If you want a real-world example of how inflation in consumer prices follows an
increase in the money supply AND how an increase in anti-social, war-like
behavior follows increases in prices, then a report from Bloomberg.com is just
what you are looking for. It says, "Iran's annual inflation may accelerate to
50% if a plan to introduce cash payments for the poor is implemented, Sarmayeh
reported, citing a parliamentary deputy."
So, if they introduce cash payments by increasing the money supply, prices will
soon go up, and people will begin starving because prices are so high, making
people riot. But if the government does not introduce cash payments for the
poor, then the people will riot right now because they are starving since
prices are already high! Hahahaha! An interesting choice!
I started out with a gallows-humor laugh like that because I am sure that we
all need a good laugh, as Federal Reserve Credit, which Barron's calls Total
Fed Credit, was down a massive $85 billion last week, which is a simply
staggering sum, although it is a long, long way from the $10 billion per month
that Alan Greenspan was jamming into the banks since 1997 that created all the
inflations and bubbles and weird economic distortions that we have.
But yet this huge reduction of $85 billion in a week is, somehow, a non-event,
especially considering that the Fed has doubled the stock of fabled High
Powered Money to over $2 trillion in just the last couple of months! Beyond
astonishing! Unbelievable but true, although you won't find it at the "Ripley's
Believe It or Not" exhibit because they all said, "We don't believe it!"
It's actually beyond unbelievable, too, and is instead more like
flabbergasting, and I am quite sure that if more than a trillion dollars of new
credit added to the banks and an equal amount of new Treasury debt added in a
couple of months won't gast your flabber, nothing will.
As you would expect, the monetary base went up to $1.476 trillion, which has
now almost doubled in the last three months, too! Doubled! Yikes!
You can probably tell by the way my eyes are rolling back in my head and my
breath is coming in ragged gasps, or by the way I am clutching at my chest and
gobbling nitroglycerine pills while screaming, "We're freaking doomed!", that
this "doubling of the money supply" is Serious, Serious Stuff (SSS), mostly
because inflation in prices follows an inflation in the money supply, and
inflation in criminal behavior by desperate people follows an increase in
prices, and economies do not thrive when everyone is afraid and starving
because they can't afford food, which will then encourage the government to try
to bail everyone out by even more deficit-spending, which will be again
accommodated by the Federal Reserve creating, again "out of thin air", the
necessary amount of credit in the banks so that it can be borrowed and used to
buy the new government debt, which will add even more money to the money
supply, making more inflation in prices and more catastrophic distortions in
the economy worse and worse until (my voice rising to a crescendo) the Whole
Freaking Thing (WFT) falls down in a Big Stinking Heap (BSH)!
Normally, this is the point where I would launch into a Long And Tiresome
Mogambo Harangue (LATMH) about how gold always goes up in response to such
rampant debasement of a currency and the ruination of an economy, but instead,
now I just want to know, "Where is all of this new money ending up?"
Well, the money is not showing up in MY pocket, that's for sure, as even my
wife and kids can attest, as they are always rifling through my unguarded
wallet and pockets when I am in the shower, and I can hear them whining back
and forth that I don't have any money for them to take, which makes me chuckle
to myself ("Haha!") that it only shows how stupid they are that they did not
check inside the spare tire of my car to see if I had cleverly stashed some
cash there to keep from being financially killed by my greedy family of
blood-sucking parasites draining me dry of every bit of cash and assets with
their incessant, whining demands for "heat", "food" and "medicine."
But perhaps a clue as to where some of these trillions of dollars of new money
goes can be found in Doug Noland's
Credit Bubble Bulletin (Asia Times Online, December 2, 2008) where we
are informed that Total Money Market Fund assets increased to $3.714 trillion,
and "have posted a one-year increase of $641bn (20.9%)".
And since inflation in prices follows inflation in the money supply, and since
the inflation in the price of gold follows inflation in prices, then you can
see where I am going with this and thus there is nothing more to be said! Whee!
Buy gold! This investing stuff is easy!
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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