World Bank President: Revive the Gold Standard?

Goldbugs may rejoice!. In an op/ed in today's Financial Times, Robert Zoellick, president of the World Bank, is advising that the Bretton Woods system for managing currencies should be revised including:

The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.

However, a front page article in the Financial Times notes:

Although there are occasional calls for a return to using gold as an anchor for currency values, most policymakers and economists regard the idea as liable to lead to overly tight monetary policy with growth and unemployment taking the brunt of economic shocks.

Go here for the whole Zoellick FT op/ed.

As a reference, I include below a chart of the price of gold over the last 20 years:

Comments

Damn I should have taken Harry Browne's investment advice after all.

[Cyto]

The big news I got from that chart was that a chart of the last 20 years begins in 1990. Damn, I'm getting old....

[Old Mexican]

"Although there are occasional calls for a return to using gold as an anchor for currency values, most policymakers and economists [who?] regard the idea as liable to lead to overly tight monetary policy [OMG! The world may come to an end!!!!] with growth and unemployment taking the brunt of economic shocks.

Another group of nitwits who believe inflation stems unemployment - seems like for them the STAGFLATION of the 70s never happened.

[John]

"with growth and unemployment taking the brunt of economic shocks."

As opposed to now where the economic shock produced greatly reduced growth and functional 16% unemployment. WTF? But it could have been worse I suppose is the response.

Economists are worse than climate scientists.

[Almanian]

[who?]

Top people, OM.

Top.

People.

[sarcasmic]

The credible ones.
To be credible an economist must be a Keynesian, therefor all credible economists are Keynesian.
To be credible a scientist must believe in anthropogenic global warming, therefor all credible scientists believe in agw.

See? You define an expert as someone who agrees with you, then argue that all experts are in agreement with you.

Classic example of begging the question, and it works.

[Old Mexican]

Robert Zoellick, president of the World Bank, is advising that the Bretton Woods system for managing currencies should be revised including:

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."

Hazlitt indicated the non viability of the old Bretton-Woods system and predicted its ultimate demise. There's nothing different in Mr. Zoellic's approach to the "problem," as it still does not bind states from indulging in spendrift policies.

The best approach is to let individuals contract and trade in whatever monetary commodity they wish. The problem then resides not in unbacked fiat currencies, it resides in legal tender laws and the state's reluctance to protect contracts.

[Ska]

So, bottle caps?

[Old Mexican]

You take?

[John]

http://www.politico.com/politi.....b4ea3.html

The picture at this link is drudge worthy. My God Gibbs is a clown. How do people this childish and stupid get to such high positions?

[RyanXXX]

ME AMERICAN! YOU SMELL BAD! I HATE THIS TIE!

[Almanian]

"MAYBE YOU DON'T KNOW WHO I AM??! Oh, you do...well, I'LL PULL THE PRESIDENT FROM THE MEETINGS, I SWEAR!!! What do you mean 'I don't give a fuck'??"

[commander]

Bilderberger influence ,TO THE WEAK-KNEED REPUBLICANS AND DEMOCRAT?..TO ALL THE COMMUNIST IN THE IG,FBI,CIA,AND U.S. Senators and the left wing media outlets?..Wake up america!!!! This goverment is the most corrupt we have had in years. The good old boy network is very much in charge.Mr. obama and pelosi are the puppet masters.How many of their good friends benefited by the agreement " what a farce. All of the u.sSenators voted for this. I am ashamed to say I voted for the these corupted self serving politicians.With good reason they picked an out of towner to be president.All u.s departments need an overhaul. We need to rid ourselves of the puppet masters and the dept heads that bow down to obama and pelosi.I am sick of the lip service I have been getting from these dummies over violations, their friends are getting away with.in the goverment . Barack Hussein Obama , threatens friends and bows to Mmslim.
INPEACH OBAMA ,GOD OPEN YOUR EYES.///For us there are only two possiblities: either we remain american or we come under the thumb of the communist Mmslim Barack Hussein OBAMA. This latter must not occur.//////// I love communist obama.will you ,thank you,the commander.ps aka red ink obama.//////// Repost this if you agree, IS communist obama ONE , Because of its secrecy and refusal to issue news releases, the Bilderberg group is frequently accused of political conspiracies. This outlook has been popular on both extremes of the ideological spectrum, even if they disagree on what the group wants to do. Left-wingers accuse the Bilderberg group of conspiring to impose capitalist domination,[21] while some right-wing groups such as the John Birch Society have accused the group of conspiring to impose a world government and planned economy.Obama's India trip really an Emergency Bilderberger Meeting ?THE COMMADER //////// .Is Barack Obama pushing forward dangerous policies that are bringing the United States closer to a socialist dictatorship. Are you even aware?

