Creating Trillions of Worthless Fiat Dollars out of Thin Air Causes Rampant Inflation & Depression
Ron: Inflation is caused by excessive money supply. The current US and global fiat money system is unconnected to the real economy ie the actual supply of goods and services created by the labour and intellectual efforts of the labour force. Why is this so? Because banks, and especially central banks like the Federal Reserve, the Bank of England, the European Central Bank and the Bank for International Settlements in Switzerland (the Central Banks’central bank and hence the controller of the whole global banking system) turn the global money supply on and off at the whim of the banksters who control those corporations. How do they do that? They just type numbers into computers and authorise other banks to type numbers representing the amount of money they want to create, into computers. Money creation thus becomes a mere book keeping exercise.
By globally coordinating their so-called money creation activities banks can create booms and busts almost at the press of a button. The current global financial meltdown though, has developed because banks are chary of lending (ie creating "money" out of thin air to “lend” to borrowers) at the level needed to maintain a steady growth in actual economic activity in the real global economy. Why? Because their previous excessive “lending” (ie creation of fiat money) for fraudulent activities like sub-prime mortgages and derivatives “bets” of various kinds has created enormous losses, especially for large US banks, and most of those losses are yet to be put on their balance sheets. When they are, and the deadline for that accounting in the US is said to be 1 October 2009, virtually all big US banks will be officially bankrupt.
One of the main reasons that the Federal Reserve System (the Fed) has been creating many trillions of US dollars (USD) out of thin air and giving it to banks and other corporations has been to cosmetically shore up the balance sheets of these bankrupt corporations. However, because the losses on worthless derivatives runs into hundreds of trillions of dollars there is no way that the Central Banks can create enough chimerical (fiat) money to make any difference. The US banks are broke.
This futile effort to bailout banks and others that have enormous exposure to derivative losses has created another problem – potential hyper-inflation. Why? Because the 12.8 trillion USD conjured out of thin air by Congress and the Fed last year had no asset backing of any kind and so it simply adds to inflation that is, the huge increase in the money supply depresses the value of existing dollars. Of course this devaluation game has been quietly going on ever since the Fed was established in 1913 so that today the USD only buys what 4 cents would have bought in 1913. Among other things this means that house and other asset prices have not really increased overall, rather the dollar has been grossly devalued – it buys only a tiny fraction of what it used to buy in 1913.
However, now the process has become rampant. The 12.8 trillion USD created last year by the Fed almost equals the total annual gross national product (GDP) of the US. This is not rocket science. IF that new “money”, or even large tranches of it, gets into general circulation then the US dollar will be devalued accordingly because a greatly increased number of dollars will be chasing the same quantity of goods and services as existed before that new “money” was created. That is a major reason why China and other countries will no longer buy the US Treasury debt needed to enable the US Corporation to continue to spend some two Trillion USD more than its income each year.
Of course it is possible that the dislocation created by the money meltdown already being experienced may cause an economic collapse that brings on a great depression (and generally reduced domestic prices) without the prior intervention of hyper-inflation. In other words, the economy may skip the domestic hyper-inflation phase that creates enormous price rises for food and the essential items needed for survival, and go straight into the following great depression phase in which the price of almost everything produced locally is reduced. Of course, even in a great depression food and other essential items are going to be very expensive vis-a vis less essential goods and services. BUT in any event, purchases of goods and services from outside the US will become much more expensive because the USD is in the process of being drastically devalued in relation to major foreign currencies and that process will continue.
This then, is what the below listed series of videos on hyper-inflation is all about. I recommend that readers take the time to watch and think about the issues raised in these three short videos.
HYPERINFLATION NATION: A Video Documentary in 3 Parts