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Sapiens
02-20-07, 12:58 PM
http://www.vlogolution.com/vlog/moMONEY/20060419.html


No Inflation? - So what's up with the Exploding Money Supply! The fed inflates our money, reduces our buying power, but at least they can let us know the current level of M3!
Also, learn how you too can make a 2,210,369% return in the stock market!

No inflation here - no inflation there - no inflation anywhere - why can't people just believe it - well, maybe because prices seem to be spiraling higher day after day for general necessities? but corporate profits are up - the markets are booming - well, actually, I guess commodity prices are soaring too - but thank goodness there's no inflation here...

In fact, there's so little inflation, why should we (the Fed) bother telling anyone how much new money we keep printing - gosh - imagine how rich I could be if I could do that and NOT go to jail! [Note 1]

But hey, the stock market keeps roaring ahead! well, yeah - keep dumping more cheap money into the economy (ie. otherwise known as "adding liquidity") and hopefully a good chunk of it will end up in right stock indices. companies are making more money - yes, they are - BUT remember it's CHEAPER money - which of course we're still taxed on all the same. [Note 2]

Now just think - if the fed is actually printing money at closer to a 7.5% annualized rate, well, even a 10% annual return on your investment doesn't seem quite so amazing - and forget about the 4% you're maybe getting now. [and don't forget these are PRE-TAX returns!]

In fact, I wonder how all the long-term track records would look if there was no inflation all these past years - because in fact the exponential expansion of the money supply seems to have been the greatest stock market booster of all - i mean, where do you think all these new dollars - created out of thin air - end up at least the government is still willing to tell us the small numbers - M1 - how much cash is in circulation, and M2 - adding in savings and CDs of less than 100K, along with money market funds.

So why DON'T we need to know about M3? Well, maybe because that's the number that shows our money supply growing closer to a 7.5% annualized rate. It also shows what the BIG BOYS - BIG GOVERNMENT - and BIG INSTITUTIONS are doing. For all the excuses made by the fed for no longer publishing these figures, the old adage is if you want to know "what's up" - just follow the money. If you want to see how deep it goes - you better follow the big money. Hmmm. You mean M3? For anyone who's been dissappointed with the rediculous way that inflation rates are currently calculated (not including housing, food, energy), and the incredible growth of our money supply already, I can only imagine what's in store.

For those ready to blame Bush, don't bother - this is really a bipartisan issue - which has continually gotten worse since Nixon completely took us off the gold standard back in 1971. It didn't actually start here, Roosevelt in fact outlawed private gold ownership in 1933 - imagine being able to go to jail because you owned gold! The real start of all our woes, however, is in fact, that fateful day on December 23rd, 1913, when the democrats passed the Federal Reserve Act - but more on that another time...

On a good note, we do know that turning on the dollar printing presses will make all of us millionaires even sooner (if it'll be worth anything by then). Just look at Turkey's stock market. With annual inflation rates periodically in excess of 90%, the Istambul Stock Market is up over 2,000,000% in the last 19 years - yes - that's 2 MILLION PERCENT. So don't let anyone tell you inflation's not good for us! yeah.. [Note 3]

Everyone wants to be a millionaire these days, and it will happen soon enough. Unfortunately, I think it would mean a lot more if we weren't all paying $100 for a cup of coffee. Don't worry though, the price of coffee isn't considered for inflation purposes so it really doesn't count. And don't worry about your inflation-adjusted social security checks down the road. You'll hopefully get at least $1000 or so a month - just try not buying your coffee at Starbucks and maybe you'll be okay!

Note 1: Actually, very little of this newly created money is actually printed. It's more like an additional entry in the Fed's "bank ledger". The Federal Reserve creates these reserves just as a bank creates checkbook money. By various devices, either loans or other means, the Federal Reserve credits a bank with bankers deposits (ie. "reserves").

Note 2: Much of this cheap money (helped by cheap credit) also ends up in the real estate market as well, and at this rate the fed is likely hoping to inflate their way out of a real estate bubble burst - Ben Bernake believes if only they had flooded the market with cheap money back in 1929 the Great Depression may have been avoided - like most things, it all catches up with us eventually... if only we had gotten similar two-year technological boosts in "miles per gallon" as we have in PC processing power... The real "problem" with oil is that it's finally begin to reflect its true value versus all the additional global demand. In fact, if we inflation-adjust oil's 1979 peak of $38/barrel (intraday was much higher), we need a $100+/barrel to compete, which we may unfortunately see soon enough.

Note 3: In US dollar terms it's not quite as huge a return - closer to a still respectable "only" 800%. As a comparison, Japan's market did nothing but go down since 1990 and only began rebounding in the last three years once Japan began adopting a "loose" monetary policy (another way of saying "adding liquidity" by printing more money). Japan has recently ended this Loose-Money Policy.