This morning’s key headlines from GenerationalDynamics.com
- Iran will ‘roll back’ its nuclear program, starting January 20
- Plummeting velocity of money explains deflation trend
- France’s ‘First Lady’ admitted to hospital
Iran will ‘roll back’ its nuclear program, starting January 20
U.S. Secretary of State John Kerry announced that the six-month dealreached between Iran and the West last November will beginimplementation on January 20, when Iran will begin to eliminate someof its uranium stockpile. According to Kerry:
As of that day, for the first time in almost adecade, Iran’s nuclear program will not be able to advance, andparts of it will be rolled back, while we start negotiating acomprehensive agreement to address the international community’sconcerns about Iran’s program.
The official Iranian news media confirmed the announcement, sayingthat Iran agreed not to expand its nuclear program and to suspend its20 percent uranium enrichment in return for a limited easing of thesanctions imposed on the country. According to the deputy foreignminister:
Today, we were informed that the six countries haveapproved the proposed solutions and have accepted them. And inIran, the relevant organizations have also reviewed and approvedthe solutions.
The approval was announced in a telephone conversation… and weagreed that the implementation of the first step of the agreementwill begin on January 20.
Approval of the deal may have been motivated by threatened passagein Congress of a bill that would automatically increase sanctionsif Iran failed to live up to its part of the deal. Support forthis bill is high among both Republicans and Democrats, andeven a threatened veto could be overridden. According toone Republican:
I’m concerned that this agreement takes us down thatpath where sanctions pressure is relieved but Iran maintains itsability to produce a nuclear weapon. Given these stakes, it’sregrettable that the President does not want to work with Congressto bolster his negotiating hand with additional sanctions, whichwould go into effect should Iran fail to meet itscommitments.
Plummeting velocity of money explains deflation trend
The strong deflationary trend in Europe is puzzling many people who don’t understand whymassive money “printing” by the Fed and other central banks isn’tcausing inflation or even hyperinflation in Europe, the U.S., andaround the world.
Financial “experts” on CNBC and elsewhere are highly motivated topromote inflationary expectations, even if they have to lie, becausethey want to sell stocks. If they convince you that hyperinflation iscoming, then you’ll want to get rid of your cash and invest it inthings like stocks, which can be expected to go up with inflation.They want to make sure that you don’t worry about deflation, sincethen you would keep your assets in cash rather than buy stocks and pump uptheir commissions.
When the money supply goes up quickly, it doesn’t always meaninflation, especially in the current world where central banksare “printing” money by purchasing bonds, and the money justgoes into the banks and into the pockets of investment bankers.Almost none of this money is reaching the ordinary consumer,who would use it to buy things and push up prices, orthe ordinary business, who would use it to hire people andpush up wages. Instead, it’s just sloshing around in thebanking system and through the stock market, where it’s beenpushing the stock market bubble to new heights.
In Economics 101, the inflation rate is determined by theformula:
inflation-rate = (growth in money supply) x (velocity of money)
The “velocity of money” counts the number of times a dollarbill passes from one person to another, which is a measureof whether anyone is buying or hiring. Here’s a graph ofthe velocity of money since 1959:
Velocity of Money, 1959-2013 (St. Louis Fed)
As you can see from the graph, the velocity of money started fallingrapidly since the Nasdaq crash in the year 2000, and even more sharplysince the financial crisis of 2007.
That’s why there’s been no inflation. The money supply has beenincreasing because the Fed has been “printing” a lot of money, but thevelocity of money has been plummeting with no change in sight. When you multiply the two relevant factors together, the inflationrate has been fairly constant.
This is the generational change that happens in every “greatdepression.” There is always a huge bubble from debt securitization,whereby pieces of paper saying “IOU” are traded as if they were money.This was even true in the famous Tulipomania bubble, when certificates were issued for tulips to be grown the following year.In the last decade, the certificates were synthetic securities createdby slicing and dicing subprime mortgage debts and fraudulentlyturning them into AAA securities. Once the bubble bursts, people savethemselves by saving money and paying off debt, causing the velocityof money to plummet, leading to a deflationary spiral.
The generations that survived the Great Depression of the 1930sreacted to the stock market bubble of the 1920s by becoming savers andremaining so for the rest of their lives. As they were replaced byyounger generations with no personal memory of the 1930s, a new debtsecuritization bubble occurred, and then burst. We’re seeing a repeatof the 1930s today, with the worst yet to come. St. Louis Fed Velocity of Money
France’s ‘First Lady’ admitted to hospital
France’s “First Lady,” Valerie Trierweiler, the official girlfriend ofpresident François Hollande, was admitted to a hospital on Friday fordepression after a gossip magazine published photos and a report thatHollande was spending nights with another woman, actress Julie Gayet,as we reported yesterday.Trierweiler and Hollande are not married, but they’ve been togethersince 2007, and they live in the Elysee palace together. There havebeen recent rumors that Trierweiler and Hollande are becomingestranged and that she may be leaving the Elysee palace.
Despite the fact that the French people claim that the president’s sexlife is nobody else’s business, this has become major news in France.There is a major presidential news conference scheduled for Tuesday,and Hollande and Trierweiler are scheduled to visit Washingtontogether next month. Hollande’s approval rating is alreadyrock-bottom, and this mess is expected to make it worse. BBC