How Will Velocity of Money Increase?
In my view, the key to the whole inflation/deflation debate has not to do with how much money is being pumped into the banking system but rather it is changing the psychology of the American people into parting with their money more quickly during a time when saving rather than spending seems like the only prudent path to take for mere survival.
While I have a deep disdain for the lies of Keynesian economics, simply based on observation of reality, I believe some of his concepts are valid. For example, poor people who do not have money to put shoes on their kids’ feet or buy groceries, will do so if they receive transfer payments from the government. I share Dr. Robert McHughs belief that if massive tax rollbacks were implemented, it would put large amounts of money in the hands of the middle class, though not all that much in the hands of the poor because they pay little if any taxes. It would be awful economic policy, but if the government started to send trillions of dollars to lower income people, I believe the demand side of the economy would be bolstered considerably and we would then start to realize some substantial move toward hyper inflation.
Another way that could happen would be if the U.S. dollar collapsed - basic imported goods, starting with energy, which the U.S. relies on to sustain its economic life, would start to rise rapidly. The Fed would run the printing presses even faster, in which event I think we could then get hyper inflation. This is essentially the argument of economist John Williams who insists we are heading towards a horrendous hyper inflationary event.
However, even though as Professor Kotlikoff points out, the U.S. is already bankrupt, as long as the military is continued to be funded, the U.S. can by its very powerful military, enforce the dollar as the world’s reserve currency. As John Perkins (author of “Confessions of an Economic Hit Man”) opined on my radio show, a major reason the U.S. went into Iraq was to enforce the policy of keeping the U.S. dollar as the world’s reserve currency. There may come a time when the U.S. is so broke it can’t continue to fund its military, but you should also keep in mind that we are very quickly moving toward a one-world corporate government in which the power behind the throne is entirely corporate and that individual voters have virtually no say in policy. That day is already here. And so, my thinking is that we will see a major global currency conversion before we are thrust into a global hyper inflation.
But those are just my thoughts. What really matters is the language of the markets. And from what I can see, my IDW is suggesting a head and shoulders top and is very much hinting that we are on the verge of another major decline in equity and commodity prices, which will in turn put pressure in our still hugely over leveraged global financial system. Pending some geo-political changes, I’m continuing to lean toward more “deflation,” not as the Austrians define money, but rather in terms of price declines resulting from the continued hording of money caused by the need on the part of individuals and corporations to horde for their own survival.
Jay Taylor
Jay Taylor
Mr. Taylor is editor of J Taylor's Gold, Energy & Techn Stocks newsletter. A native of Ohio, he has resided in New York since 1973 when he began working there for Barlcay's Bank International. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares.
In 1981 he began publishing North American Gold Mining Stocks, which preceded his current newsletter. His continuing interest in gold mining prompted him to study geology at Hunter College in New York City, supplementing his MBA in Finance & Investments. Throughout his career Mr. Taylor worked as a commercial, then as an investment banker. Most recently, he worked in the mining and metals group of ING Barings in New York. Prior to that he was involved in the first gold loan made in modern times in the U.S. to Amax Minerals, a 250,000 oz. loan facility led by Citicorp.
In 1997 he resigned from ING Barings to devote himself full time to researching mining & technology stocks, writing his newsletter and assisting companies in raising venture capital.
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