Are the printing presses firing up?

In posts in 2009 (Evidence of inflation?) and 2010 (You call this inflation?), I looked at actual Federal Reserve money printing. In a credit system such as in the United States, the Federal Reserve swaps Federal Reserve notes for debt, often U.S. Treasuries. Money creation is actually done through the banks, and the Federal Reserve creates the base money after the debt is first created by the private economy. When the system goes into deleveraging, debt is destroyed, either through repayment or default, and the Federal Reserve cannot stop the decline because it swaps debt for debt. Since 2008, the U.S. government has offset private sector deleveraging by running trillion dollar-plus annual deficits, which the Fed monetizes.

The Fed's 2012 New Currency Budget. As you can see from the second chart, while the value of printed notes is forecast to rise, it's not all that much in the scheme of multi-trillions in deleveraging and a low velocity. Furthermore, if you compare 2011's budget to 2011 actual printing, the Fed forecast a similarly sharp increase last year that never materialized, with the value of printed notes actually falling.

Turning away from the U.S., ZeroHedge noticed news that could indicate the printing presses in Europe may fire up: "Material Banknote Order Reinstated"
Fortress Paper Ltd. ("Fortress Paper" or the "Corporation") (TSX:FTP), announces that its wholly-owned subsidiary, Landqart AG, a leading manufacturer of banknote and security papers, has had a material banknote order reinstated. This order was unexpectedly suspended in the fourth quarter of 2011 which negatively impacted the financial results of Landqart's operations in the first half of 2012.
Shares of Fortress Paper gained 17% on Friday on the news. ZeroHedge comments:
Well, if the chart of De La Rue is any indication of how banknote printers respond to potential European disintegration, it just may be that the best hedge to a VIX soaring to 80, aka "disorderly Grexit" as explained earlier by Citi, just may be TSX:FTP.
This is yet to be confirmed, but this is they type of news needed to lead to inflation. The central banks cannot inflate by swapping debt for debt, they must create paper currency that survives debt repayment and default, in that way the money supply does not contract when debt is destroyed.

No comments:

Post a Comment