Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020

In basic terms, inflation is the loss of purchasing power due to an increase of the monetary supply faster than economic growth. In plain English, this is where more currency is chasing the same number of goods and services.

This means your unit of currency buys less over time. What is 'wrong' with this is that inflation is a transfer of wealth—some people even go so far as calling it theft or a 'stealth tax.'

This is because the purchasing power that you had in your unit of currency isn't 'lost', it is actually transferred to the institutions creating the money. If you had $1 worth of pennies in your pocket, and inflation was 1%, it is like an invisible hand reaching into your pocket and stealing a penny. Do that a hundred times and you can 'create' $1, but by the time this is done, you will find that your $1 can only by 99 cents worth of goods and services now. In a fiat based, fractional reserve system that we have today in the West, the institutions that are reaching into your pocket (AKA creating money) are central banks and commercial banks.

For example, say the Fed (the central bank for the US) creates an initial $10m of reserve currency, this is then used by commercial banks to 'create' an additional $90m through loans from that $10m reserve. It is therefore commercial banks, not central banks, that predominantly create currency in society—and depending on growth and circulation (economists call this velocity) in the real economy, creates inflation. You see if the creation and circulation of money was perfectly in line with the growth of the economy than there would be no inflation. The real problem is that the growth in monetary supply has far outstripped the growth of Western economies. Indeed there is a compounding effect of inflation.

But yeah, I can understand that this material may seem unbelievable... I have included a URL to a YouTube video where a Bank of England (the central bank of the UK) representative actually says in no uncertain terms that commercial banks create most of the money in the economy.

The important passages are:

"...banks create additional broad money whenever they make a loan"

"Now, while this is nothing new, it's sometimes overlooked as the main way in which money is created and it runs contrary to the view sometimes put forward that banks can only lend out deposits that they already have."

"In fact, loans create deposits, not the other way around."

Source: https://www.youtube.com/watch?v=CvRAqR2pAgw

I've tried my best to quickly find Fed resources but these facts seem to be obfuscated or not officially made available.

For further information see the following:

Werner, R.A. (2014). Can banks individually create money out of nothing: https://www.sciencedirect.com/science/article/pii/S105752191...

McLeary, M., Radia, A., & Thomas, R. (2014). Money creation in the modern economy: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

I'll keep this thread bookmarked for when 2020 ends and nothing happens.

Bernanke is the fed chairman so he obviously knows something that most of us don't. But from some analysis, it seems that US will be in good shape for the next 10-20 years. US is currently in capable hands economically since it is lead by a businessman and surrounded by financial experts from wall street. (I don't approve of Trump's character).

Some factors for US's continued growth: healthy demographics - due to immigration, low corporate tax rate, interest rate rising and dollar strength - attracting capital inflow, biggest economy in the world, biggest consumer market in the world, one of the most innovative for its size, balanced economy (used to be dominated by manufacturing, but now it is pretty spread out and consistent), good environment for rich to immigrate to, growing reshoring of manufacturing, leader in technologies, etc.

Instead of comparing US to the yesteryears, let's compare US to other countries in the world today and see why money is going to keep flowing into US for a long time.

Japan: seems to be on an upswing, the recent news of bring in 500,000 immigrants will help with the economy. Unfortunately, it still suffers from demographic decline, innovation staleness, 1.0% anemic gdp growth, competition from cheaper Asian countries for manufacturing, etc. Its paternalistic culture doesn't help to introduce women into the workforce and boost/diversify its economy. Still, a good place to live for many, and high standards of living. but not for investments.

Xi Jing Ping: he is the dictator, therefore he is the country and the economy. Sadly, history has proven that a society cannot escape middle-income trap until it has transformed to a culture that promotes openness and innovation, something that a dictatorship has never shown to do. Therefore the country is dedicated to stealing IP from other countries and companies for a long time. If one looks at other dictatorships in the current era, they always exhibit faster economic growth than their democracy counterparts. However, once the easy growth is used up, the dictatorships are stuck in a decline. As evidenced by the country's 350%+ GDP to debt, 3 trillion of its 6 trillion wealth has fled to overseas, and 50% of rich wanting to leave. Also, evidenced by strict capital control, draconian rule of law, censorship, housing bubble bursting, fake GDP numbers claimed by many of its provinces, etc. The current government will try to hold on for another 10-15 years, stunting the economy. Xi Jing Ping will die, then the grab for power will throw the economy into chaos.

EU: several of its nation members are suffering EU withdraw symptoms. Greece would like to leave but its economy is too small to matter. Italy however, is another story. With the 3rd biggest economy in EU, and the recent elected populist leaders, Italy will try to pile on the debt to address its anemic economy and migrants issue. EU unfortunately won't be able to do much; threaten Italy with debt reduction (currently 120% of gdp), and Italy will leave EU. Do nothing, and Italy will bring down EU's fiscal health until EU disbands. EU doesn't seem to be viable in 5 years.

Emerging Market: current capital outflow indicates there are trouble brewing due to expatriation of dollar back into US. From Turkey to Argentina to Indonesia, the emerging markets are going to struggle paying back their dollar-denominated debts with the rising interest rates and stronger dollars. Flashback to 1998 Asian crisis.

Disclosure: I have no stocks in play.

> taking credit for what Obama did while at the same claiming they were bad.

Schrodinger's Obama Policies?

> when this bubble (if it exists) bursts.

This time is not different