…yet. I think that there’s a typo here, though:
Some experts argue that Fed chief Ben Bernanke is simply replacing money annihilated in our economy’s “Great Deleveraging” and that he should print even more. Retired securities lawyer Frederick Feldkamp, a Michigan native, says the Treasury’s nationalization of Fannie Mae and Freddie Mac alone erased $33 billion in bank capital. The Treasury inadvertently wiped out the two mortgage giants’ preferred stock, which hundreds of banks had held as core capital, and which was considered so safe that regulations let the banks leverage that capital by as much as 50 to 1 when making loans. Feldkamp reckons that when banks wrote off the $33 billion in preferred stock, support for about $1.65 billion in debt was erased — a significant credit contraction.
I think that’s supposed to be $1.65 trillion. $1.65 billion is seat-cushion change these days…
Inflation? Ha! We’ve got deflation, baby.
Inflation is just the rate at which the growth of money supply (the store of value) exceeds real GDP growth (the value). Since the money supply is cash + credit, and credit has retracted, the money supply is shrinking. The rate difference is negative.
The only way we avoid deflation is if the Fed prints enough money, and the economy shrinks enough, to keep real GDP and the money supply shrinking at the same rate.
You got to consider the quality of the credit too. It doesn’t matter how high quality the assets are, if you’re leveraging them at 50 to 1. The more I hear about the actions of the parties involved, the worse the bailout strategy looks. I really think everyone would be better off, if Congress created a bunch of special bankruptcy courts and funneled the US bank system (and perhaps some other major US industries like the auto industry) through them.
And as far as printing money goes, we have Bernanke in charge who has stated he’ll print money rather than allow deflation to occur.