2. What is the major proof of the Bilderberger influence over many of the world events in the last decade!

3. Is it really true that the recent global financial collapse was engineered by the Bilderberg Group. Why was their 2010 annual meeting held in Greece?

[heller]

I like the cut of your gib.

[commander]

Repost this if you agree, IS communist obama ONE , Because of its secrecy and refusal to issue news releases, the Bilderberg group is frequently accused of political conspiracies. This outlook has been popular on both extremes of the ideological spectrum, even if they disagree on what the group wants to do. Left-wingers accuse the Bilderberg group of conspiring to impose capitalist domination,[21] while some right-wing groups such as the John Birch Society have accused the group of conspiring to impose a world government and planned economy.Obama's India trip really an Emergency Bilderberger Meeting ?THE COMMADER //////// 1. .Is Barack Obama pushing forward dangerous policies that are bringing the United States closer to a socialist dictatorship. Are you even aware?

2. What is the major proof of the Bilderberger influence over many of the world events in the last decade!

3. Is it really true that the recent global financial collapse was engineered by the Bilderberg Group. Why was their 2010 annual meeting held in Greece? 4, The Bilderberg Group, Bilderberg conference, or Bilderberg Club is an annual, unofficial, invitation-only conference of around 130 guests, most of whom are people of influence in the fields of politics, banking, business, the military and media. The conferences are closed to the public.
5. "to install a world government that knows no borders and is not accountable to anyone but its own self." THE COMANDER

[Old Mexican]

Uh.... so do you agree with using gold as money, or not?

[sevo]

I think he does, or maybe not.
I'd suggest just avoiding eye contact and backing away.

[Rhywun]

I know it's hard to compose a coherent message standing outside next your sandwich board, but sheesh.

[The Government]

Dear commander:

This is the Obama government speaking... Do NOT take your meds. I repeat. Do NOT take your meds. Tune your tinfoil hat to Channel 616 for more detailed instructions.

[RyanXXX]

So does this mean...

The President of the World Bank is a kook and a "goldbug," or Ron Paul may have been right all along?

[Paul Krugman]

He is a kook!

[AlmightyJB]

Is that what you would call a bubble? So if gold drops like a rock, will we have to bail out all of the banks that have large holdings? That was a rhetorical question btw.

[Old Mexican]

Re: AlmightyJB,

Is that what you would call a bubble? So if gold drops like a rock, will we have to bail out all of the banks that have large holdings?

"Drops like a rock" in terms of what?

[AlmightyJB]

In terms of pulling back to the $700 range give or take.

[Old Mexican]

Re: AlmightyJB,

In terms of pulling back to the $700 range give or take.

So you mean in terms of DOLLARS?

No, because if their dollar holdings appreciate vis-a-vis their gold holdings, they haven't lost anything.

[AlmightyJB]

Isn't that an assuption though that there could never be a speculative bubble in gold? That when people are betting against the dollar that they're always correct in their valuations? If I buy $1M worth of gold today and tomorrow that same amount of gold is worth $500K, that doesn't mean there has been a 100% appreciation of the dollar.

[robc]

Depends how you think: if you buy 700 ounces of gold today(~$1M) you will still have 700 ounces of gold tomorrow, even if the price drops to $500. You lost nothing.

[Old Mexican]

Re: AlmightyJB,

If I buy $1M worth of gold today and tomorrow that same amount of gold is worth $500K, that doesn't mean there has been a 100% appreciation of the dollar.

No, it just means that there was more gold in the market that buyers were lead to believe.

[robc]

Ratio of gold to oil is still under 20, not really a bubble...yet.

[robc]

Currently,

Gold is $1400.07 per oz
Oil is $86.48 per barrel

Ratio of 16.19

Not that far off norm at all. Normal range is 10-20 with historic average around 15. Above 20 and below 10 are money making opportunities, if you are into that kind of thing.

