Archives

Money Supply

Though the US administration no longer exposes itself by publishing the data, private analysts continue to monitor the money supply. The Feral Reserve is increasing the rate of money production to delay (and worsen) the day of reckoning. While it seems to be a reasonable compromise, there are three major problems with ramping up inflation.

Before that, here is the picture of what they are doing:
M3  money supply

Each dollar they inject into the economy is one more claim on the resources of the USA. That reduces the value of existing claims, or dollars out there already.  Another way to read this chart is upside-down as a definition of the value in each dollar year-to-year.  Fed production of dollars exactly mirrors inflation.

Keynesian economists can claim they don’t understand this direct connection, and perhaps some really don’t, but those are not the people you want in charge of your money supply or investments. Of course you also don’t want to entrust the health of our economy to those who DO understand it but undermine it anyway. That leaves the Austrian economists as our only intelligent choice. But they don’t have good news, so we stick with the counterfeiters.

Back to the major problems. One is that the poor, the wage earners, the fixed incomes, those living on past retirement planning are the ones who pay dearly for all of this. The frugal folks who saved money have to watch as that money purchases less and less every year.

Second is the bad signals this sends to businesses.  With savings penalized and spending rewarded via the devaluing currency, consumption and production get thrown out of balance by mal-investment.

The third major problem is that it has to end in a bust. Inflation always ends up running out of control before finally destroying the economy’s ability to operate.

I am resigned to watch this show. The ONE THING I ask is that when the poop DOES hit the fan that you remember what and who caused it. That you don’t believe whatever wild tales they undoubtably will spin to transfer the blame.

Hang ’em.