I’m with MISH

MISH, noted deflationist, does a superb hit piece on the inflationists here on his blog.

Bottom line is that banks cannot use “excess” reserves to kickstart the FRB process if there are no creditworthy borrowers to lend to.

Either mass debt forgiveness will have to take place to allow lending to restart, or Bennie Boy will have to get the helicopter powered up and literally throw money out into the streets for the plebs to pay back their loans and start borrowing again.  If the plebs don’t get the money to pay back their loans when the velocity of money slows down due to the high leverage levels grinding down the velocity of money to a crawl in every area other than where the banking parasites live, lending will continue to be frozen.

You cannot convince someone about to lose their job to borrow to gear up into the stockmarket or property market.  You cannot convince a bank to lend to a borrower who will go bankrupt in a few short months.

The US has reached “Peak Credit.”

What is hard to understand about that?

Why some Austrians are confused on this issue is beyond me.  Frank Shostak isn’t.  Robert K. Landis wasn’t in 2004.  Ludwig von Mises didn’t predict hyperinflation at the end of a credit-fuelled boom.  He predicted “catastrophe”, not “hyperinflation”.  Catastrophe in my view means “extreme price volatility in all asset classes leading to collapse of the division of labour and eventually state bankruptcy” – not hyperinflation.

So, excess reserves will subsidise the banks back to profitability, but the big banks will be islands of paper profits  in sea of red-ink insolvency in the real economy.

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