Re: Re: Conference in Madrid with Spain’s head of Housing

#109122
Chopera
Participant

@Ardun wrote:

The hyperinflation is comming you just wait and see. The inflation could most easily be see on the rise of real estate prices the last 10-20 years. The credit crunch happened because none wanted to be stuck with worthless assets. The owners of the banks where simply to greedy otherwise this could have gone of forever. Not that this was any real wealth just more FIAT-money in circulation. Money these days are created in the same instance as the banks approves new loans.

I take it you are referring to QE – which in theory allows a bank to approve a loan and sell it to the central bank, which uses “printed” money to buy it. This is indeed creating money from nothing, however so far it hasn’t happened in Spain (well, not in this way at least) and I’m not sure to what extent it takes place elsewhere. My take on QE is that it is attempting to counter the deflationary effects of the credit crunch (the removal of broad money from the system) with the inflationary effects of introducing more cash (narrow money) into the system (along with keeping bond yields and interest rates low). So far I haven’t seen any evidence that it creates hyperinflation: the US and the UK have been doing it for 4 years, and Japan (to an extent) for decades now. In the UK at least it seems to be propping up over-inflated house prices when in an ideal world they should have crashed by now. If QE keeps on going forever without any fundamental reform of the financial system then it may lead to high inflation. It was meant to buy time while this reform took place, not be a solution in itself. But so far there hasn’t been any reform.