Deflation...In Pictures
publication date: Dec 18, 2009
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author/source: Brad Hamill
Before I begin, please let me clarify a point that I had made in a previous
Economic Update.
I made the following statement: “This is where there are fantastic opportunities for those with cash. If the government is going to give a tax rebate on new windows and insulation then pay cash and enjoy the reduced costs. Just don’t go into debt to buy those things – it will just put you right where our government wants you.”
My purpose in writing the statement was not to suggest that everybody should go out and get new windows and insulation. It was to make the point that those with cash will be in a much better position to make buying decisions than those who are relying on debt. Please understand, the Federal government does not want people paying cash for their tax credit programs – they want people taking out new debt in order to get the credits. The government’s goal is to create as much new debt as possible in order to stem the credit collapse that is happening all around.
Some of you might be saying: “What credit collapse? All I see is the printing of more money that will bring eventual hyper-inflation!”
Let me show you some pictures…I’ve used these types of picture before, but I should still give credit to this article for presenting things in a nice, detailed fashion: The State of the Union – in charts…
First off, let’s look at Federal government tax receipts on a year over year basis:
We see that Federal government tax receipts are down by around $300 billion from last year. That’s revenue that the government needs to make up through auctioning US Treasury securities and stealing money from “trust” funds.
Let’s look at the M2 money supply, and the change from last year:
We see that the M2 money supply (debt based money) has grown by about $430 billion from last year. That’s off from a year over year growth of $750 billion at one point. In other words, it’s slowing down. People might look at this and feel great that money (debt) isn’t being created as fast anymore – but they’d be wrong. This chart is a bad sign – and the Federal government knows it. It shows that the Federal government is losing the battle when it comes to creating enough new debt to balance out the credit destruction that the international banks are causing. Instead of being a good sign, it shows that the Federal government needs to come up with some new plan to create a lot of new debt.
Think about something for a second. The Federal government cannot create new money by themselves. The Fed (controlled by the international bankers) is the only one with the authority to create new “base” money. Just because the government auctions a lot more Treasury securities does not mean that the money supply gets increased. Primary Dealers (international bankers) can just use existing money to buy the securities. The Federal government only has two ways of “encouraging” new money to be created. They do this by enticing others to go into more debt. Anytime that a bank creates a new loan means new money is being created. That’s why we see all of these government tax credits being rolled out. It’s also why those people using cash to take advantage of the tax credits are going completely against the government’s playbook – since no new money gets created. The second way the government can directly cause new money to be created is by stealing from its “trust” funds and replacing the stolen money with an IOU. That IOU is a promissory note that is new money (debt).
Here’s a picture of the total bank credit from all commercial banks:
Remember how I talk about “credit destruction”? This shows that commercial banks have about $600 billion less credit outstanding than one year ago. Put differently, this shows that there is now $600 billion less dollars floating around in our economy. Less money chasing approximately the same amount of goods/services = deflation. This is why our Federal government is so intent on creating new debt to combat this scenario.
Companies often take out short-term loans called “Commercial Paper” in order to finance their day-to-day expenses. Many companies teeter on bankruptcy if they can’t get this funding. Here is a graph showing commercial paper:
We see that there is now about $90 billion less in commercial paper credit since one year ago. This also means $90 billion less cash in our economy. This drives deflation.
How are the consumers faring with the availability of credit card debt? Here’s the chart:
Consumer credit has dropped by $120 billion from last year…..deflation.
How about all of the Loans and Leases out there?
We see a drop of $600 billion from one year ago.
How about retail money market funds?
Here’s a drop of approximately $250 billion from one year ago.
How about institutional money funds?
Here we see an increase of around $110 billion, but a huge drop from a one-time reading of $750 billion.
Now let’s look at how much the Federal government has saved:
We see that they’re (we’re) in debt this year to the tune of $1.4 trillion dollars. And guess what? It’s not enough if the Federal government plans on keeping its Socialistic power structure. They are losing the battle against credit destruction – which will drive our country into a deflationary depression. We’re already there if you remove the huge amount of new debt that the government created to fight against it.
Please realize that the Federal government and international bankers are at opposite ends of the economic spectrum. The Federal government achieves power through inflation. The international bankers achieve power through deflation – and they control all economic policy in our nation. The Federal government is caught in a very tough predicament – either reduce government size or come up with a scheme to create a whole lot more debt fast. They have chosen the second option, which is the entire purpose of the health care bill. With passage of health care legislation they will be able to steal money from the “trust” fund that it will create and replace the money with an IOU – more debt, and just what they want.
