Inflation Lag or Liquidity Trap

COMEX:GC1!   Gold Futures
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Gold             chart suggest we are nearing a critical point. People have long debated what is in store after Central Banksters exhaust all there abilities. The two prevailing speculations are that either the global economy will reach a liquidity trap or all the action from the Central Banksters is lagging and we will eventually trigger inflation .

What is a Liquidity Trap...

A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels.


Currently, money velocity is at a record low, suggesting the liquidity trap is stronger than at any time during the last 40+ years.

Charting The Liquidity Trap: The Deleveraging Cycle Has Just Begun http://seekingalpha.com/article/873921-charting-the-liquidity-trap-the-deleveraging-cycle-has-just-begun

Research warns of global liquidity trap

The research focused on the Federal Reserve's recent QE3, which involves monthly purchases of $40 billion of agency mortgage-backed securities until such a time as the Fed deems unemployment to have fallen sufficiently.


What is a long - variable lag...

Milton Friedman is probably the most famous proponent of the view that appropriate monetary policy can always end recessions. But even he took the view that monetary stimulus works with "long and variable lags."


Money supply figures are growing at an alarming rate, and while the standard of living is eroding at a rate higher than government figures suggest, the pace of inflation has not been cataclysmic, yet.

For three straight years, the Fed has printed vast quantities of money, and is pining for more. This has sent inflation in China and other emerging markets soaring. Already, this has pushed up low end wages 20% or more in places, has caused a commensurate rise in food and energy prices, and has increased input costs for US manufacturers. The research supports an inflation surge in two to seven years, and a five year lag before it will be brought under control.


Fed has the ability to create hyperinflation. The questions are how long it would take for this to happen and by which mechanism it would transpire.


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