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Thursday, May 15, 2014

PRICES ARE UP BUT NOT BECAUSE OF INFLATION. WITNESS THE CRAZY FEDERAL RESERVE DEBASEMENT POLICY

So today, Mish reports that food prices are on the rise

To understand inflation, you need to understand commercial banking and central banking. To help you, check out INFLATION REVEALED! "REAL GDP" AND FEDERAL RESERVE BANK UNITS.

 


Yet, real credit is down and down much from peak credit at the end of 2007. That is deflation.



Real bank credit is down 41% from peak credit at the start of Q2, 2008. The economy runs on bank credit mostly and not so much cash.

From a major low of 1994-January-1, peak inflation hit 2008-April-1. The first bubble, from 1994-January-1 through 2001-January-1 grew a whopping 71%!

Instead of letting it pop, Alan Greenspan, then Chairman of the Federal Reserve pushed the bubble higher still. From the 2002-April-1 pause until peak inflation 2008-April-1, the credit bubble grew another 47.1%!

The Bernanke Leg, which began Ben Bernanke became Chairman of Federal Reserve, pushed the obscene bubble even higher, to its inflation peak hit 2008-April-1. Bernanke oversaw 19.7% growth in credit in a scant two years!

From inception to peak, the massive bank credit bubble under chairmen Greenspan and Bernanke grew an out-of-sight 140.2%! To put it in perspective, from the Nixon Shock to the major low of 1994-January-1, bank credit grew only 28.57%!

Since peak credit, bank credit has fallen 41.2%. That is deflation.

Edwin Walter Kemmerer gave good description of what is inflation:



Kemmerer goes on to say:




And that is the key point. The U.S. dollar has been debased by increasing the number of dollars in circulation aggressively.

Have a look at the craziness ushered in by Ben Bernanke!




The peak GDP-to-Cash ratio hit, 1981-January-1, when $1 of cash could buy $27.35 of GDP. Today, $1 of cash buys a measly $14.80. This is the lowest ever for the dollar to GDP since the Nixon Shock, which I wrote about in ELECTRICITY PRICES. SHOCKING, ISN'T IT? THANKS, NIXON.

The GDP-to-Cash ratio has fallen a whopping 24.10% since peak credit  2008-April-1.

The sum of cash in circulation has jumped an eye-gouging 52.5% since peak credit 2008-April-1! That is why prices for goods transacted mostly in cash have gone up substantially.

In short, owing to welfare programs and bailouts, too much cash has been pumped into circulation but there hasn't been a sufficient rise in goods output.

Yet, prices of credit-based transacted goods have fallen tremendously since peak credit, in spite of recent upticks, most of which reflect pumped cash into circulation. After all, all prices get denominated in multiples or fractions of the cash unit, which is, of course, the U.S. dollar.

What is really happening then? How can prices go up under deflation?

Before deflation, there must be inflation. Inflation happened already.

Cash accretion has been ongoing for awhile. Cash and deposits are interchangeable. Sometimes bankers pay bank credit on deposits, which of course, creates more deposits.