Friday, April 4, 2008

To the Newbie Economists Out There - A Horde of Helicopters has Moved In

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I grabbed this blurb from Realmoney.com's Tony Crescenzi (link works for subscribers only) - it is M2, a measure of our money supply (the amount of paper money floating through the US) Unprecedented flooding of liquidity happening people... driving up ALL ASSETS. The costs? Inflation and (potential) weakness of the dollar although the latter could be debated as long as people think the US is on the road to recovery (which would lead to in theory a dollar rebound)

But the inflation portion is NOT a theory - it is fact.....in English what is happening is for every 5 dollars you have, the Federal Reserve is printing 1 more and throwing it into the system. So your dollars in your pocket are being devalued at a historic rate. So go spend it... QUICK... because it's becoming more worthless by the minute. Read on...

M2 increased $32.2 billion in the week ended March 24, according to data released late yesterday by the Federal Reserve. M2 has advanced $264 billion to $7.721 trillion since inflecting upward in the middle of January, a 21% annual rate.

These figures are unprecedented. The only periods close to the current period (they are not close at all, really) are September 2001 and in the fall of 1998, when the Fed cut rates following Russia's default and the Long Term Capital Management collapse.

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Here is a chart (with some delay) on money supply in this country via Shadowstats.com (who I believe is very accurate on his unemployment rate and inflation data - as it shows how government numbers USED to be reported before they were adjusted to make everything look more "benign").... you can see M3 going off the chart of late



I wrote a piece on M3 (which is a broader measure of money here - What is M3 and Why Do Yuo Care?). I've been using this M3 measure since the government stopped publishing it (I wonder why) 2 years ago, but I guess even M2 is being hosed. I know it sounds dry, but I really urge everyone to learn about what is going on behind the curtain of Oz so you realize why our dollar is being destructed and inflation will ramp. This signals to me that the Federal Reserve, while putting on a calm face, is frightened stiff of deflation... which is about 100x as bad as inflation is... think 1930s.... the total reluctance of our banks to loan money (instead hoarding it to fix their balance sheets full of toxic mortgage waste) appears to be the culprit from this pulpit. So to "solve" the problem, they are just creating more... and more... and more... money until it floods the banks and they have enough to lend out. What a system...


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