The Fed's Money Supply Armament is Underway

SafeHaven.com ^ | Jan 8, 2006 | by Robert McHugh

[Jack Black]

M-3 has been launched into outer space, up another $56.3 billion last week, up $92.4 billion over the past two. This is some real horsepower. Over six weeks, the meaningless figure, ahem, is up $177.8 billion. These annualized growth rates are 28.7 percent, 23.6 percent, and 15.3 percent respectively. Those are the seasonally adjusted figures. The raw, non-seasonally adjusted, figure is up $293.3 billion over the past 12 weeks, on a pace to add 1.2 trillion in money to the economy. Wow. There must be a need for this. Maybe the master Planners see a coming need to monetize our debt? To support markets? They tell us the economy is good, so clearly they cannot be stimulating our way out of a recession. There's a lot of money flooding the economy and it has to go somewhere. Right now it is lifting markets.

The following is pure educated speculation: What if Iran goes through with its threat to sell oil for Euros instead of U.S. Dollars? Well, then Dollars won't help you much if you want to buy oil from Iran. So, you sell the Dollars you are holding for Euros. Whenever anything is sold en masse, its value drops. This means less demand for Dollars, which means the Fed will not be able to print excessive amounts of Dollars without further driving down the Dollar's value. There would simply be too much supply. Right now, the Fed can print all the Dollars they want because the demand for Dollars has been on the rise, especially as the cost of oil has risen. In other words, lately it has taken more Dollars to buy oil, so the demand for Dollars has been up. Again, this extra demand has allowed the Fed to print all it feels like with little consequent damage to the Dollar.

However, if the Dollar were to tank - and the Iran oil Bourse should push the Dollar in that direction - it puts pressure on Treasury Bonds and other U.S. financial assets to fall as well, since they are denominated in a declining-value currency. In this event, the Fed would have to step up its buying of U.S. financial assets to lend support to these asset prices - to stabilize U.S. markets. In other words, the Fed would have to monetize the U.S. Treasury's debt, and also monetize equity markets (be the buyer that keeps prices from falling). This would take so much fresh money that the Fed would need to create it in secret. Thus, they would have to announce that they are no longer going to transparently reveal the level of the money supply, but will hide it. The alternative is to punish Iran for - and make no mistake about this - effectively declaring economic war against the United States.

If this speculation is true, then the Master Planners are likely preparing accordingly. But if this is true, you just wish there would be more forthright communication with the American people.

lots of technical analysis here

Closes with:

Gold gets it, that too many Dollars is inflationary. Gold is rising because M-3 is going through the roof.

[saganite]

ping for later

[Moonman62]

The same people have been saying the same thing for how many decades now?

[Mase]

This would take so much fresh money that the Fed would need to create it in secret. Thus, they would have to announce that they are no longer going to transparently reveal the level of the money supply, but will hide it.

Activate the Plunge Protection Team and BUY GOLD NOW ping.

[Sundog]

Ping for later.

[Toddsterpatriot]

In other words, lately it has taken more Dollars to buy oil, so the demand for Dollars has been up. Again, this extra demand has allowed the Fed to print all it feels like with little consequent damage to the Dollar.

Gee, why would the Fed print more dollars? Oh yeah, demand for dollars is up. Gee, that was easy.

[Toddsterpatriot]

Whenever anything is sold en masse, its value drops.

Exactly, that's why the record levels of oil being sold has led to lower oil prices...errr....never mind.

[hubbubhubbub]

The nerve of this guy to question the wisdom of our Central Planners. Nothing to see here, move along.

[Santiago de la Vega]

MZM is also growing.

Here's the most recent data for the last few years.

Click on the thumbnail to see the full-sized chart.



Notice that money's been growing since the middle of 2005.

The economy'll be growing and more inflation is on the way.

We'll know we have problems when the rate on long-dated US treasuries starts to rise.

Here's the data on Treasuries.



Notice that interest rates are up a full percentage point since the bottom in 2003.

I'm amazed. The Fed has screwed it up again.

I never thought we'd see this kind of money growth in the face of an inverted yield curve.

The Fed will have no choice but to keep short term rates high for quite a while longer.

Gold has been warning us there's too much money in the system and I wouldn't listen.

Stand back boys, there's fun times ahead.

Lock in those fixed rate loans.

[Toddsterpatriot]

Notice that interest rates are up a full percentage point since the bottom in 2003.

Yeah, rates go up when the economy recovers.

I never thought we'd see this kind of money growth in the face of an inverted yield curve.

The yield curve is flat, not inverted. It's been flat for what, the last month?

