Spend Your Dollars Quickly before They Print More

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 to 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...quickly... 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.

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 You 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 destroyted 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...

Comments

[Mong:]

Right. What do you propose to spend money on? Would a house do?

2008 Apr 07 08:01 PM

[Timmothy Posey:]

Sad to see all the MarketWatch.com Chicken Littles and inflation-kiddies start to take over here.

2008 Apr 07 09:12 PM

[locke:]

Increasing monetary supply does not necessarily imply inflation.

2008 Apr 07 09:57 PM

[bearfund:]

locke, actually that's what inflation *is*. If it doesn't translate to price increases, that's only because the extra money is being hoarded. But this is all moot because, however much the banks have hoarded, it very clearly has translated to price increases. If you don't believe this, step out of your ivory tower and ask the man on the street. Yes, CDOs and MBSs are down, but man does not live on paper alone; normal people spend most of their money on things like bread, milk, gasoline, heating oil, and rent. You think those prices haven't risen? Look at the charts for DBA, DBC, UNG, and USO if you need something familiar to help you understand the situation.

Ignoring this, doctoring the CPI, or brushing off multi-year persistent trends as "volatile" is dangerous to your health. It leads to alienation, which is how economic problems become social and then military problems and how democracies become failed states. Stop pretending nothing is wrong here. Many things are very, very wrong and eventually the common man is going to put 2 and 2 together and figure out the primary cause. You do not want to be among those saying nothing is wrong when that time comes.

2008 Apr 07 10:50 PM

[lowem:]

If the money supply increases at a faster rate than the increase in available goods and services, then it will lead to inflation. Classic Austrian definition. But few people believe in this one nowadays. Which also explains why we are where we are today.

2008 Apr 07 10:53 PM

[Timmothy Posey:]

Inflation is typically a lagging indicator. I believe the "recession" will dampen demand, especially international demand for commodities.

If not, oh well. Contrary to popular belief, the world will NOT come to and end just because oil stays above $100 a barrel.

2008 Apr 07 11:24 PM

[Alan von Al...:]

I'm spending my US dollars on durable goods, foreign currency, paying down taxes and fees. If I had any debt that would be top of my list.

I think it's likely there will be coordinated G7 paper-ing, led by the US Federal Reserve and Congressional spending, but I agree with Milton Friedman, who argued that the amount of money in circulation is arbitrary and unimportant. What matters most is real inflation-indexed profits, retained earnings, and private employment.

2008 Apr 08 01:04 AM