Douglas E. French, former president of the Mises Institute and current senior editor at Laissez-faire Books, asks: "So Where's the Hyperinflation Already?"
As the title of his August 12 article implies, he sets out to show that hyperinflation is absent in the U.S. economy, despite persistent fears to the contrary.
French points out that the velocity of money in the U.S. has slowed dramatically in recent years despite the Federal Reserves massive stimulus efforts. He draws on the work of Robert Prechter to make the point that people should worry about deflation instead of hyperinflation.
French writes, "Ben Bernanke can lead bankers to liquidity, but he can't make them lend. Bankers haven't taken the plunge because other regulators are engaging in what Robert Prechter, renown financial author and stock market analyst, calls 'The Hidden War on Credit.'"
Here's an excerpt from the article:
So all this Fed money creation hasn't spurred lending that would increase the money supply. Prechter explains why this happened citing four myths of central banking.
The first myth is "The Fed will drop money from helicopters." The central bank has not bought every asset in sight with money created from nowhere. "What the Fed has always done, and is still doing, is buying U.S. Treasury bonds, which are among the safest assets in the world," writes Prechter. The mortgages purchased by Bernanke and Company are government backed and of recent vintage and so are better quality than mortgages originated at the top of the boom.
Secondly, Prechter states, "Central banks will just print money." If Cyprus is any indication, bank depositors will take a haircut in a crisis instead of the central bank printing over it.
Third, "Central banks stand ready to be lenders of last resort." Not necessarily. Prechter cites an article from The Telegraph. "Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe's single currency by propping up failed banks, a senior Eurozone official has announced."
And finally, the fourth myth, "Inflation is determined by the expansion of base money." Prechter argues that inflation is an expansion of money and credit. Meanwhile, Sweden, Norway and France are demanding that people use credit cards instead of cash. Authorities desperately want cash to stay in banks to prop up the debt (asset) side of their balance sheets. "That doesn't happen in hyperinflationary times; it happens when bankers are worried about deflation," Prechter writes. When consumers pull cash out banks it is deflationary. When deposits leave, loans must be liquidated.
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