Inflation and Deflation Update 8-4-2010 Part 2

Other "credit" issues? Yes indeed. "Stealthy Deflationary Risks". Everyone pays attention to the bad news about the housing market, unemployment, and tight credit markets. Here are a couple of other things you may want to pay attention to, as you try to understand what's happening with the economy.

US commercial paper market grows for 3rd week
http://www.reuters.com/article/idUSNYG00360620100729

Commercial paper woes could hit banks
http://www.ibtimes.com/articles/20070814/commercial-paper-banks_all.htm

Statement by Secretary Henry M. Paulson, Jr. on Financial Markets Update
http://www.ustreas.gov/press/releases/hp1189.htm

Small Business Index Hits Record Low, Future Expectations Dip Below Zero First Time Ever
http://globaleconomicanalysis.blogspot.com/2010/08/wells-fargogallup-small-bu...

The Federal Reserve Board, Information on Commercial Paper
http://www.federalreserve.gov/releases/CP/about.htm

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[elricmlbone]

BTW, I enjoyed your video and understand your concerns, just a huge pile of debt in the commercial paper market to add fuel to our credit crisis, not withstanding that probably the banksters have created more debt by creating derivatives on this paper along with all the other legitimate debt in circulation. Now the Fed will buy up all this trash and in doing so, create money. :)

[watcherjohnny]

@elricmlbone Yes indeed.

[LMIMSsoi]

I have some bad news for you, as for the derivatives market - We're f'ed. It's fake and been that way for years. I don't think we'll make it till the end of this year before a major crack. Make sure you can take care of yourself.

[watcherjohnny]

@LMIMSsoi Before the end of the year??? Damn - that's going to ruin my Christmas.

[bandclinens]

Wow! Someone else gets it. We're basically screwed.

[watcherjohnny]

@elricmlbone You are technically correct in saying "money" (as we think of it) was not created. What was created was additional credit in the system (which in many ways mimics the properties of money in the broad economy). And CP credit is not created by the "traditional" money system we have. That was the point I was attempting to make. The Commercial Paper market is one more indicator we need to watch when trying to understand the overall "health" of the broad economy.

[elricmlbone]

@watcherjohnny There is not enough room allowed in these comments to debate this. Did Bob's merchandise come from thin air or did he buy it or produce it? What you are describing is debt creation, in this instance vendor financing. Same as credit cards, mortgages, car loans etc. This can be bought and sold. But there is an obligation to pay. Money is not created. 

[curtatlanta]

Thanks. Great double vid. Learned a lot.

[watcherjohnny]

@elricmlbone How much money changed hands between Bob and Joe? None. Bob accepted an IOU in exchange for his merchandise he sold to Joe.

[elricmlbone]

no it's money coming from one party to another, follow the thread there is money involved. It's the fractional reserve that creates money, and compounds when a bank lends to another bank and creates another fractional reserve and so on. You have it wrong.