[AlmightyJB]

Interesting, not sure that I've seen that before. Kind of makes sense given the last major spike was back during the energy crisis during Carter. Prices for both did eventually drop though. I guess it's all in that timing, just like everything else.

[robc]

Last major spike was a few years ago, only in oil instead of gold. When oil was at $150, the ratio was at about 5.

I was telling people to buy gold and sell oil, that either gold would shoot up or oil would crash, but I wasnt sure which (both as it turned out).

[robc]

Reason #2 that gold isnt a bubble.

[AlmightyJB]

Now your just trying to give me nightmares.

[robc]

Dude, its common knowledge. Hell, if nothing else, Ive only posted it on this blog about a bajillion times in the last year.

[robc]

When M0 doubles, there is no way to avoid inflation. EVENTUALLY, the economy will recover and M2 will skyrocket due to the doubling of M0. Or, more likely, we have a decade of dipping in and out of recession and slowly bleed that extra money in via low inflation and no growth.

The lost decade strategy.

Fuckers.

[AlmightyJB]

Well I knew we were printing money and will continue to do so. Didn't really know it was to that extreme yet though. That's pretty depressing.

[robc]

Its not Zimbabwe or even Weimar.

But, yeah, it is kinda fucking depressing (in two ways!).

[Clich? Bandit]

STOP POSTING THAT!!!!

DAMNIT MAN, some of us are developing ulcers.

[P Brooks]

At one point, according to Wilson's pool report, Gibbs had his foot lodged in the door to the meeting as Indian security officials pushed hard to shut it. In an angry shouting match, Gibbs asked the officials if they were going to break his foot as he repeated his threat to pull Obama.

WTF? Don't they have Tasers in India?

Goddammit. What a tragic waste of an awesome opportunity.

[I wonder if this could be in some way related to the DEA weasel story.]

[John]

Gibbs being tazered would be a restoration of justice in the universe. India would have officially become now and forever my favorite country in the world.

I love how Gibbs threatened to "pull Obama out of the meeting" like Obama is some kind of show horse, which maybe he is. Is it really the case that Gibbs could have done that? And if so, doesn't that pretty much show Obama to be the neutered empty suit his critics claim he is?

[.]

Uh, show dog. ("They treat me like a dog!")

[Geotpf]

How about comparing and constrasting this chart with a chart of housing prices for the period of 1992-2007?

(15 years instead of 20 because there was a housing boom in the late 1980's.)

That is, IMHO, gold is vastly overpriced and the bubble on it will pop soon, probably after the economy starts to recover in earnest.

[robc]

16.19 How the fuck is gold "vastly overpriced"?

[Geotpf]

It's priced way above historical levels, for one thing.

http://www.fool.com/investing/.....w-500.aspx

Pop pop goes the bubble, like all bubbles do eventually.

[robc]

No it isnt, it is only slightly above its historical level of 15 barrels of oil (who cares what the fuck it is vs the dollar?). See the M0 chart I posted above, we have thrown historical levels vs $ out the window.

That, in fact, is why gold has gone up, its a leading indicator on inflation. If, somehow, the Fed bleeds M0 out of the system, gold WILL crash, but that wont mean it was a bubble, it means that the problem that led to gold shooting up in price got fixed.

[robc]

Your link explains everything:

Indeed, as recently as 2005, gold's average real return over 154 years was zero, period.

Gold prices show an expectation of inflation. Considering the change in M0, I cant say the expectation is too far off. Could it overshoot? Sure, I expect it will, it has every other time, then it undershoots on the way back down. But, I dont think it has YET. If gold was above $1700, I would be in agreement with you.

[Geotpf]

Of course, we had actual deflation last year. If people are betting on significant inflation, they will be disappointed.

Gold is just a shiny metal that has certain industrial uses and looks pretty. There's nothing special about it.

[robc]

Sure we had deflation, M2 went down because of the change in velocity of money. But with m0 doubling, any recovery that increases the velocity of money will shoot inflation skyward. It is fucking unavoidable.

That M0 chart cannot be ignored or handwaved away.

Gold gets you laid. Nothing special, my ass.

[robc]

Im not a crazy goldbug. Silver, palladium, whatever, they would work as a basis of moeny too. Maybe a basket of precious metals would be best. Whatever.

Heck, Ive suggested using SPYders before too.

