Saturday, November 8, 2008

This Is What Inflation Looks Like

This is what inflation looks like: This is a chart of the Adjusted Monetary Base (AMB). You can find it updated regularly at Gary North's site or by visiting the Federal Reserve site directly. It displays how much money is in circulation on the basis of money entering and leaving the FED. Money enters the FED and leaves circulation (e.g. the money supply is reduced) when the FED sells assets (rare) or when banks deposit money with the FED to pay off loans or to satisfy their reserve requirements. The money supply increases when the FED buys assets, since it creates the money to pay for them "out of thin air" as it were, or when it lends money to banks as part of its open market operations to "control" interest rates. This is how interest rates are suppressed, which leads to the asset price bubbles and the malinvestment described by Austrian business cycle theory. You can see that areas where the curve flattens out for a spell are usually followed by one of those grey vertical bars after a year or two. Those grey bars represent recessions. Soon there will be one where we are today. What you see is a ~50% increase in the supply of money over the last ~1.5 months. If this does not reverse, the dollar will soon be worthless. Pay careful attention to the lower axis. The chart goes back to 1980. This is a very, very big deal that you won't hear about most places because mainstream dimwits only follow interest rates.

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