Asia Times: The Fed's biggest bubble

[marmar]

The Fed's biggest bubble
By Michael Pento


I've made a living out of exposing economic fallacies, but there's one whale that I can't seem to harpoon. Even top-flight Wall Street analysts seem to believe that the Fed's doubling of the monetary base after the credit crunch has not had an inflationary impact on our economy.

Their logic can be summed up like so: "The money the Fed created and dropped from helicopters has all been caught in the trees." In other words, the Fed is creating money, but it is just being held as excess reserves by the banking system instead of being loaned to the public. Therefore, the money supply hasn't truly increased, there is no money multiplier effect, and aggregate price levels are behaving themselves.

But this is only a half-truth. Yes, most of the money created by the Fed has been kept by commercial banks as excess reserves. However, the Fed doesn't conjure reserves by magic. It first creates an electronic credit by fiat, then purchases an asset held by a financial institution. Those primary dealers then deposit that Federal Reserve check into their reserves.

The act of creating money from nothing and buying an asset - be it a Treasury bond or Mortgage Backed Security (MBS) - drives up the price of that asset in the open market. Those price distortions send erroneous signals to private buyers and sellers, eventually creating gross economic imbalances. .........(more)

The complete piece is at: http://www.atimes.com/atimes/Global_Economy/LH27Dj01.html

[Kurt_and_Hunter]

1. The Asia Times should know that Japan more than Doubled its Monetary Base

from 1995-2003 without managing to escape deflation.

Prices dropping every year.

Monetary base doubled.

Within recent memory.

World's second largest economy at the time, so as good an analogue of America as one could find.

In Asia.

[Davis_X_Machina]

2. They have a story, they're sticking to it.....

...and if the data don't fit, then screw the data.

Like all of the Austerians.

[SlipperySlope]

3. Inflation and deflation are two sides of the spectrum.

This crisis is massive deflationary event. The money the fed created has gone into trying "inflate" the assets that would naturally be deflating. So while it is difficult to find assets that have inflated per se, it is easy to find assets that have been protected from the deflation they were due.

Of course, they only need to keep them from deflating until they can transfer all of them onto the government's balance sheet. Once "we the people" own them instead of the banks, the value can be allowed to plummet.

The whole thing is one coordinated financial rape of what is left of the middle class.

[orwell]

4. Monetarism is dead...

Friedman is dead...

They are still trying to prove that link.

I tried for years. It doesn't exist.

But they will send us back to the Stone Age to appease their God.

The king is dead...long live the king!