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Deflation?

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February 25, 2008 – Comments (11)

Well, I am not even going to pretend to understand this one...

http://www.garynorth.com/public/3118.cfm

Basically, Gary North is showing that the money supply is decreasing and it is implied that the fed is just getting rid of it...

I don't like what is being implied, at least from my read of the article.

So, what are the things I know, or at least I think I know...

Banks create money through credit expansion, the more they loan, the more money is created.  They loan me $100k, I give it to someone who puts it in a bank and it gets loaned again.  The reserves meant that the amount that could be loaned was declining each time this happened, but by taking it off the balance sheet, it could technically be loaned forever.

So, I think loans that get written off are a destruction of money, it just disappears kind of the way it magically appeared.

Banks are suffering huge losses, and they are tightening credit standards, they simply aren't creating as much money.  Losses are continuing, so more money disappearing.  I suppose some people are paying down debt, but banks are balance sheet impaired in their ability to relend that money again.

So, how does this interact with the fed?  Is the fed really deflating, or is this just showing up as a spillover with what's happening with the credit contraction?

Like I said, I don't understand this stuff at all, but it doesn't make sense to me that the fed is somehow just dissolving money.  It makes way more sense that this is how we are seeing the credit contraction showing up. 

11 Comments – Post Your Own

#1) On February 25, 2008 at 9:28 AM, dwot (97.29) wrote:

And on the platinum...

Currently the operation costs for producing an ounce of platinium is in the $800/oz range, where as before this massive monetary expansion the cost was less than half that.  Add to the $800 all of the capital and administrative costs and producing an ounce of platinum today costs more like $1100-1500/oz, depending on the quality of the reserve.

Platinum price has now gotten ahead of itself, but I don't think the price was keeping up with the expansion of the monetary supply when I look at the massive losses platinum producing companies were taking despite the fact that platinum price had doubled, and even close to tripled.

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#2) On February 25, 2008 at 9:43 AM, GS751 (27.49) wrote:

hmm...

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#3) On February 25, 2008 at 10:37 AM, camistocks (< 20) wrote:

Gary North! Dwot, now I know why you went hiding up to the North! You ARE a goldbug!

GN is a doomsday prophet and Ron Paul supporter. Just a few quotes from Wikipedia:

Gary Kilgore North (born 1942) is a writer and publisher from the Christian Reconstruction movement.

He gained some wider notoriety for his inaccurate prediction of Y2K2000. catastrophe before

Theological beliefs

Most Christian Reconstructionists hold to a type of PostmillennialismJesus will return to earth only after Trinitarian Christianity has become the religion of the majority of the planet, with God's moral law as the civil standard for society. They believe that Old Testament moral and civil laws, such as those against adulterysodomy and murder, should be presumed binding unless the New Testament says otherwise; this belief they call theonomy. Critics argue that what North is describing would be a theocracy, and that North and other Postmillennial proponents of Dominion TheologyDominionist tendency among the much larger (and largely Premillennialist) Christian Right.[citation needed] that holds that and have influenced the growth of the

Theologically, Gary North is a Calvinist. He is president of the Institute for Christian Economics[1] which publishes many Christian Reconstructionist books online. Christian Reconstructionists are also presuppositionalists in their approach to Christian apologetics as taught by the Calvinist philosopher, Cornelius Van Til and oppose any natural law theory as a basis for civil law order. North is a member of the Presbyterian Church in America

Predictions of catastrophes

In 1986, North co-authored with Arthur Robinson Fighting Chance: Ten Feet to Survival, a book advocating a nationwide civil defense program to construct underground shelters protecting US citizens against an anticipated nuclear first strike by the Soviet Union. In 1987, North predicted in Remnant Review that an AIDS epidemic would overwhelm the world's hospitals by 1992.

In the late 1990's, North predicted that Y2K would be a global catastrophe,[2] and promoted his theories in the media and in his Remnant Review newsletter and website. In December 1999 he retracted his position,[citation needed] and in a January 2000 ICE newsletter, he publicly apologized for his mistaken view of Y2K, saying he was baffled as to why the transition didn't bring global chaos.

Political beliefs

North argues for the abolition of the fractional reserve banking system, and a return to the gold standard. He also opposes the US Department of Education and Council on Higher Education Accreditation claiming it is a "cartel" and the group has, in part, caused higher education to "become uniformly secular, liberal, and mediocre: raising the cost of entry."[1] Furthermore, North believes that education and course work can be compacted on videos and DVDs and he sees the USDE and CHEA as preventing people from being educated through these media.

"So let us be blunt about it: we must use the doctrine of religious liberty to gain independence for Christian schools until we train up a generation of people who know that there is no religious neutrality, no neutral law, no neutral education, and no neutral civil government. Then they will get busy in constructing a Bible-based social, political, and religious order which finally denies the religious liberty of the enemies of God." Gary North,

 

Dwot, please check the background of your sources... unless you are a religious extremist too...? 

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#4) On February 25, 2008 at 10:38 AM, camistocks (< 20) wrote:

Oh, I forgot:

http://en.wikipedia.org/wiki/Gary_North

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#5) On February 25, 2008 at 12:16 PM, EScroogeJr (< 20) wrote:

Uh-oh. Houston, we have a problem.

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#6) On February 25, 2008 at 2:18 PM, dwot (97.29) wrote:

If I was American I'd have gold...

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#7) On February 25, 2008 at 2:26 PM, dwot (97.29) wrote:

And on AIDS, we've been truly lucky.  As it turns out there is an enzyme in saliva that kills the virus.  There has been virtually no transmission of AIDS from oral sex, or rather the rate has been about 1/10,000th of what was expected. 

Don't kid yourself, we got lucky on this one, but it is increasing again in North America, with the under 25 the fastest increasing age group.

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#8) On February 25, 2008 at 7:26 PM, ATWDLimited (< 20) wrote:

Deflation is there, but US government still needs money to pay debts it owes, almost 10 trillion, and he government always needs more money to run so there probably is more inflation going on than a couple 100 billion write downs when the government makes few 100 billion loan to its funds.

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#9) On February 26, 2008 at 12:40 AM, abitare (40.75) wrote:

dwot,

I just wrote a long reply, but it got dropped. I like GN, I have been reading his newsletter for 2 years. I think it is well worth it. He does not pump or shill stocks, he told people to buy gold in 2001. He is not a permenant gold bug. He has has been saying gold and silver would come down in a recession. GN was the first to say there were signs of a recession in June 07. GN has made some of the best calls since I have been following him.

camistocks has been drinking or something?  

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#10) On February 26, 2008 at 1:43 AM, DemonDoug (91.51) wrote:

dwot:

what the fed is doing is pumping liquidity through the system through the TAF.  For every 100b written down, the fed is making up for that by loaning another 110b to the big banks.  didn't you post about this on another blog post?  The Fed, with full support of the bush administration and without any congressional care in the world outside ron paul, is running the printing presses night and day to prevent deflation.  This is why commodities are so hot and should continue to be so for some time.  It's going to take years of this, not just a couple of months.

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#11) On February 26, 2008 at 2:27 AM, dwot (97.29) wrote:

Doug, I read somewhere else that that money is constantly being rolled over, a bunch of stuff comes due and it is re-auctioned off.  I really haven't studied it for myself.

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