[Jack Black]

"the same people" .. well, the growth in M3 is merely a statistic. You may choose to agree with the Fed that it's not even worth measuring, or, conversely you might not.

[nopardons]

At least two. LOL

[nopardons]

ROTFLOL...here we go again! This is getting not only tiresome, but boring.

The next thing you know, there'll be gold plated Reynold's Wrap.

[Mase]

..there'll be gold plated Reynold's Wrap.

Then will it be time for the Cross of Gold Speech? LOL

[Moonman62]

We're doomed!!!

[nopardons]

Oh yes, absolutely...someone WILL dig up old William Jennings Bryant and it'll be THE CROSS OF GOLD speech piped all over the land! ROTFLOL

[Jason_b]

What on Earth is so funny?

WJB's COG speech was given because the banking syndicates of the 1890's were trying to demonetize silver and go on a pure gold standard, which did happen. This was thought bad and potentially deflationary by the folks who wanted silver to circulate concurrently with gold and be coined "free" at the mint. WJB was running for President and lost.

All that has nothing to do with M3 or MZM today, or this thread.

If I may offer a hint, what savers and those about to retire are collectively being crucified on today is a cross of monetized debt and the associated inflation, which is partly why the savings rate is at an historic low. If a few folks think buying gold will preserve their wealth, or real estate will too for that matter, what's it to you?

[Jason_b]

"The Federal Government, with the cooperation of the Federal Reserve, has the inherent power to create money - almost any amount of it."

- The National Debt, Federal Reserve Bank of Philalelphia, pg. 8

And that is exactly what they have been doing. JB

religious link nonetheless tells truth about our communist money

[Mase]

what savers and those about to retire are collectively being crucified on today is a cross of monetized debt and the associated inflation,

Do you think inflation has been more volatile or less volatile since we went off the gold standard?

which is partly why the savings rate is at an historic low

Or, maybe it's because the government doesn't include 401K contributions or earnings from capital gains when they calculate the savings rate. But they do count the taxes paid on capital gains against the savings rate. What's funny is people who complain about the rate of savings yet have no clue about how it's calculated. Most people also don't realize that we have the highest per capita assets in the world which makes us the best savers in the world.

If a few folks think buying gold will preserve their wealth, or real estate will too for that matter, what's it to you?

This is funny too when one considers that the long term return on gold is less than inflation.

Gold bugs believe many funny things about M3, MZ, The Federal Reserve and others, which is why it's all relevant to this thread.

[nopardons]

LOL...you just don't get it and it doesn't really natter that you don't. The Crucified on a Cross of Gold speech is part of FR slang and always used on gold bug threads.

American s have notoriously been at the bottom of the barrel, vis-a-vis saving, for that past 50+ years. It has little to do with any of the reasons you gave. And FYI...today's inflation rates are far lower than they used to be. If you doubt that, look at what they were 25 years ago and then, 40 years ago and then....well, I can give you all sorts of dates, but you know where I'm going with this; I hope.

[nopardons]

The REAL problem with the goldbuggers, is that they never ever seem to know any economics, history, nor can they give any concrete, factual examples of what they are claiming to be "factual".

If someone had bought gold, in the mid 1980s, as a way to save for their retirement, this year, they wouldn't have made one cent. Rather, they would have lost money. Real estate? Neither gold nor real estate pay any dividends and most people buy real estate to live in. And with the rise of housing prices, to replace a home today, will cost as much as the sale of one's home; if not more...unless someone is REALLY downsizing something terrific.

[Jason_b]

Do you think inflation has been more volatile or less volatile since we went off the gold standard?

The graph from Dr. Sahr's website PDF shows price levels in constant 2005 dollars. As you can see, the bend which indicates an acceleration in prices occurs not in 1745, not in 1905 even, no...; but it is close to getting started in 1933 (coincidence? I don't think so) but really gets going in 1945 after the war ended. 33 is when we citizens were taken off of it. And by the time Nixon closed the gold window, inflation was well on its way, and continues to this day.

I started a job in 1997 and have received good increases every year for having learned new skills (no mention of a cost of living increase when I received them) and they were in the neighborhood of 5.5%. I consider that my base salary amount that year is what I earn every year, plus the increases of each consecutive year.

Example: in 1997 I made x.
1998, x + increase98
1999, x + increase98+increase99
and so on. I'm interested just in x to keep it simple and I'm referring to that as my base over the years.

I get to this year and enter that base salary (x) into the internet inflation calculator and what do I find? That "x" doesn't buy what it used to. It would take an additional eight thousand dollars to buy the same goods, x +$8,000.00, this year alone. NOW... I consider that theft. My increases compensated me for my learning, not inflation. Next year I'll be behind even more. And this doesn't even include the inflation loss of purchasing power to my increases, nor previous years base salary losses.

