Discussion in 'Economy' started by Toro, Dec 11, 2008.
We are having a rather significant down day in the Dollar today.
That is because we have had bankers that are spending too much time, "guesstimating" what they are loaning on, "guessing" at what their books reflect and loaning money backed and guaranteed by public funds on, "Blue sky".
When you print 7 trillion dollars out of nowhere and put it into the economy, it's bound to have some problems. In 5 years from now, we'll be reminissing about the time we were able to go to the movies for $11.50, while we need $20 to cover one ticket.
First, $7 trillion has not been printed by the Fed. Not even close. Bank reserves have only increased by approximately $650 billion since the Fed ceased sterilizing their injections back in early September. Another update is due out this afternoon.
Second, the Fed "printing money" or better phrased as increasing bank reserves, is not putting money out into the economy. It is increasing bank reserves, which increases the monetary base. For the money supply aggregates to be affected, the banks will need to lend off of the increased reserve base and/or invest these new reserves (such as purchasing longer maturity treasury bills/bonds). Increasing the monetary base does not always lead to inflation of the money supply. Although I think that it will in our case, it may just take some time.
But it is interesting that the slight backwardation we are experiencing in Gold (over the past week or so) has been in sync with the fall in the US Dollar Index and the rise in the price of Gold.
All commodities have been doing well. I think it, amongst other things, portends good things for risky assets over the next few months.
Shouldn't commodities be expected to boom over the next year with the planned infrastructure projects?
Maybe "boom" isn't the right word, but certainly benefit.
Separate names with a comma.