That is what would be awesome about competing currencies. Choices.

[robc]

Graph of M2.

If you define inflation as dM2/dt, then despite some blips in 2009/10, the long term inflation rate has been held constant, which was the point of doubling the M0. In order to keep that curve going, they had to pump in money when velocity crashed or we would have had deflation. The problem is, "What now?". The only way to keep that inflation rate constant is to bleed some of the M0 into M2 but keep a tight control on velocity. In a real recovery, velocity would boom and that injection into M0 would cause M2 to explode and huge inflation.

Lost decade is the only approach they will possibly take, keep growth in check. All because of their inane and insane fear of deflation.

[JOe]

The fed and banks cant make money on deflation.

[CrackertyAssCracker]

It's a very popular choice, for thousands of years, for storing wealth when not forced at gun point to use something else. I'd say that's special. But I guess that is a matter of opinion.

[Copy editor]

It must be the term "gold standard" doesn't mean what it used to, convertibility of currency into gold. Or the headline of this post is wrong.

[R C Dean]

That is, IMHO, gold is vastly overpriced and the bubble on it will pop soon, probably after the economy starts to recover in earnest.

Really, its a question of market psychology. If gold is viewed as just another commodity, no different from pork bellies, then the chart certainly looks like we are in the second of three stages of a potential bubble (it hasn't gone parabolic yet, which is the third and final stage of bubbles).

If you view gold as a form of currency, then I think its really hard to say it is overpriced relative to the dollar.

From this perspective, saying that gold is vastly overpriced is pretty much the same thing a saying the dollar is vastly underpriced.

Who would say that, given that we are into our second round of quantitative easing and there are trillion dollar deficits as far as the eye can see?

[robc]

Two ways to think about it that show it isnt overpriced:

1. If its a commodity, then it should be exchangable for other commodities at a constant ratio. Like, say, what is its ratio to oil?

2. My thinking is that we are still on the gold standard. Prices are in gold, not dollars and the dollar fluctuates around, not gold. Thus commodities should cost roughly the same in terms of gold long term. So, once again, how much oil does an ounce of gold buy?

By both, gold isnt "overpriced", or at least not much.

[Geotpf]

Different commodities move up and down all the time. The price of soybeans has little to do with the price of copper. Likewise, the price of oil has little to do with the price of gold.

[robc]

But long term, commodities end up about the same ratio vs each other, unless there is some massive swing in production methods, supply or demand. And really, if the first, it probably wasnt a commodity to begin with.

While the price of soybeans has little to do with the price of copper, they both track the price of gold long term, which means they track each other long term too.

[JOe]

Is oil overpriced in dollars? I think the same effect is seen in more places than gold.

[P Brooks]

The system should also consider employing gold as an international reference point of market expectations

Call me silly (and I declined the FT's generous off to let me register in order to see the article in its entirety) but calling this a call to "return to the gold standard" strikes me as bullshit.

If Alan Greenspan had bothered to lift his gaze from the "official" statistics and look at the ratio between income and mortgage balances, we might have avoided a lot of agony.

[Michael Ejercito]

What are the disadvantages of the gold standard?

[robc]

Governments cant play spending games.

Oh, you said disadvantages.

[R C Dean]

What are the disadvantages of the gold standard?

A pure gold standard runs into trouble when the increases in gold production get out of sync (usually, by falling short) with increases in productivity/wealth.

That leads to a liquidity shortfall, deflation, currency hoarding, and some pretty severe potential dislocations.

Of course, fiat currencies lead to liquidity excesses, asset bubbles, inflation, and some pretty severe potential dislocations as well.

But of course, our friend at the World Bank isn't suggesting a gold standard. He is suggesting that gold be included in the basket of currencies used to create a new international standard/reserve currency.

[CrackertyAssCracker]

A pure gold standard runs into trouble when the increases in gold production get out of sync (usually, by falling short) with increases in productivity/wealth.

Oh, Bullshit. When can we take this old piece of crap myth out back and shoot it? It's just the same old Phillips Curve/Keynsian nonsense argument re-jiggered (no racist). Prices are allowed to go down. If we are getting more productive prices should go down.