Look for the US dollar to increase substantially against foreign currencies as all of this plays out. This will cause the cost of our exports to increase in price, which will tend to decrease our nation’s GDP. One component of the GDP formula is (Exports – Imports). Reduced exports mean that the government will need to initiate new import tariffs and restrictions in order to keep the GDP from falling into really bad numbers. This, in turn, will cause the economies of Asia to fall upon very hard times since they are simply factory nations for the United States and Western Europe.
Keep your eyes on Europe. Water is seeping through the economic cracks over there. I have long held that they will be among the first to fall.
________________________________________________________
Watch for these indexes to drop:
Chinese Shanghai Composite Index: 3,113.89 (change of 4.68% from July 20, 2009 base value of 3,266.92)
Shenzhen Stock Exchange Component Stock Index (SSE): 12,914.97 (change of 3.48% from July 20, 2009 base value of 13,381.22)
________________________________________________________
Here are today’s numbers for the economic indicator:
1) Gold = $1,112.40
2) Dollar Index = 77.77
3) Oil = $73.05
4) S&P 500 Index = 1,102.47
5) 3-month Treasury Bill yield = 0.04
6) 3-month OIS = 0.16
HEI = 29.24
__________________________________________________________
Here are the numbers for the day:
Dollar Index adjusted indexes:
Dow = (10,328.89) x (0.7777) = 8,032.78
S&P 500 = (1,102.47) x (0. 7777) = 857.39
Nasdaq = (2,211.69) x (0. 7777) = 1,720.03
3-month Treasury: 0.04
2-year Treasury: 0.79
10-year Treasury: 3.54
30-year Treasury: 4.46
2-yr vs. 10-yr Spread (Target > 273): 275 basis points – (Danger Zone)
2-yr vs. 30-yr Spread (Target > 369): 367 basis points
3-month LIBOR: 0.25
3-month EURIBOR: 0.71
3-month OIS: 0.16
TED Spread: 21 basis points
LIBOR/OIS Spread: 9 basis points
Dollar Index: 77.77
Volatility Index: 21.68
JPY-EUR Exchange Rate (Target < 115): 129.7526
JPY-GBP Exchange Rate (Target < 145): 146.249
JPY-USD Exchange Rate (Target < 90): 90.495
USD-EUR Exchange Rate (Target < 1.25): 1.4338
USD-CNY Exchange Rate (Target > 7.0): 6.8280
Warmly,
Brad
Comments or questions? brhamill@hamill.com
I made the following statement: “This is where there are fantastic opportunities for those with cash. If the government is going to give a tax rebate on new windows and insulation then pay cash and enjoy the reduced costs. Just don’t go into debt to buy those things – it will just put you right where our government wants you.”
My purpose in writing the statement was not to suggest that everybody should go out and get new windows and insulation. It was to make the point that those with cash will be in a much better position to make buying decisions than those who are relying on debt. Please understand, the Federal government does not want people paying cash for their tax credit programs – they want people taking out new debt in order to get the credits. The government’s goal is to create as much new debt as possible in order to stem the credit collapse that is happening all around.
Some of you might be saying: “What credit collapse? All I see is the printing of more money that will bring eventual hyper-inflation!”
Let me show you some pictures…I’ve used these types of picture before, but I should still give credit to this article for presenting things in a nice, detailed fashion: The State of the Union – in charts…
First off, let’s look at Federal government tax receipts on a year over year basis:
We see that Federal government tax receipts are down by around $300 billion from last year. That’s revenue that the government needs to make up through auctioning US Treasury securities and stealing money from “trust” funds.
Let’s look at the M2 money supply, and the change from last year:
We see that the M2 money supply (debt based money) has grown by about $430 billion from last year. That’s off from a year over year growth of $750 billion at one point. In other words, it’s slowing down. People might look at this and feel great that money (debt) isn’t being created as fast anymore – but they’d be wrong. This chart is a bad sign – and the Federal government knows it. It shows that the Federal government is losing the battle when it comes to creating enough new debt to balance out the credit destruction that the international banks are causing. Instead of being a good sign, it shows that the Federal government needs to come up with some new plan to create a lot of new debt.
Think about something for a second. The Federal government cannot create new money by themselves. The Fed (controlled by the international bankers) is the only one with the authority to create new “base” money. Just because the government auctions a lot more Treasury securities does not mean that the money supply gets increased. Primary Dealers (international bankers) can just use existing money to buy the securities. The Federal government only has two ways of “encouraging” new money to be created. They do this by enticing others to go into more debt. Anytime that a bank creates a new loan means new money is being created. That’s why we see all of these government tax credits being rolled out. It’s also why those people using cash to take advantage of the tax credits are going completely against the government’s playbook – since no new money gets created. The second way the government can directly cause new money to be created is by stealing from its “trust” funds and replacing the stolen money with an IOU. That IOU is a promissory note that is new money (debt).
