Simit Patel

Via Jesse comes the latest charts of the US money supply. See below.

MZM:


M2:



For more on what these numbers mean, see my previous post on money supply indicators.

A few observations:

1. Regardless of what measure one would like to use, it looks as though money supply is increasing.
2. As the actual definition of inflation is an increase in money supply (which often leads to an increase in prices), this would suggest the environment is inflationary.

US Federal Reserve Chairman Ben Bernanke has stated that he is not concerned about price inflation, and is “100% confident” in his ability to contain price inflation. It is subjective as to what level constitutes a “contained” price, though I would suspect we are at least getting close to the limit; see the chart below of gas prices in the US, which are now at a two-year high.


I suspect containing inflation would boil down to two things:

1. Raising interest rates
2. Implementation of price controls and restrictions on capital flows (which may include restrictions on speculative activity)

Personally, I view price controls as far more likely than an increase in interest rates. Increasing interest rates will hinder ongoing deficit spending and make the economy crash much harder. Meanwhile, a Gallup poll from 2008 suggested that the majority of Americans would be in favor of price controls.

Price controls typically result in shortages and black markets.

In any event, on going increases of money supply may create bubbles or price inflation in certain sectors, which can pose both threats to and opportunities for wealth accumulation.

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The Chartist

Nice post.

As you alluded above Simit; Economically speaking as long as money supply increases the stock market will increase, and I will add, albeit any negative fundamental news.

Also, price controls are man made disasters far worse than any natural event such as floods, hurricanes etc.

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slow to learn

Great information simit!
Either way were screwed in the long run. How long has the phrase '' Stealing from Peter to pay Paul'' been around ? As long as people have been trying to prolong bad policies from there own demise!

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larryfolson

None of this make sense to me, I don't see how inflation makes the economy better.

How does High prices due to de=value of the dollar help people? Wondering, is this an incentive for investors to create Jobs for people.

Oh thats right we don't manufacturer any thing the of labor is to high to pay people. So we will buy from china.

With the unemployment check.

I'm not as smart as other. But I know the system we have in America is not a good one.

All jokes aside. Lots of People are relay struggling It is sad.

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Simit Patel

no need to be sad, larry! folks have informedpoints, informedgold, (informedgas to hedge against rising gas prices coming soon) a free university to educate themselves....the "real world" may be filled with bad news, but here at informedtrades, life's party!

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larryfolson

Thants cool:thanks

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