FED report shows 75% year over year inflation
It isn’t very often that we get to look into the FEDs numbers. A recent report by the St Louis Federal Reserve shows us the adjusted monetary base, or M1 statistics. M1 statistics include all physical forms of cash (cold hard cash like you’d have in your wallet) plus the amount of money in bank reserves at the FED.
This report shows us the huge amount of inflation that has been created by the FEDs recent entry into the market to stabilize the economy, and the costs of half the $700 Billion bailout which were added to the reserves at the FED. In just the past three months the adjusted monetary base has skyrocketed from around $850 Billion to $1.5 Trillion.
A huge spike in the adjusted monetary base, M1 from now on, is most alarming because of its affects on the economy. Due to the way that the FED and fractional reserve banking works, banks are able to reserve just 10% of deposits and loan the remainder. This forever multiplies money through the many banking branches where inevitably as much as $9 Billion could be created from just $1 Billion. Or in this case $1.5 Trillion could ultimately become $13.5 Trillion.
The M1 money supply is the true amount of money out there in circulation right now. While M3 (which hasn’t been reported since 2006) may be in the tens of trillions, the majority of the “money” in that calculation is credit instead of true currency. M1 is currency, its the amount of money that is spread amongst every wallet and purse in the world.
When people go to spend money they’re spending either M1 or M2 money. Cash in its purest form, or digits in the banking system. While M1 sits at $1.6 Trillion, bank deposits are about 3 times higher at around $5.5 Trillion. Those bank deposits are simply digits, and are not representative of the amount of cash in the system.
The problem with this insane amount of inflation is simply inflation. When the M1 amount begins to be spent for goods and services prices will inevitably rise as people are able to pay more for the same amount of goods or services.
Knowing how much the FED is pumping the system should give investors a clear signal, commodities prices are about to boom again. There is simply too much money in the system for $40 oil or $800 gold and $10 silver.
Looking further into the report is a chart outlining the amount of inflation in the M1 supply by percentage. In just one year the M1 supply from December 5 2007 to December 3 2008 grew by 75.2%. That’s a horrific amount of inflation, and the overwhelming majority of it occurred in just the last 3 months.
As the market corrects for this unheardof expansion of monetary base there will be a resurgence in prices of goods around the world. When this will happen is less science and more nature, but the end result is the same. Expect an overwhelming inflation number in 2009 unless something drastic happens soon. An additional $350 Billion from the TARP program could send inflation numbers even higher.
Was thinking this, but on analysis i realised when confidence is sapped from the market, this money is going to end up in people’s bank accounts and not actually spent. This will allow consumers to start building a monetary base with which to regain confidence and actually start spending.
Once confidence is back, we do have a problem with a possible inflation (the govt could simply de monetize by issuing a lot of bonds) but hows about this:
Nearly every retailer has cut prices by 20 - 30% to entice shoppers , and this is likely to continue for the forseeable future until some companies go under. (granted staple products like food have not) - now once a sniff of confidence appears and consumers start buying those jeans and those TV’s, expect this horrendous discounts to disappear as quickly as they started, leading to a 20 - 30% inflation in retail goods anyway
It’s easy to understand the revulsion and even hate that has surrounded disgraced alleged Ponzi-schemer Bernie Madoff (aka Bernie Made-Off) or why one of his victims, Yeshiva University’s business school, decided to white-out his visage from the web page of its annual dinner.
I’m sure that the people victimized by this scum would be delighted to white-out the actual Bernie Madoff, and not just his punum in some photograph.
But it’s less easy to figure out exactly what motivated this gent (assuming, again, that he actually did all the stuff attributed to him…. we do have a presumption of innocence and all that). In other words, what was Bernie Made-Off made of? Was he a schmuck or a shtarker? (Forgive the lapsing into pidgin Yiddish.)
This was not some sleazebucket penny stock pimp, but rather a respected trader who was a pillar of his community and philanthropist. I have to admit: I’ve been writing about scam artists for the longest time and I just can’t figure this one out. (I’m having similar difficulty figuring out how the CEO of National Lampoon got mixed up with stock scamsters.)
Several possibilities occur to me:
1. Madoff commenced the scam in the hope that it could be terminated at some point and his investors made whole without their knowing anything had happened. Sort of like the bank teller who steals and then tries to put it back.
2. Madoff was a sociopath, who knew precisely what he was doing at all times and felt that he could get away with it indefinitely, and had that mindset from day one.
3. Madoff commenced in the hope that he could make his investors whole, but after a while realized that it was easy money and that he could get away with it indefinitely.
This is all pure speculation, of course. His statements just before his arrest, as described by the feds, give the impression that Nos. 1 or 3 are probably the closest to what happened. But then you have the nature of the victims, elderly people and charities that Madoff allowed to “invest” in his scam knowing that they were flushing their money down the toilet. He may have begun the scam as a boob, but he ended up as a criminal.
Again, that does not answer the “why” question? Why did he do it? Did he have some kind of gambling or substance addiction? Were there third parties involved? Was he being extorted or muscled? Was he the only participant or beneficiary of this scam? I find it very hard to believe the story being circulated in the news media that he was the only person who knew about the scam. I also wonder if his public image was as manufactured as his financial statements.
I’m sure that criminologists will be studying this one for a long time.
@Jordan (aswell)
The building of a overly big monetary base is what is overly alarming. The probably with a large monetary base is that when the economy seemingly turns around and people start spending again, this monetary base is going to be multiplied.
As the base makes it way out in the form of loans, it will also make its way in to other bank accounts and work its way through the leveraging of any Fractional Reserve system. That $1.5 Trillion can and will be readily multiplied.