'..At its heart it is a crisis of the fractionally reserved banking system..'

<blockquote><blockquote>' '..the refusal of Bernanke and friends to even acknowledge Austrian or Kondratieff economic constructs has been and will continue to be their policy making downfall. Who knows, maybe all of this will find its way into the economics textbooks of tomorrow. Let's hope so anyway for future generations. But as the old market saying goes, people don't repeat the mistakes of their parents, they repeat the mistakes of their grandparents.'

- Contrary Investor (It's A Long Hard Road, September, 2011)</blockquote>

Focus on Money Supply Alone is Fatally Flawed

Deflation is about credit, it is also about attitudes that govern the demand for credit.

As I have stated many times over the years, and as stated above in the Contrary Investor, there is nothing the Fed can do to force businesses to expand or banks to lend.

That point explains why Austrian economists who focus on money supply alone have failed and will continue to fail.

Until consumer demand returns, businesses would be foolish to expand. Unfortunately, the Fed's misguided easing policies have stimulated commodity speculation thereby increasing manufacturing costs, while simultaneously clobbering those on fixed income and reducing final consumer demand.

I wrote about the plight of those on fixed income in Hello Ben Bernanke, Meet "Stephanie" back in January. Please give it a read if you have not yet done so.'

- Mike "Mish" Shedlock, Bernanke's Waterloo; Midst of Deflationary Collapse or Brink of Inflationary Disaster? 12 Specific Recommendations, September 07, 2011</blockquote>


'..At its heart it is a crisis of the fractionally reserved banking system..'

<blockquote>'As we have pointed out many times, we believe that at its heart, this is not only a crisis of the European welfare states and their unpayable debt. At its heart it is a crisis of the fractionally reserved banking system. The manner in which fiat money 'works', whereby the debt issued by sovereigns is used as the 'reserves' of the banking system, is deeply flawed. In the euro area this has merely become obvious more quickly than elsewhere as the supranational central bank stands in the way of member nations 'inflating the debt away'.

The entire monetary system rests ultimately on a mixture of coercion and faith. Legal tender laws prescribe that fiat money must be used in discharging public and private debts, while the idea that the debt issued by sovereigns represents a 'reserve' for the fiat money issued rests on the notion that these states will forcibly take more of their citizens wealth in the future. Given the size of the liabilities, both currently extant and so-called 'unfunded' liabilities, it appears people think that there is a sheer endless reservoir of wealth that can be plundered. Or rather, 'used to believe'. Confidence in this system certainly appears to be crumbling, although no-one in the establishment as of yet questions the system as such, at least not publicly.'

- Acting Man, Close The Edge, Down by The River…, September 7th, 2011</blockquote>