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Originally posted by Ardent Listener

The sh!t may have not hit the fan, but the fan is sure blowing its stink.

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Originally posted by Delawhere Jack

I could never find a comprehensible definition of deflation. It boggled my mind, how does money "dissapear"? Until last week, when the DJ dropped 504 "points", and I read that each point represents $1.4bn. Then it became clear, deflation can only really occur in speculative values, not in actual currency in circulation. Ok...

What this means (besides the obvious ramifications) in the inflation/deflation coming down the pike argument is still unclear to me.....

Hey, I'm just a tech support guy, not a congressperson

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Originally posted by swusc

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Originally posted by Delawhere Jack

I could never find a comprehensible definition of deflation. It boggled my mind, how does money "dissapear"? Until last week, when the DJ dropped 504 "points", and I read that each point represents $1.4bn. Then it became clear, deflation can only really occur in speculative values, not in actual currency in circulation. Ok...

What this means (besides the obvious ramifications) in the inflation/deflation coming down the pike argument is still unclear to me.....

Hey, I'm just a tech support guy, not a congressperson

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Well actual currency in circulation disappears too.

-SWUSC

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I'm too mentally exhausted to read or reply now. But I will read this when I get my "second wind". I always appreciate the insights you offer. Thank you, SWUSC.

Is anyone else experiencing economic anxiety burnout?

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Originally posted by swusc

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Originally posted by Delawhere Jack

I could never find a comprehensible definition of deflation. It boggled my mind, how does money "dissapear"? Until last week, when the DJ dropped 504 "points", and I read that each point represents $1.4bn. Then it became clear, deflation can only really occur in speculative values, not in actual currency in circulation. Ok...

What this means (besides the obvious ramifications) in the inflation/deflation coming down the pike argument is still unclear to me.....

Hey, I'm just a tech support guy, not a congressperson

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Well actual currency in circulation disappears too.

If the Federal Reserve bank sells treasuries (they buy treasuries to issue currency), then those notes are gone. They do this when they raise rates. That is what cause the rate to raise...supply of money decreases---simple supply/demand. Supply drops with same demand, then the price (interest rate) increases.

It disappears more easily in the M2/M3 world. Let's assume you have $100K in cash. You want to earn some interest on it, but still want it liquid. You can put it in a bank or money market fund. Do you consider the money in your bank/money market fund as money? Sure you do and so does everyone else that has their money there. Yet the money market fund or bank doesn't keep your cash...they invest/loan it. So now someone else has your actual cash, which they consider money to themselves...yet you still have your money to? How does that work... the money just double out of thin air. Well actually it didn't. Half the money is backed by the debt of borrower from MM fund or bank and the cash half is backed by the U.S. Government. The Cash will be roll over and over, so that most of the money supply is actually debt of people/corporation and not cash. (The U.S. government is a big borrower though some of cash debt is backed by the U.S. government)

Considering the above, when debt is repaid or defaulted on... that money is gone.

Very simple walk through....
You have $100k. (total money outstanding $100k) You Loan to bank ABC.
(Bank has $100K cash and owes you $100K, You have $100k bank deposit for totally money supply of $200K) Bank loans money to GHI corp for 3 months. The Bank can sell that note from GHI corp to a money market fund since it is less than one year. (GHI corp has $100K cash, Bank has $100K cash and owes you $100K, and you have $100K bank deposit the money market fund has $100k receivable and owe the bank $100k. Totally Money supply is now $300K)

This works out to basically be around the inverse of the leverage factor. If a bank can leverage itself to 10 to 1, then they can create $10 for every $1 of cash. You have banks creating money, but other entities have jumped in thanks to years of good returns.

Now when GHI pays back that $100K loan... you have a $100k bank deposit and the bank has $100K cash along with owing you $100K. This just took the money supply down a $100k. When you withdraw your money, then you cause this little economy to go back to you just have $100K. This means another $100k of the money supply just went bye bye.

That is why this is so deflationary. People are defaulting on loans and that means the money supply is dropping. Plus, people are net repaying loans as they make their monthly car/house payments, and not replacing that debt with some other loans. Remember that the world is deflationary by nature, so just no growth in the money supply is deflationary. If money supply is dropping, then it is very deflationary.

