{"id":171,"date":"2012-08-10T20:08:49","date_gmt":"2012-08-10T20:08:49","guid":{"rendered":"http:\/\/www.apisbull.com\/blog\/?p=171"},"modified":"2012-08-10T20:08:49","modified_gmt":"2012-08-10T20:08:49","slug":"wall-street-begs-the-feds-to-release-hyperinflation","status":"publish","type":"post","link":"http:\/\/www.apisbull.com\/blog\/?p=171","title":{"rendered":"Wall Street Begs the Feds to Release Hyperinflation"},"content":{"rendered":"
With all the money-printing that\u2019s occurred since the start of the 2008 crisis, it seems like hyperinflation should be storming the gates any moment!<\/span><\/div>\n

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But while some inflation has hit us, prices have yet to soar. What\u2019s the deal?<\/span><\/div>\n

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We are ready to defend against inflation \u2018storming the gates\u2019 of the castle. We are also pretty well hedged against deflationary attacks.\u00a0<\/span>But we\u2019re not surprised we haven\u2019t had to fend off any monetary enemies yet.\u00a0<\/span>Instead, we continue to happily stock up on investments hedged to do well under either scenario. \u00a0<\/span><\/div>\n

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But our ears perked up when we saw a Wall Street Journal Op-Ed penned by Alan Blinder. \u00a0In just a few paragraphs he basically called for the Federal Reserve to put the final inflationary nail in the coffin.<\/span><\/div>\n

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And if Ben Bernanke took his advice, we\u2019d be in big trouble.\u00a0<\/span>Of course, Alan Blinder doesn\u2019t think he\u2019s calling for hyperinflation. \u00a0But we think he\u2019s playing with dangerous materials in a chemistry set he doesn\u2019t fully understand.<\/span><\/div>\n

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Here\u2019s why we think Alan Blinder is about to blow us all up. First…<\/span><\/div>\n

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Forget Their Definition of Inflation<\/strong><\/div>\n<\/div>\n<\/div>\n<\/div>\n

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Mainstream economists define inflation as the rate at which prices of goods and services rise.\u00a0<\/span>But we favor the definition used by the Austrian school of economics. They define inflation as an increase in the money supply.\u00a0<\/span>The reasoning is a simple case of supply and demand.\u00a0<\/span><\/div>\n

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When there\u2019s less supply of something in high demand, the price goes up.\u00a0But as you add to the supply, there’s more to go around and the price falls.\u00a0<\/span>So when the Federal Reserve increases the money supply, the dollar falls in value. Just like the law of supply and demand tells us it should.<\/span><\/div>\n

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Yet for some reason…<\/span><\/div>\n

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Tripled the Money Supply Lightning Fast<\/strong><\/div>\n<\/div>\n

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In September of 2008, on the verge of economic crisis, there was $844 billion dollars of actual currency in existence.\u00a0<\/span>In response to the crisis, the Federal Reserve rapidly DOUBLED the amount of currency in circulation. In just 3 months it reached $1.69 TRILLION.<\/span><\/div>\n

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By May 2011, the money supply reached $2.56 – tripling 2008\u2019s numbers. <\/span>And we\u2019re currently sitting with $2.65 trillion.<\/span><\/div>\n

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That\u2019s more than 3 times the amount of currency in 2008.<\/span><\/strong><\/div>\n

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But if our definition is accurate, and the money supply has increased three-fold since 2008… why haven\u2019t prices gone up three-fold?<\/span><\/div>\n

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There\u2019s Money Sitting on the Sidelines<\/strong><\/div>\n<\/div>\n

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First of all, an increase in the money supply doesn\u2019t always raise prices evenly across the board. \u00a0Because money tends to enter the economy unevenly, it affects prices unevenly.\u00a0<\/span>Big banks, Wall Street investors and their friends are usually the first ones to access the excess money.\u00a0<\/span>And so usually it\u2019s an investment asset class that rises in price first. Afterwards, the money continues to circulate around the economy and prices go up across the board.\u00a0<\/span><\/div>\n

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However, that\u2019s not the real reason prices haven\u2019t doubled or tripled yet.<\/span><\/div>\n

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The real reason is, the banks haven\u2019t let the money flow into the economy.\u00a0<\/span>Of the $2.65 trillion currently in existence, $1.5 trillion exists as excess reserves banks are not lending out.\u00a0<\/span>The Federal Reserve actually pays the banks interest of .25% – or 25 basis points – to keep their money on reserve.\u00a0<\/span>This has kept the money from entering the economy and causing inflation. \u00a0But…<\/span><\/div>\n

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Now There Are Calls to Release\u00a0That Money into the Economy<\/strong><\/div>\n<\/div>\n<\/div>\n

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Mainstream economists, with their foolhearty view on inflation, are calling on the Federal Reserve to force banks to \u201cstart lending again\u201d and release these reserves into the economy.\u00a0<\/span>Here\u2019s exactly what Alan Blinder said in a recent WSJ piece:<\/span><\/div>\n

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\u201cLower the interest rate paid on excess reserves. The basic idea is simple. If the Fed reduces the reward for holding excess reserves, banks will hold less of them\u2014which means they will have to find something else to do with the money, such as lending it out or putting it in the capital markets.<\/span><\/div>\n
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\u201cMy suggestion is to push it lower in two stages. First, test the waters by cutting the interest on excess reserves to zero. Then, if nothing goes wrong, drop it to, say, minus-25 basis points\u2014that is, charge banks a fee for holding their money at the Fed. Doing so would provide a powerful incentive for banks to disgorge some of their idle reserves.\u201d<\/span><\/div>\n

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Alan Blinder is begging the Federal Reserve to essentially force banks to start lending… unleashing $1.5 TRILLION dollars into the economy. \u00a0That\u2019s double the entire money supply in existence less than 4 years ago!<\/span><\/div>\n

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Hold Onto Your Hat<\/strong><\/div>\n<\/div>\n

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Once that money hits the markets, inflation will flood into the economy.\u00a0<\/span>The money inside your checking account will appear smaller and smaller.\u00a0<\/span>And the worst part is this isn\u2019t some radical plan or conspiracy theory. \u00a0This is exactly what countries like Denmark are already doing.<\/span><\/div>\n

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The European Central Bank – the equivalent of our Federal Reserve – just dropped their interest payments on reserves to zero. \u00a0That\u2019s the first step in Alan Blinder\u2019s plan, and charging banks on their reserves seems the obvious next step.<\/span><\/div>\n

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If the US Federal Reserve decides to follow their lead, then you need to duck, cover.<\/span><\/div>\n

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And Get Prepared For Inflation ASAP<\/strong><\/div>\n
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To discover how we\u2019re using \u201cBlack Box\u201d investment strategies of the ultra-rich to survive and thrive during inflation or deflation, read the 2 books down below.<\/span><\/div>\n<\/div>\n