Where is the inflation?
Economists are concerned that FED's printing spree is inflating the base money supply and may eventually cause inflation. But if money supply is being inflated, why do we not have inflation right away?
Here is the answer: The money supply did NOT increase drastically. What we use as money is NOT what the FED prints, or types in a computer. FED printed 2 trillion since the beginning of time. And we borrowed 50 to 300 trillion. The household debt alone is like 10 trillion. That is your mortgage. When we borrowed the mortgage, we promised to pay back maybe 30 trillion! Where is 30 trillion??? It does not exist! There is no job that will make it possible to earn money that does not exist! That is our problem. That is how deflation occurs in a fractional reserve banking system! We borrowed the entire money supply, and we promised to pay it back with interest! Here is how banks create money out of nothing when we borrow.
The money is your checkbook. The money is what your bank account shows. Bank does not have the real money. They only gave you a promise to pay you the money. All bank accounts are promises to pay. They are NOT real money. By writing a check to buy a home, you transfer this promise to the seller. Seller deposits it back to the bank. Bank never pays out. Your checkbook works like money and by borrowing we inflate the money supply (which is bank credit - checkbook money) and by writing checks we inflate the prices. That is how inflation occurs. When borrowing stops, deflation starts! Why? Because we pay back with interest! And some debt is certain to default (money to pay it back does not exist).
What the FED prints is not much compared to all the bank credit we have borrowed over many decades. The inflation for all the borrowing has already happened. US dollar hit rock bottom. It has been falling for the last 100 years. USD did not fall because FED printed money. But it falls when we inflate the money supply with more borrowing. That is how inflation occurs.
This is the a reason why the FED more than doubled the base money supply, and inflation is nowhere to be seen! Oh yes, if FED did not do that, deflation would be much worse, but that's what I mean! We already had the effect of FED's money printing. That's it. A blip. While you are waiting for inflation again, deflation is going to hit us. The reason is simple. The money FED prints is not coming into the economy because borrowing and lending is down. If borrowing and lending does not recover, FED can print all the money it wants, give it to the banks, and if the banks cannot push it to the people, if the people do not see a raise in their paychecks, they are not going to be shopping like crazy. Colorado just reduced minimum wage! We are going the opposite direction. Yes we had the effect of stimulus and we had the stock rally, but that is peanuts within the big picture. Debt, that was accumulated for decades is deflating. The money supply is a bubble! It will deflate. The money will dissapear. It will become harder and harder to earn the same income because the money to earn does not exist!