This is very simple examples because people view their financial picture in net worth and cash....not just cash. Think about it this way.. Stocks are so liquid that people view it as possible spending and there homes were liquid too in the fact they could cash out equity with ease. Well stocks are dropping and equity cash outs are about impossible to get along with actually money supply dropping... you got major problems for the economy. It is a cycle...deflation cause assets to drop in value and more defaults which cause more deflation. If consumer demand drops as well, which more than likely it will... that means job loss. Job loss means more drop in consumer demand. Another cycle. So picture unemployment getting to 20-30% and most people having nothing as their car/house was taking back by the bank. With no credit out there and no jobs, then you have a huge % of people being screwed. Without credit a lot of commerce isn't going to get done. Don't believe me. Go ask a Realtor what % of homes are paid for with Cash. Go ask a car salesmen what % of new or used cars are paid for with cash. Watch the amount of transaction at wal-mart... how many people pay with cash/atm card?

Go look at companies' financial reports. Look at all that debt on their books. They used that money to create jobs, build assets, and fund operations. That is right a lot of operations need short term financing to make payroll. You build something in a factory and they sell it to Walmart. Walmart likely has 30 day terms (walmart is known to demand long terms and with their size they usually can shove it down the vendors throat, but will disregard that for now), so they don't pay for 30 days. In that 30 days, you have to pay your employees, your power bill, your vendors, and other expenses. You are good for it, but you don't have actual cash. A company like that will get screwed over, and that is a lot of companies.

I say this could be very very bad. It might not get to that and hopefully it wont. Yet credit is about gone. You can see that with the short term 3 month tbill hitting basically zero % interest last thrusday. People are so afraid to lend to anyone they will lend the cash to the government for free...just to make sure they get it back.

-SWUSC

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Originally posted by Cody8404

When you are talking about money increasing and decreasing the write downs you see are devaluations in an odd way.

I sell you a house for $100K on credit. You now owe me $100K. The house next door identical in every way sells for $500K. This means I can now say I have only $100K being owed to me on a property worth $500K. So I have now made $400K. The banks could now sell the loan worth $400K over the amount owed as an asset.

The write down comes when the house on the other side sell for $50K. That $500K has now decreased by $450K, I am still owed $100K, but I have lost $350K. And the value of the house is now considered half what I am owed.

This is another part that has made the money supply expand beyond what we expect.

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Originally posted by Cody8404

Not that long ago I had high hopes to get my children through college, married and independent. For myself I wanted to good retirement. America has been in a prosperous cycle for over 70 years. Very few people remember the last depression. We have had a few down ticks, but you have not heard of people starving to death or freezing to death because they had no home.

Last Sunday in church we were urged to get some blankets and food that did not require cooking because there was a feeling the power and heat would run out this winter.

The discussion has changed from how do we keep our kids safe in college to how do we feed our kids this winter.

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Originally posted by Nickelless

Praying here as well. I'm not just praying for the economy, even though people's survival depends on it--I'm praying for people to trust God to carry them through circumstances no matter how bad things look to human eyes. I'm also praying that WTS REALLY HTF--and we could be heading that way sooner rather than later--I'm praying that people won't just look out for themselves but will ask "What would Jesus do?" and then act accordingly.

It's like my approach with hoarding. I'm stocking up on everything from food and PM to ammo and blankets not just so I can have my own stash when everyone else is SOL, but so I can be in a position to help others WTSHTF, an oasis of sorts. I'm praying that more and more people will be looking to God for answers and provision more and more as things get worse, but I'm also wanting to spread this idea that God doesn't let us have stuff just so we can be selfish with it. When the going really gets tough, all the food, ammo and PM in the world will just leave you miserable and isolated if you aren't connected with others who can help you and who you can help, and just be there for each other through thick and thin. What would Jesus do? He'd be right there where the people are no matter how crazy things will get. And that's where I plan to be as well.


EDIT: There's a song titled "America" by '80s Christian metal band Bloodgood that hits the nail on the head, IMO.

The lyrics are at this link:
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You can listen to the song online at this link:
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