Why The “Financial Experts” Have Inflation All Wrong
Most people have no idea about the Eurodollar system. Many have never even heard the term Eurodollar. The Eurodollar is simply US Dollars held in bank accounts outside of America.
Fractional banking allows banks to lend more than what they have in deposits. Banking regulations restrict the multiple of lending to deposits to manage risks. The multiple by which lending is greater than deposits is money creation.
American banks “lend” money to their subsidiary banks outside of America. When doing so, there is no restriction on the lending multiple. American subsidiary banks in Europe can lend as much as they like. This creates more Eurodollars, and the US Federal Reserve Bank (FED) has little control and knowledge of this Eurodollar market.
The green shading on this chart shows the growth of Eurodollars. The dotted line reflects the rate of growth.
The origin of the Eurodollar was effectively when the USD became the reserve currency for global trade at the end of World War 2.
Notice how the Eurodollar growth has flattened since the Global Financial Crisis (GFC) of 2008/9. The dotted line reflects the lower rate of growth.
Since 2008, the real GDP growth in the USA has been significantly lower than pre-GFC. The pink shading is the creation of bank reserves by the FED, which get swapped onto the balance sheets of US Banks. US Banks are then supposed to lend this “money” to customers. The problem is that everyone has become more risk-averse since the GFC. Banks are lending less.
The bank reserves reflect US Fed Debt which everyone calls money printing. Money printing is what everyone is pointing to as the reason for inflation.
While prices of goods have increased dramatically, that is not inflation. Inflation is about money supply, not price increases. Despite increased US Debt and the creation of bank reserves, the supply of money has been restricted, which is why there is less growth in real GDP. The restricted growth is a worldwide phenomenon.
Price increases are due to a global supply chain shock! Increasing interest rates on the debt will not magically increase the supply of oil.
Jeff Snider at Alhambra Investments is the guru on this subject.
Justin Spencer-Young www.fastforwardbusiness.net/justintime
