We are in a period of deflation

Deflation is defined as a contraction of money supply. So when Fed Chairman Ben Bernake basically increased the money supply through quantitative easing last year, many thought that we would go through some more inflation. Yet the opposite is happening. How could that be. See most of the money supply in the world is in the form of IOU's. When a bank produces a loan, currency is created. Why? Because of fractional reserve banking. When a bank gives out a loan, the bank does not actually have most of the currency in the bank to back up that loan. No, the currency is created out of thin air because of the banking laws in the United States says that the banks do not actually have to have 100% of the money in the bank in order to loan it.

But because of the real estate market tumble and poor US economy, banks are not giving out as many loans and they are defaulting on more loans. The combination of these two factors has led to a contraction of the money supply. People are simply taking out less loans or paying off the loans they have. No matter what the Fed does, the money supply is going to contract because people have no desire to take out more loans.

The Fed hates deflation, because in a deflationary environment prices and income go down yet debt stays the same. This is disastourous, because how can they pay down their debt with less income coming in.

I worry that with this deflation, the Fed will overreact by printing out a vast amount of currency. When governments print out too much currency to meet their debt obligations, history shows that the government could go into high inflation or even a currency destroying hyper-inflation.

Comments

[jaffer]

Really nice information.keep blogging. commodity Tips

[george sekuloski]

Thanks for your marvelous posting! I definitely enjoyed reading it, you're a great author. I will be sure to bookmark your blog and will eventually come back down the road. I want to encourage one to continue your great writing, have a nice evening!

[ari tietolman]

Excellent! I admire all the helpful data you've shared in your articles. I'm looking forward for more helpful articles from you. :)

[amedeo maffei corsi]

First of all let me tell you, you have got a great blog. I am interested in looking for more of such topics and would like to have further information. Hope to see the next blog soon.

[Synergy Legal Doncaster]

I actually added your blog to my favorites and will look forward for more updates. Great Job, Keep it up.

[john hillage]

Thanks for your marvelous posting! I definitely enjoyed reading it, you're a great author. I will be sure to bookmark your blog and will eventually come back down the road. I want to encourage one to continue your great writing, have a nice evening!

[george sekuloski]

Hi there. Very nice site!! Guy... Excellent ... Wonderful... I'll bookmark your website and take the feeds also...I am glad to locate a lot of useful info right here within the post. Thank you for sharing.

[Fritz Spohn]

First of all let me tell you, you have got a great blog .I am interested in looking for more of such topics and would like to have further information. Hope to see the next blog soon.

[montessori playtime costa rica]

Great article ...Thanks for your great information, the contents are quiet interesting. I will be waiting for your next post.

[binary options]

no lending = no borrowing = no spending , its a downward spiral for all.

[mcx tips]

I think the things you covered through the post are quiet impressive, good job and great efforts. I found it very interesting and enjoyed reading all of it…keep it up, lovely job.

[Mcx Tips Free Trial]

I read your publish . it was amazing. The way you tell about things is awesome. They are motivating and beneficial. Thanks for giving your details and opinions.
Mcx Tips Free Trial

[mcx tips]

Hey, very nice site. I came across this on Google, and I am stoked that I did. I will definately be coming back here more often. Wish I could add to the conversation and bring a bit more to the table, but am just taking in as much info as I can at the moment.

Thank You
mcx tips

[Share market]

It was a awe-inspiring post and it has a significant meaning and thanks for sharing the information. Would love to read your next post too...

Thanks

Regards:

Share Market

[commodity tips]

I absolutely adore reading your blog posts, the variety of writing is smashing.

This blog as usual was educational, I have had to bookmark your site and subscribe to your feed in i feed.

Your theme looks lovely.Thanks for sharing.

Commodity Tips

[nifty tips]

Glad to see this information.its very useful for everyone.thanks for sharing this post.
nifty tips

[Mcx Tips]

I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I'll love to read your next post too.

Regards

Mcx Tips

[indian stock market tips]

This post is really nice and informative. The explanation given is really comprehensive and informative. I am feeling happy to comment on this post. I think this is useful information for users-How does the ordinary investor fit into the equation comprising of global factors coupled with manipulation in the stock markets.
indian stock market tips

[Share Tips]

I positively venerate celebration of a mass your blog posts, a accumulation of essay is smashing.This blog as common was educational, we have had to bookmark your site as well as allow to your feed in ifeed. Your thesis looks lovely.Thanks for sharing.
Regards
share tips