[joe4liberty]

AMEN! AMEN! AMEN! - Intrinsic value can only be quantitatively established against something of set value. Why gold? I have no idea, but it's been the standard for thousands of years, so why fight known history.
Attempting to value something in currency (inflatable/deflatable) is like trying to weigh something on a scale using different - no standardized comparison weights. If someone tried to do so, we would all universally call the guy an idiot (not to mention NEVER trade with the guy), yet when the government does the same thing with our currency, we conceptualize that there might be some viable rationale to it, and write long diatribes on blogs debating its merit.

[R C Dean]

Honestly, I think this thread illustrates the split between those who conceptualize gold as Just Another Commodity, and those who conceptualize it as currency.

Personally, I think what we are seeing is the market shifting gears, from the former to the latter.

Gold has been treated as JAC for about 40 years now, and given the apparent pending catastrophic failure of the fiat currency system, will go back to its historic status (for thousands of years) as a form of currency. Historically, gold-as-commodity is the aberration, not the rule.

[robc]

I dont think it was ever JAC, we just thought it was and tried to treat it that way. We never left the gold standard. The dollar did.

[The Rogue Economist]

Then again, gold is hardly unique in its status among commodities... other industrial metals as well as oil have similar properties.

The question, however, remains as to whether or not even the forced discipline of a gold or other similar currency standard would actually hold in a modern era, and what the value of gold may have to do to support the currency bases of the largest economies.

[Brett L]

If people believe that commodities have ratios, it should lead to a pretty safe base. 1 gold = 13 silver +/- 5 = 15 bbl oil +/- 4 = $700 +/- 100, etc. While you're still on a gold standard, you have a large basket of commodities to monetize and everyone knows about how much value your economy produces.

Electrons in spreadsheets still = $0

[Old Mexican]

Look, I don't give a shit - I am just waiting for the final collapse of the dollar so I can buy cheap farmland from hungry American farmers for two gold coins, and use it to grow Agave.

[Troll]

Here's what I don't understand, feel free to talk to me like I am six years old.

Goldbugs are essentially betting/hedging against the collapse of the dollar, n'est pas?

I interpret that to mean that gold would be used as a form of currency in a post-fiat currency world.

But no one ever actually takes possession of the gold, it only exists on a financial statement from (in my case) Wells-Fargo.

PLUS, you would have to shave the gold into itty bitty pieces in order to exchange it for goods and services, like daily consumables.

Someone please enlighten me....

[0x90]

You are correct to point out that the quantity of gold (just for example; the same applies to any other eligible commodity) it takes to purchase any given item is inherently tied to the overall quantity of gold available at any given time. That is a problem, since population, technological advance, and the gold supply are all independent factors.

The solution lies in realizing that the only problem with money is not what backs it, but that effectively, there exists no competition. In a competitive environment, no backing at all is necessary, nor is it desirable. You would use brand X or Y based on the fact that when you store your work in it, you are able to retrieve it later without it having lost any perceptual value. If you look at the currency exchanges and see that the brand X which you have chosen is being abused (i.e. over-inflated, generally) you will want to make moves to holding brand Y. The need to track this would be abstracted away by the market; you would not actually hold X or Y, you would hold an account managed by people who do, and you would pay out in the chosen denomination of the person from whom you are purchasing. Most likely though, even this detail would be abstracted away, with end users exchanging a single, generic 'credit', the actual backing of which would be a continuously variable ratio of competitor currencies, as determined by daily trading on the currency markets.

The problem with tying the value of a currency to a commodity is that there exists no commodity which does not serve other, unrelated purposes. Take gold for example: in its heyday as a currency, it had very little utility as a consumable. This is no longer the case, and imagine what happens to the value of your gold-pegged currency supply when a new technological advance requires its consumption on a non-trivial scale. The same goes for any other imaginable hard backing.

This is the main reason why a non-backed currency, provided there exists a competitive market, will out-perform any commodity-backed currency, in terms of what you expect money to do, i.e. holding a consistent perceptual value. The primary motivations for an issuer to maintain stability are twofold: (a) the venture is a potentially lucrative one, and (b) the degree to which (a) is true is directly tied to the performance of your product. That is to say, the way you make a living is by printing money for yourself; that represents inflation, but the printed money is only as valuable to you as it is to your customers, so you over-print at your own risk. As some specific inflation rate is absolutely necessary to maintaining a stable currency value (that is your product), your main job becomes balancing the overall inflation of your currency, with respect to the ratio of money used to conduct business vs. that which is injected into the market.

