US deficit spending is $1.4 trillion dollars, Bernanke is flooding banks with cash, interest rates are at record lows, mortgage rates are at record lows, and velocity of money is falling like a rock.
Excess Reserves
Of the $1.8 trillion Bernanke has added to base money supply since the start of the recession, nearly all of it is sitting parked at the Fed as excess reserves.
Interest Paid on Excess Reserves
As you can see, banks have parked close to $1.6 trillion with the Fed earning .25 percent annually. This is free money to the banks to the tune of $4,000,000,000 per year for doing nothing.
In short, banks would rather have $4 billion in free money at a measly .25 percent than make much more money by lending it out. This indicates two things:
- Money Multiplier Theory is nonsense
- Banks are still capital impaired and/or banks have no credit-worthy borrowers who wish to borrow money
If and when banks do start lending, it will not be because all those excess reserves have tempted them. Rather it will be because banks feel they have credit-worthy borrowers.
In the meantime, debt deflation rolls on, distorted of course by global central bank stimulus everywhere one looks, notably (the Fed, ECB, China, Bank of England) and coming up shortly, the Bank of Japan.
As I have stated before, competitive global currency debasement is a good environment for gold.
Let’s wrap this up with one final chart.
Total Credit Market
As you can see the total credit market is well over $50 trillion. Yet a large number of misguided souls believe printing $1.8 trillion of which $1.6 trillion is parked as excess reserves will cause hyperinflation.
It won’t. Hyperinflation is a political event, not a monetary one. Besides, the US has more gold than any other nation. For further discussion, please see Hyperinflation Nonsense in Multiple Places.
Yes, the US is going to have a “debt moment”, just as Europe is having one now and Japan will have soon enough. However, that moment may be quiet a long ways away (or not), but hyperinflation will not be the result when it happens.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Innovation is an indispensable force that turns ideas into money. It is the lifeblood of any organization. In order to implement sustainable innovation in 2012, you need to define innovation in a manner that makes strategic sense for your organization, and have the know-how to properly construct and use a process, plus the will to keep the process on course.
The task may seem daunting at first, but it’s possible to develop a disciplined strategy that delivers Innovation time and time again for sustained long-term profitability. Make developing that strategy your 2012 New Year’s resolution.
“Robert’s Rules of Innovation” outlines specific steps to implement Innovation. Here are some tips:
1. Define your organization’s needs. What type of innovation are you trying to achieve? An incremental innovation that introduces a new process or feature? Or a transformative breakthrough that completely changes the marketplace? The latter is more difficult to achieve but holds the greatest potential. Choosing the path that makes the most sense for your organization will help in the Innovation process.
2. Formulate a new product development process. Each organization’s NPD process can have a different number of steps, so long as they form a structured plan. A three-stage plan may include: Stage 1 product definition, where a product is examined for its brand strategy, profit potential, and competitive analysis. If the product is a “go” then it moves to Stage 2: the qualification process where a first article product is made and tested for quality assurance. Finally, Stage 3 is Revenue where the product is launched.
3. Create a road map to success. The key elements are examining quality of projects, capability of managing them successfully, and capacity of the organization for maintaining a portfolio of well-managed projects. No matter what NPD process you decide to use, stick to the road map to ensure that each stage, and tasks within each stage, are clearly defined.
4. Some more guidelines for progress: remember to stick to your go/no-go criteria for moving forward with developments. All projects should undergo the same scrutiny, regardless of who suggested it! Also, many organizations are incorporating a “discovery phase” into the Innovation process to allow for more experimentation. This step is beneficial for making decisions based on long-term sustainable Innovation, and not on current budget restraints alone.
In a world of increasing business competition, Innovation is key to a company’s survival. Creating an Innovation strategy that makes sense for your organization is entirely feasible, and an absolute must for creating profit for your company.
Here’s to a New Year of innovation!
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