The Aftershock Investor: A Crash Course in Staying Afloat in a Sinking Economy by David Wiedemer, Robert A. Wiedemer, Cindy S. Spitzer Page B
Ads: Link
stocks, bonds, real estate, and other assets, which would hurt the economy. So the Fed won’t pull the money out to spare us inflation later.
----
Why We Look at the Monetary Base Instead of M 1 and M 2
When we talk about how money printing by the Federal Reserve is increasing the U.S. money supply, we are talking about the U.S. monetary base , not M 1 or M 2 . That is because M 1 and M 2 are both impacted by market behavior, while the monetary base is not. The monetary base is the Federal Reserve’s balance sheet. It includes the government’s money holdings plus those of a few big banks. M 1 is all currency and demand deposits. M 2 is currency, demand deposits, and savings deposits. Because it is possible to have a rise in the monetary base while also having a decline in M 1 or M 2 due to other factors, such as market behavior, the size and growth of the monetary base is a more accurate predictor of potential future inflation.
----
Not Only Will There Be No Contraction of the Money Supply, We Foresee a Lot More Money Printing Ahead
As the economy continues to struggle and markets fall, the Fed will do even more money printing, and this will result in even more inflation than anyone would expect. The Fed will do even more money printing in the future in order to cover the costs of . . .
Market stabilization . Like the first rounds of quantitative easing that began in 2009, the next rounds will largely come from a need to prop up declining markets and a fragile banking system.
Stabilizing foreign currency markets . The Fed can prop up the market and banking system only to a limited degree, especially as this goes on for a longer period of time. Foreign investors will still get nervous. Hence, the Fed will also need to print money to support the dollar in the foreign exchange markets.
Government spending deficit . Long term, once the Aftershock hits, the Fed will have a very heavy burden of financing the government. We already fund about 40 percent of our spending with debt, and it will be much higher when the Aftershock occurs. The money to buy this debt will increasingly come from the Fed.
Keep in mind that this represents only the base money introduced by the Fed. Any loans created from these reserves will have a multiplier effect on that figure. So while we will not have inflation on the level of Zimbabwe or the Weimar Republic, we will certainly have very high inflation, and it will certainly have a very big impact on the future economy.
This Debate Is Really Not About Inflation or Deflation, It’s About Protecting the Status Quo with Denial
Because inflation will truly devastate the stock, bond, and real estate markets, people want to say it won’t happen. If you own a stock, such as Bank of America, you desperately want to believe the problem is deflation, not inflation; otherwise, your investment is about to be wiped off the planet. For that reason, a lot of people want to believe we will have deflation, not inflation.
Maybe you believe it, too. If so, ask yourself this: If the Fed’s buying massive amounts of government bonds with printed money doesn’t create inflation, why don’t we do more of it? Most economists agree that if we eliminated all taxes tomorrow, including corporate and Social Security taxes, while maintaining all federal government spending, that we would boost the economy right out of the current slump and into a period of enormous growth. All we have to do is borrow that money instead of taxing it. How do we borrow it? By selling bonds to the Federal Reserve. That’s exactly what we did in the past with QE1 and QE2. With the Fed buying the bonds, it won’t stress the bond markets. They just buy whatever it takes to fund the government each year. No more. No less.
Since the deflationists strongly assert that massive Federal Reserve purchases of government bonds (as they have done in the past few years with QE1 and QE2) won’t create inflation, then what’s the downside? We can
----
Why We Look at the Monetary Base Instead of M 1 and M 2
When we talk about how money printing by the Federal Reserve is increasing the U.S. money supply, we are talking about the U.S. monetary base , not M 1 or M 2 . That is because M 1 and M 2 are both impacted by market behavior, while the monetary base is not. The monetary base is the Federal Reserve’s balance sheet. It includes the government’s money holdings plus those of a few big banks. M 1 is all currency and demand deposits. M 2 is currency, demand deposits, and savings deposits. Because it is possible to have a rise in the monetary base while also having a decline in M 1 or M 2 due to other factors, such as market behavior, the size and growth of the monetary base is a more accurate predictor of potential future inflation.
----
Not Only Will There Be No Contraction of the Money Supply, We Foresee a Lot More Money Printing Ahead
As the economy continues to struggle and markets fall, the Fed will do even more money printing, and this will result in even more inflation than anyone would expect. The Fed will do even more money printing in the future in order to cover the costs of . . .
Market stabilization . Like the first rounds of quantitative easing that began in 2009, the next rounds will largely come from a need to prop up declining markets and a fragile banking system.
Stabilizing foreign currency markets . The Fed can prop up the market and banking system only to a limited degree, especially as this goes on for a longer period of time. Foreign investors will still get nervous. Hence, the Fed will also need to print money to support the dollar in the foreign exchange markets.
Government spending deficit . Long term, once the Aftershock hits, the Fed will have a very heavy burden of financing the government. We already fund about 40 percent of our spending with debt, and it will be much higher when the Aftershock occurs. The money to buy this debt will increasingly come from the Fed.
Keep in mind that this represents only the base money introduced by the Fed. Any loans created from these reserves will have a multiplier effect on that figure. So while we will not have inflation on the level of Zimbabwe or the Weimar Republic, we will certainly have very high inflation, and it will certainly have a very big impact on the future economy.
This Debate Is Really Not About Inflation or Deflation, It’s About Protecting the Status Quo with Denial
Because inflation will truly devastate the stock, bond, and real estate markets, people want to say it won’t happen. If you own a stock, such as Bank of America, you desperately want to believe the problem is deflation, not inflation; otherwise, your investment is about to be wiped off the planet. For that reason, a lot of people want to believe we will have deflation, not inflation.
Maybe you believe it, too. If so, ask yourself this: If the Fed’s buying massive amounts of government bonds with printed money doesn’t create inflation, why don’t we do more of it? Most economists agree that if we eliminated all taxes tomorrow, including corporate and Social Security taxes, while maintaining all federal government spending, that we would boost the economy right out of the current slump and into a period of enormous growth. All we have to do is borrow that money instead of taxing it. How do we borrow it? By selling bonds to the Federal Reserve. That’s exactly what we did in the past with QE1 and QE2. With the Fed buying the bonds, it won’t stress the bond markets. They just buy whatever it takes to fund the government each year. No more. No less.
Since the deflationists strongly assert that massive Federal Reserve purchases of government bonds (as they have done in the past few years with QE1 and QE2) won’t create inflation, then what’s the downside? We can
Similar Books