This (grossly simplified model) may seem counter-intuitive and dangerous at first glance, but if you play out the various scenarios, you will see that it is not. A currency producer no more has the ability to produce a worthless currency than does any other type of company have the choice of producing a worthless product, or of arbitrarily raising its prices.

[CrackertyAssCracker]

The problem with tying the value of a currency to a commodity is that there exists no commodity which does not serve other, unrelated purposes.

this is not a problem. Money is just the most trade-able and store-able and transportable commodity. If something didn't have another use, it wouldn't be money.

(and our current money's other use is that it lets you keep your house, and it "lets" you pay your income taxes on barter transactions. I.e. it's a "have a normal life and don't go to jail" coupon.)

[0x90]

"If something didn't have another use, it wouldn't be money."

No, if something does not have value, it cannot be money. The best sort of money need not, and as I argue above, should not, serve any purpose other than its being a medium of exchange.

[joe4liberty]

Troll: you are still thinking in currency rather than in money. Let me suggest that you do a google search on "Weimar ? hyperinflation" ? it'll give you a very good education.
Simplified, it's like this: to keep things simple, let's just say that gold is priced at $1,500 per .oz. Which means that today, you could buy $150 worth of groceries for 1/10 of gold. Now let's say that we have 100% inflation over the next month. The value of gold will double, but so will the value of gold. Which means that you will be able to buy $300 worth of groceries for 1/10 .oz of gold... and you will walk out of the market with the exact same amount of groceries as you did the month prior.
Money has a set value; currency can be inflated and deflated. Sometimes money is a currency (when we were on a gold standard), and sometimes they are different (as the dollar is now).
PS, you won't have to "shave off bits of gold to buy things, the price of things will go up as the price of gold goes up (if you doubt that, look at your electric bill today, and dig one up from 2000, and compare. But if you don't need 1/10 .oz gold worth of groceries today, you have silver which will allow you to buy smaller ticket items.
With all of that said, this is why a gold backed currency (money), is the best solution, because you can have fractions of gold, without having to shave bits off of it (gold certificates).
One last note, you don't have to keep your gold at Wells Fargo... see that coin shop you drive past on your way into work? Go trade some of your currency for some money - one day you'll be glad you did.

[joe4liberty]

I have a question. Call me stupid if you wish, but if someone could shed some light, I'd appreciate it. There seems to be a large contingency of people who believe that deflation is the main concern at this point. I don't get it. With the Fed pumping money into the monetary supply faster than my calculator can add digits, it seems to me that inflation is the obvious answer. Now I'm not asking if anyone here agrees that deflation is likely, I'm asking what the deflation argument is ? as you understand it. In other words, the question again is; how do we, or under what conditions could we, get deflation in the face of, or in the fall-out of, the government's current pouring of trillions of dollars into the monetary supply? I was pondering the 1929 crash and its resulting deflationary depression, and realize that today's situation is much different from that. I imagined what would happen if we had a crash today. I truly believe that the dollar must, at some point, crash (although that could take decades given the fact that it really should have crashed shortly coming off of the gold standard). I honestly cannot answer the question; could we end up in a deflationary depression, and if so, under what conditions? If so, I'm leaving a flank exposed, and I'd like to be prepared. I've prepared ? somewhat ? for inflation (well as much as a poor man can), but I have taken ZERO steps to protect myself from deflation. And I'm having a VERY hard time identifying HOW deflation could/would come in a crash scenario (or any scenario for that matter) given the trillions pumped into the monetary supply. Thoughts?

[CrackertyAssCracker]

Sure. The Fed could change theier mind whenever they want and engineer a deflation. That doesn't seem very likely given Bernanke's pro-inflation views. But hell, if they just stopped monetizing debt at this point it might feel pretty deflationary. They got the tiger by the tail.

[Troll]

Joe4liberty,

You attempted to answer my question, I will attempt to answer yours.

Confessing to a fair amount of ignorance, I think the 'deflationary' argument is based on propped up, overinflated housing prices. Neither the Fed nor the banks want them to correct to real market values. Lack of cash in the system (or cashless consumers) could force this to happen anyway, and the housing market is so big that it could trigger broader downward pressure on prices.

This thread is a few days old now, but I am tracking it because I am trying to learn, and monetary policy is elusive to me.