Here’s a picture of the total bank credit from all commercial banks:
Remember how I talk about “credit destruction”? This shows that commercial banks have about $600 billion less credit outstanding than one year ago. Put differently, this shows that there is now $600 billion less dollars floating around in our economy. Less money chasing approximately the same amount of goods/services = deflation. This is why our Federal government is so intent on creating new debt to combat this scenario.
Companies often take out short-term loans called “Commercial Paper” in order to finance their day-to-day expenses. Many companies teeter on bankruptcy if they can’t get this funding. Here is a graph showing commercial paper:
We see that there is now about $90 billion less in commercial paper credit since one year ago. This also means $90 billion less cash in our economy. This drives deflation.
How are the consumers faring with the availability of credit card debt? Here’s the chart:
Consumer credit has dropped by $120 billion from last year…..deflation.
How about all of the Loans and Leases out there?
We see a drop of $600 billion from one year ago.
How about retail money market funds?
Here’s a drop of approximately $250 billion from one year ago.
How about institutional money funds?
Here we see an increase of around $110 billion, but a huge drop from a one-time reading of $750 billion.
Now let’s look at how much the Federal government has saved:
We see that they’re (we’re) in debt this year to the tune of $1.4 trillion dollars. And guess what? It’s not enough if the Federal government plans on keeping its Socialistic power structure. They are losing the battle against credit destruction – which will drive our country into a deflationary depression. We’re already there if you remove the huge amount of new debt that the government created to fight against it.
Please realize that the Federal government and international bankers are at opposite ends of the economic spectrum. The Federal government achieves power through inflation. The international bankers achieve power through deflation – and they control all economic policy in our nation. The Federal government is caught in a very tough predicament – either reduce government size or come up with a scheme to create a whole lot more debt fast. They have chosen the second option, which is the entire purpose of the health care bill. With passage of health care legislation they will be able to steal money from the “trust” fund that it will create and replace the money with an IOU – more debt, and just what they want.
Look for the US dollar to increase substantially against foreign currencies as all of this plays out. This will cause the cost of our exports to increase in price, which will tend to decrease our nation’s GDP. One component of the GDP formula is (Exports – Imports). Reduced exports mean that the government will need to initiate new import tariffs and restrictions in order to keep the GDP from falling into really bad numbers. This, in turn, will cause the economies of Asia to fall upon very hard times since they are simply factory nations for the United States and Western Europe.
Keep your eyes on Europe. Water is seeping through the economic cracks over there. I have long held that they will be among the first to fall.
________________________________________________________
Watch for these indexes to drop:
Chinese Shanghai Composite Index: 3,113.89 (change of 4.68% from July 20, 2009 base value of 3,266.92)
Shenzhen Stock Exchange Component Stock Index (SSE): 12,914.97 (change of 3.48% from July 20, 2009 base value of 13,381.22)
________________________________________________________
Here are today’s numbers for the economic indicator:
1) Gold = $1,112.40
2) Dollar Index = 77.77
3) Oil = $73.05
4) S&P 500 Index = 1,102.47
5) 3-month Treasury Bill yield = 0.04
6) 3-month OIS = 0.16
HEI = 29.24
__________________________________________________________
Here are the numbers for the day:
Dollar Index adjusted indexes:
Dow = (10,328.89) x (0.7777) = 8,032.78
S&P 500 = (1,102.47) x (0. 7777) = 857.39
Nasdaq = (2,211.69) x (0. 7777) = 1,720.03
3-month Treasury: 0.04
2-year Treasury: 0.79
10-year Treasury: 3.54
30-year Treasury: 4.46
2-yr vs. 10-yr Spread (Target > 273): 275 basis points – (Danger Zone)
2-yr vs. 30-yr Spread (Target > 369): 367 basis points
3-month LIBOR: 0.25
3-month EURIBOR: 0.71
3-month OIS: 0.16
TED Spread: 21 basis points
LIBOR/OIS Spread: 9 basis points
Dollar Index: 77.77
Volatility Index: 21.68
JPY-EUR Exchange Rate (Target < 115): 129.7526
JPY-GBP Exchange Rate (Target < 145): 146.249
JPY-USD Exchange Rate (Target < 90): 90.495
USD-EUR Exchange Rate (Target < 1.25): 1.4338
USD-CNY Exchange Rate (Target > 7.0): 6.8280
Warmly,
Brad
Comments or questions? brhamill@hamill.com
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