I was surprised to see that the US government made US$81.4 billion in cash out
of papers, inks and base metals in the last year, taking the total cash in
circulation (essentially the M1 money supply) to $907.4 billion, whereas the M2
money supply is about $8.3 trillion (nine times larger) and (saving the best
for last) the M3 money supply, which counts everything that can possibly be
construed as "money" in the most liberal sense and making all kinds of
assumptions, is almost $15 trillion, as close as anyone has been able to figure
out, meaning that the money supply, at least as measured by M3, is now larger
than the economy of USA!
For all you "velocity" freaks out there - and there are quite a few of them -
substitute gross domestic product (GDP) as the "P" times "Q" part of Fisher’s
famous equation MV=PQ (or, money supply times velocity of money equals price of
everything sold times
quantity of things sold) and you get a velocity of less than 1! Hahaha! What in
the hell is a velocity of less than 1? Hahaha!
Before you fire off another venom-laced email where you insult my intelligence
just because I sound so stupid, act so stupid and look so stupid, I already
know it doesn't mean anything that I can understand, mostly because I am kind
of, well, stupid.
But it is only an example of the kind of weird, strange crap you will see from
now on, especially when all those trillions of dollars that have been created
are exchanged for toxic assets, and all the future trillions of dollars to be
printed by the Federal Reserve to finance the government's massive
deficit-spending, start burning a hole in somebody's pocket, probably thanks to
Congress coming up with some new "Get 'em buying!" tax scheme that will,
inevitably, backfire and make everything worse and worse until it all collapses
into what we hotshot professional economists call a Big Worthless Pile Of
Financial Crap (BWPOFC).
And the reason that I am so sure of things turning into a BWPOFC is that, as
Milton Friedman so famously said, "Inflation is always and everywhere a
monetary phenomenon", which seemingly guarantees inflation in consumer prices
as a result of all of this new money flooding into the world's economy, which
is a monetary phenomenon in itself, in that it has only been tried by desperate
countries in a last-ditch, kamikaze blaze of what they hoped would be glory,
but was instead, always and everywhere, turned out to be just stupidly
suicidal.
And how much inflation can one expect? Good question! The answer is remarkably
symmetrical, as Howard Katz of thegoldbug.net says, "Over the past year, the
amount of money in the US has increased by almost exactly $1 trillion. This is
a 70% increase from a year ago," and "it will cause an approximately 70%
increase in prices with a one- to two-year lag time," which, looking at my
watch before realizing it does not have a calendar, has already been one year
of this "one- to two-year lag".
Billionaire Warren Buffet, who is not given to hyperbole and outlandish
forecasts, says that he expects inflation to be as bad as it was in the 1970s.
And how bad was that? Mr Katz says, "The greatest price increase in American
history was 13.3%, in 1979."
And if you don' think that gold will shoot up when inflation starts roaring
like that, then you are obviously new at this investing business and you
haven't had time to look at what happened to the price of gold when it was $35
an ounce in 1970 and over $800 an ounce by 1980 when the inflation (from the
vast expansions of the money supply needed to simultaneously finance the War on
Poverty and the War in Vietnam) was rising along this same parabolic ride.
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 2009, The Daily Reckoning.)
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