So to be fully compensated, I have to figure the loss of purchasing power to each year and all the increases to be compensated. I'm not even going to do that because I don't want to get madder than I already am.

If mentally dismiss my increases for learning as compensation for inflation instead, then what about my rewards for acquiring more marketable skills? Either one is stolen from me or the other.

Now if I embezelled $8000 from my company, I'd go to jail; if I cheated on my taxes to that amount, I'd be fined and sent to jail; if I broke into a house to steal that amount, I could be shot; and no one would have any sympathy for me under any of those scenarios. Plus, people would tell me how immoral I am.

But I suffer this loss and the fiat money hens at free republic cluck,

Cluck, cluck..."LOL...you just don't get it"
..."And FYI...today's inflation rates are far lower ..cluck
..."Gold bugs believe many funny things...cluck cluck

I'm glad you are all so amused because the same effect inflation is having on my salary, is also happening to yours. Go ahead, type your starting salary HERE and tell it the starting date and the ending date. If you have not received an adjustment for the difference you are being ripped off. Prove it to yourself. Your "x" gets smaller every year and you are not restituted for that.

So you hens just cluck on about how inflation is low or under control, we'll see what you say after a few years when you are positive you should have more to show for your labors and prices have doubled. I'd like to see the expression on your face after you realize inflation that you once dismissed is responsible.

As an aside, I'll grant the obvious point another one of you posters made, that depending on when one buys gold it will either be a good or bad investment. Of course, that goes for anything including stock. Someone who bought at the top of 1929 and held on had to wait some ridiculous amount of time to break even in non inflation adjusted dollar which would have still been behind in inflation adjusted dollars...too old to enjoy it.

[Mase]

And by the time Nixon closed the gold window, inflation was well on its way, and continues to this day.

I can't access your link to Dr. Sahr's website, but it's clear from your discussion here that you understand that inflation has averaged around 2% since the Breton Woods gold standard was dropped. Has something changed since November?

According to these charts, inflation has been much less volitile since we left the gold standard.

I can't speak to your specific situation, but it is obvious that our real incomes have increased over time. How else could per capita consumption have grown at an average annual rate of 2.3% over the past 30 years?

"Moreover, real earnings of the average worker have continued to rise. Over the past century, per capita real income has risen at an average rate of more than 2 percent per year, declining notably only during the Great Depression of the 1930s and immediately following World War II. Incomes trended higher whether we had a trade deficit or a trade surplus and whether international outsourcing was large or small."

"Productivity in the United States has increased generation after generation, creating ever-rising standards of living. This trend has persisted whether our competitive advantage came from the development of more efficient technologies in agriculture, textiles, and steel, or, more recently, from the design and fabrication of microprocessors and the harnessing of the human genome. Our knowledge-based skills in a business environment, supported by a rule of law, have enabled our workforce to create ever-greater value added--irrespective of what goods and services we have chosen to produce at home and what and how much we have chosen to import." "The fact that, over the years, more than 94 percent of the workforce has been employed, on average, indicates that U.S. workers apparently have been sufficiently skilled and motivated to learn the new tasks that enable them to earn, on average, an ever-rising real wage."

Greenspan: FRB Speech

Of course, I, like many other Americans, receive more and of my income from investments. The average American gets only about two-thirds of their income from wages these days and that's a good thing.

Another reason that workers today have made substantially greater economic gains than the wage data may suggest is that more Americans than ever derive income and wealth not purely from labor, but from ownership. Between 1980 and 2005 the share of Americans who are workers/stock owners has doubled from 25% to 52%. Since 1980, shareholder wealth has increased by about $15 trillion.Those wealth gains used to be hoarded by the wealthy, but thanks to innovations like 401(k) plans and IRAs, the wealth gains from the American bull market have been further democratized and the dividends have been spread more widely to middle-class America."

The Wages of Prosperity

I'll grant the obvious point another one of you posters made, that depending on when one buys gold it will either be a good or bad investment.

Not exactly a store of value like the gold bugs would have us believe now, is it? If you bought gold between 1980 and 1987 you still haven't made your money back. Of course, over the long term, equities have outperformed gold, bonds and inflation. You can have your gold. I'll gladly keep my fiat currency invested in the market where, including dividends (can't get those with the yellow metal), it doubles in value about every 7 years. With those kind of returns on my investments, and wages that increases faster than the CPI, I'm not all that worried about inflation.