cover their reserve requirements. The banks themselves create the money by making loans eventually amounting to up to as much as $1000 on every $1 they actually hold in assets. The trick is, when they write a loan for $1,000 the recipient of the loan gets $1,000 in cash and the bank gets the loan papers, which they claim as an asset worth $1,000. Now the bank can, in turn, borrow against the asset that they created and create even more money in the process.

Not only that, but the recipient deposits the proceeds from his $1,000 loan in the bank (same bank or different bank doesn't matter) and the bank now has $2,000; $1,000 in cash and $1,000 in loan-backed assets. So they can loan even more money backed by those assets. The whole system has become pathological to the point where for every $1,000 of created money in the economy there is only 56 cents of real money on deposit.

When a $1,000 loan defaults the bank loses BOTH the $1,000 it loaned AND the $1,000 asset because the loan paper is now worthless. Multiply that by the effect of a falling stock market, where stocks are bought on margin with borrowed money and that $1,000 can quickly turn back into the real 56 cents that backs it. A 10% drop in the market could make billions of securitized loan papers worthless overnight and bring the whole house of cards crashing down big time.

[louis c]

4. Very insightful explanation

and you get my point.

How much longer can this charade go on?

[SoCalDem]

7. E N R O N economics are still with us

:grr:

[SoCalDem]

5. Hyper-consumption with borrowed money, financed by home equity

and maxxed out credit cards.. a VERY bad omen

[spinbaby]

6. There is a story in my family

My mother's family lived in Germany at that time. My grandmother and her sister each received a rather substantial inheritance from a wealthy relative. My great aunt used her inheritance to buy a small farm. My grandmother saved her money and, when she married, had enough to buy a frying pan.

I'm feeling very nervous about my retirement money.

[mainegreen]

8. Hyperinflation? No. Zimbabwe is hyperinflation. 10,000% is hyperinflation.

10% is merely inflation.

[louis c]

11. wait a little while

you'll see.

10% might be just inflation and 10,000% might be hyper-inflation, but what would you define 100% as?

[KharmaTrain]

9. The Debt Bomb Is Exploding

The bill collector is knocking at the door...those years of piling up credit card and other debts is starting to come home to roost. This is no hidden secret as millions of people have rolled up large debts from credit cards, "creative" home mortgages and other financial schemes and the shell game is coming to an end.

Thanks to the bankruptcy bill, interest rates soared on most of these people and this has led to defaults as they can't meet the payments and have little protection from these predators. The banks, in major greed mode, didn't care that these rates would screw them so bad as they've always had the US Treasury (especially now) as their safety valve that would bail them out if things got out of hand (think S & L bail-out). The short-sighted greed is now not only ruining millions of lives but has eaten these banks and lenders as well.

We are definitely headed into a period of inflation...it's almost a replay of the 70's where the large defecits rolled up to pay for Vietnam and rising oil prices created a decade long inflation mess that ended up being blamed on Carter.

There are major differences between us and Germany in the 20's...or the US for that matter. The markets are far wider now and the global economy is far more diverse than it was then. Germany, besides having to spend billions to rebuild its destroyed infrastructure also has large reparations to pay France and other countries that was the prime cause for that hyper inflation. While this country is a debtor nation and we're throwing money around in Iraq, the cause of our economic problems are internal, not external...and there are more "safeguards" in place now where markets will shut down if there's a run, rather than let the deck of cards to collapse.

Things are definitely bad...but I don't think we can look back on history as to what is happening or what will happen...this is a brave, new world. Right now the crunch is only hitting the "little people"...those with money only feel this mess in their porfolios and it hasn't crimped their lifestyles yet. If and when it does, then we're in some serious shit. I'm already stockpiling apples.

Cheers...

[applegrove]

10. This is an example of how the free markets are not free but rely on government

regulation at times. Some other DUer pointed out that this is just proof that regulations are needed throughout the economy and the myth of free enterprise is just that these days.

Government intervention is something that should happen across the board. Don't ever let anyone tell you total dereguation is true in the USA. Cause it isn't. So why should they be selling the concept around the world?