The Anti-Cash Crash

“There Are Five Times More Claims On Dollars As Dollars In Existence” – Why This Matters

According to the Fed, there is about $60 trillion of US Dollar credit (claims for US dollars) … Also according to the Fed, there are (only) about $12 trillion US dollars … . So, the data show plainly there are five times as many claims for US dollars as US dollars in existence. …

It matters a lot. Not only is there not enough money to repay outstanding debt; the widening gap between credit and (dollars) is making it more difficult to service the debt and more difficult for nominal US GDP to grow … . (In other words fiat money is a game of musical chairs, and we are closer to the end of the music than the beginning.)

Remember, only a dollar can service and repay dollar-denominated debt. … This means that … more credit issuance and debt assumption … adds to the problem. Credit-generated growth is not growth in real (inflation-adjusted) terms because rising GDP, which engenders an increase in money, is also accompanied by a larger increase in claims on that money. Why larger? Because debt comes with interest.

By definition then, debt compounds while real growth does not. In fact, … debt service and repayment (requires) perpetual inflation (in order to augment the real growth so that  borrowers can repay the interest. This need for inflation creeps forward slowly at first, but grows exponentially until ultimately it destroys its host.)

Beginning in the early 1980s the Fed helped the US and global economies grow consistently more or less by reducing interest rates (giving people) incentive to take on more debt. Following the inevitable debt crisis in 2008, the Fed had to reduce the overnight interest rate it targets to zero percent. …

To keep the economy growing from there, the Fed then had to begin creating (dollars), which it did through quantitative easing (QE). It bought assets directly from the money center banks it deals with (primary dealers), and paid for them with the newly created (dollars). At the same time, the Fed paid these banks – and continues to pay them – interest on the (dollars) they created for them (Interest on Excess Reserves). This provides a disincentive for banks to lend to the public, which is how the Fed is trying to control US growth and inflation today.

The long and the short of this discussion is that either the Fed and other central banks overseeing highly leveraged economies must inflate their (currency) stocks (dollars, euro, yen or whatever) and get the new (currency) into the hands of debtors, or inflate their (currency) stocks and get the new (currency) to creditors. The former would make systemic debt service and repayment easier. The latter would keep creditors solvent when debtors inevitably default.

The economic impact of getting new (currency) in the hands of debtors would be significant inflation. The economic impact of creating more bank reserves would be significant economic austerity (a full-blown depression – and transfer of assets put up as collateral from debtors to creditors). Why? Because debtors would be increasingly starved of the ability to service and repay debt (by a shortage of currency). …

If the total value of US denominated assets is, say, $100 trillion, and the US dollar … stock is somewhere around $12 trillion, then the inescapable implication is that the market’s expects either: a) $88 trillion more US dollars will be created in the future to fund the purchase of the gross asset pool at current valuations; b) there has to be a decline in the nominal value of aggregate assets, or; c) both. …

(Current policy, between the lack of solvent borrowers and the Fed’s offering of interest on excess reserves, has door b- open: keeping the banks open while the world dies. The writer seems to expect door a- to open next, in the form of) an inflationary deleveraging in the US and across the world, and ultimately significant widespread inflation. (They promise to explain whatever they mean by that) next week. (It seems they must expect a massive QE to this time put “money” into the hands of debtors so they can pay off their existing debts?)

(Read the whole article here)


About icliks

Biding my time in central ms ... yours too, if ur reading this.
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