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Showing posts from October, 2010

Where Is The Hyperinflationary Tipping Point?

With all the money printing going on at the Fed, why is the Fed having trouble creating inflation in the economy?

One of the reasons is that asset values are rapidly declining. This leads to a collapse in available sources of consumer credit. For instance, now that home values have fallen, home equity lines are not available. Existing lines are gradually being paid down or defaulted on.

Fed liquidity programs such as TARP, which swaps cash for mortgage backed securities, is going into equities and not into new loans. It also seems to be about the only liquidity entering the system. The rest of the liquidity sits on the bank balance sheets, unable to find a home in an asset bubble. Bank lending needs an asset bubble to get into the economy because Banks are too conservative to lend like venture capitalists. They only really want to lend against assets, which are all falling in price due to the aftermath of the once great asset bubble. Since banks only want to lend against asset…