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User Info	Market Ticker slam on PM's and PM stocks; entered at 2007-12-02 03:30:40
Drchaos Posts: 1646 Registered: 2007-09-03 sandy eggo, kallyfornyia	Have people ever really listened to Ben Bernanke and what he meant about the "Helicopter"? He has actually thought about this. He was talking about exactly this situation under discussion: when normal monetary policy doesn't work because providing low Fed funds to member banks doesn't translate into real-world monetary creation because of an unwillingness to lend (on account of accumulated debt and toxic balance sheets). What he meant was that the Fed and governments would have to do unusual and drastic things in that circumstance. Foremost of course would be monetization of the US debt. I.e. the Fed creates fresh dollars and directly buys Treasuries. But all profits from the Fed are turned over to U.S. Treasury anyway, so the money goes in a circle. Or the Fed could just sell back the bond to the Treasury for $0.00 and it disappears. If the banks have no willingness to create money in the physical economy then the government will do it. But clearly these will not happen until normal monetary policy has been tapped out, and that means Japan-like interest rates. So I guess I agree with the non gold bugs. The primary error about those ventilating about "fiat currency fiat currency fiat currency" is that they don't exactly know how that works. A non-debt based fiat currency, e.g. literal physical printing of bills and distribution by government a la Zimbabwe, that is definitely inflationary. When you have money supply created by private banks who have reserves in a central bank system where the central bank manipulates the price of those reserves (i.e. the USA and every modern country) then actual money creation depends very much on the private sector desires of those banks. As far as real world inflation versus deflation, I think the answer is actually extremely simple: There will be---cut that---there IS inflation in things that people need and buy with cash, and there is deflation in things that people want and buy with debt. There it is. "conundrum" solved. 2007-12-02 03:30:40