means these days more and more economists predict a crisis in the U.S. by inflation. This reasoning is rooted in the explosion of the monetary base in the United States. The monetary base is the money issued directly by the central bank either through refinancing or Open Market. To speak more clearly, the money is created by the central bank to lend to banks or to buy them treasury bonds. The mechanism of the multiplier bank, the monetary base can multiply by 10 or 20. It is by adjusting the monetary base upward or downward in theory central banks can control the money supply and thus inflation.
In recent months, the monetary base in the United States was simply doubled from 800 billion to 1600 billion. In theory, the money could be doubled as well. If this were the case, inflation would result in a very large scale. Thus, the huge debt accumulated by the states, households, businesses and financial institutions evaporate plainly and simply. The reasoning is: You have 100 dollars in debt - the price increase 20% - Total revenues also increased at a rate roughly equal to 20% - Debt is less difficult to repay - the real price of your debt has declined in constant dollars, it is worth more than $ 83 million. Like magic, the debt burden has been decreased.
Proponents of this hypothesis are missing one key point. How a central bank euro 20 euro become outstanding? As we saw earlier, is through the fractional reserve system. By lending money on current account or savings account unblocked, banks create money and operate the bank multiplier. Thus, if economic agents repay their debt more than they borrow, the Fed will throw as much money as she wants in the banking system, it will not increase the money supply in circulation in the real economy The money injected just accumulate in bank reserves.
What happens currently? Excess reserves of banks, that is to say the amounts placed with the central bank in addition to reserves, have made ballooned whether the U.S. or Europe. In fact, the word spectacular is not strong enough, but I do not currently have in my arsenal to describe an increase of that ilk. Excess reserves were so nonexistent so far, the order of several billion dollars. They reached a few months the $ 800 billion. Basically, increasing the monetary base in the United States has been almost entirely absorbed by the reserve banks. For now, it is clear that this money is not paid. If money is rotting in excess reserves remunerated it will not multiply.
Imagine now that the banks begin to lend. Then the money multiplier may resume its course. So it is an additional indebtedness of economic agents that trigger the multiplier bank ... In short, inflation without additional debt, in our current system does not exist. This is indeed a very awkward way to fight against indebtedness! Pretending that we will fight against a serious debt by global inflation is a complete illusion. It should be understood that the inflationary process is rooted in the same development uncontrolled monetizing the debt.
In the wilderness system advocated by Irving Fisher and Maurice Allais, a European central bank created by a 1 euro remains outstanding. The multiplier bank disappears. In times of debt, households, businesses must go through an inevitable reduction in their expenses. The government may then take over in boosting consumption and investment by heavy spending financed by printing money. This money creation naturally counter the effects of a deflationary debt crisis and resulting with moderate inflation. The risk of hyper-inflation would be zero since Euro euro.
The crisis is possible.
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