Inflation is impossible - Buy US Treasuries Chides Jas

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Subject:	FWC -- RE: U.S. Dollar - Inflation is impossible.
Date:	Tue, 23 Mar 2010 06:24:32 -0700
From:	Jas Jain

Subject: U.S. Dollar - Inflation is impossible.
Date: Tue, 23 Mar 2010 04:04:36 +0000

The Contrarian Trade of the Decade: the U.S. Dollar:

http://www.oftwominds.com/blogmar10/contrarian-dollar03-10.html

 

"The critical distinction between printing press and credit is rarely discussed: is money literally being printed or is it credit-based? The distinction has profound consequences. If a government prints stacks of currency and then distributes the freshly conjured money via helicopter drops (in the visually compelling imagery of Fed Chairman Ben Bernanke's famous "helicopter drop" quip), then the money supply has been expanded and distributed into the economy where it then leads to inflation if the production of goods and services lags money growth.

 

"But if a government--for instance, the U.S. Treasury--prints bonds and sells those bonds to raise cash to distribute in the economy, that is not "printing money." The Treasury bonds are traded for cash presented by purchasers; the money already exists and is simply being transferred to the State for distribution into the economy.
 

"If money is being created via the magic of fractional reserves (that is, via bank credit), then it does not flow into the economy if those banks do not lend it and if consumers do not borrow it. As Mish has repeatedly observed, banks cannot be forced into lending nor consumers into borrowing."

 

Even a better "Contrarian Trade of the Decade" has to be long-term US Treasuries. There are so many charlatans publicly telling others to bet the other way.

Jas

-x-x-x-x-x-x-x-x-x-x-x-x-x-

http://www.oftwominds.com/blogmar10/contrarian-dollar03-10.html

 

The Contrarian Trade of the Decade: the U.S. Dollar   (March 22, 2010)

Just as a speculative thought experiment: perhaps the great contrarian trade of this decade is cash/the U.S. dollar.

The majority of economic observers seem convinced that the dollar is doomed, and not in some distant future. The basic reason for this unanimity is the reasonableness of the basic thinking, which goes like this:

The Federal Reserve and the U.S. Treasury are "printing money" and flooding the economy with easy money and credit, and the result of this debasement of the nation's currency will be rampant inflation.
In other words, if a nation greatly expands its money supply without expanding its production of goods and services, then all that surplus money ends up chasing scarce goods and services, and you get inflation: the same sum of currency buys less and less goods and services.
This is the goal of State policy, according to the standard line of thinking: The only way the Federal Reserve and the Treasury can "save" the debt-burdened U.S. economy is by creating high inflation, which enables debtors to repay debt with "cheaper" dollars. Everyone who owns debt or low-yield bonds will lose huge chunks of their assets, but for no-asset debtors, inflation will be the cat's meow.
But perhaps this thinking is wrong on virtually every important count.

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