Tag Archives: money supply

“Inflation Is Always A Political Choice”, by Tyler Durden

Governments and their central banks are always and everywhere responsible for inflation. And what drives governments and central banks? Politics. From Tyler Durden at zerohedge.com:

As Jim Reid leaves the Deutsche Bank credit desk for the next few weeks (“I’ll be taking holiday and sending the kids to Easter holiday camp and playing golf every day as courses in the UK open on Monday for the first time in 3 months”), his last Friday “chart of the day” covers an especially sensitive topic: inflation.

As Reid writes, “there is clearly a lot of talk about inflation at the moment and a lot of talk about whether the Fed and ECB (amongst others) will meet their respective targets” However, for Reid personally, and a statement we wholeheartedly agree with, “inflation is largely a political choice in the fiat currency world that we’ve been in since 1971” and he explains why:

When you have full control over how much money you can print and spend, rather than the money supply be fixed to Gold, you can always create inflation if the inclination is there regardless of demographics, digitalisation, globalisation or weak growth.”

Appropriately, today’s CoTD shows average inflation for all the 87 economies that DB has data on going back to 1971 when the US (and with it the vast majority of rest of the world) cut ties to gold. What is remarkable, is that no economy has managed to keep average annual inflation below 2% since, with Switzerland (2.1%), Japan (2.3%), and Germany (2.5%) the closest. Only 28 out of 87 managed to keep inflation below 5% over the full period. The US is at 3.8%.

So, as Reid concludes, “inflation is a choice in a fiat money world. The question is whether politicians will choose it or not, advertently or inadvertently.”

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Money and statistical delusions, by Alasdair Macleod

Much of this article will be tough sledding for noneconomists. For the short version and the upshot of the article, skip to the last section, GDP Fallacies. From Alasdair Macleod at goldmoney.com:

I can prove anything with statistics, except the truth

— Lord Canning, c. 1819

Does Canning’s aphorism still hold true, given that data collection and statistical analysis have progressed beyond all recognition in the last two hundred years? This article tests that proposition.

It is still true, because of the interests for which statistics are deployed. We know, or should know, that CPI indexation of prices fails to reflect the true rate of decline in the purchasing power of fiat currencies. That is at least a simple case of governments saving money on indexation. But being economical with the statistical truth is a far wider practice encompassing input suppression, misleading deployment, and their use to support beliefs and preferred outcomes instead of backing up properly reasoned economic and monetary a priori theory.

This article finds that the application of all these methods corrupt monetary statistics, including the three principal components of the equation of exchange. This analysis is sparked by recent changes to the definition of M1 money supply in the US.

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Inflation Galore at Manufactures, amid Massive Shifts in Demand, Supply-Chain Snags, Shortages, Lack of Shipping Capacity. And They’re Passing it On, by Wolf Richter

Screwed up supply chains from the coronavirus response and out-of-control fiat debt instrument creation and debt monetization are leading to inflation. From Wolf Richter at wolfstreet.com:

For now, the story is that it’s just temporary.

For now, the story is that the sudden and massive shifts in the economy in 2020 have caused shortages and distortions in the goods-producing sectors and in shipping and trucking, as consumer spending has shifted from services – such as flying somewhere for vacation and spending oodles of money on lodging and restaurants and theme parks – to goods, particularly durable goods.

The story is that prices are rising because components and commodities are in short supply, and supply chains are dogged by production issues, and are facing transportation constraints, as demand for those goods has suddenly surged. And that all this is temporary.

And the Fed has said it will ignore inflation for a while, that it will allow it to overshoot, and only when it overshoots persistently for some unknown amount of time and becomes “unwelcome” inflation – “unwelcome” for the Fed – that it will try to tamp down on it.

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Gold versus Bitcoin & Death of Money, by Egon von Greyerz

If you’re looking at alternatives for present state-backed mediums of exchange, cryptocurrencies are sexier but gold has quite a track record. From Egon von Greyerz at goldswitzerland.com:

2021 is likely to be a year of awakening. This is when the world will start to realise that the $280 trillion global debt has no value and will never be paid back.

But even worse than that, of the $280t a staggering $200t has been created in the last 20 years.

Let’s say that it took 2,000 years to go from zero to $80t in 2000. It doesn’t really matter where we start counting since most of the $80t debt was created after Nixon closed the gold window in 1971.

AS DEBT IMPLODES SO WILL ASSET PRICES

Looking at the other side of the balance sheet, there will be an even bigger shock for investors and property owners as debt implodes. Because asset valuations are a function of the debt. And if debt implodes, which is inevitable, so will asset prices.

This is why prices of stocks, bonds and property will implode by more than 95% in real terms (gold) as I outlined in my article last week.

So it took just under 2000 years for global debt to grow from zero to around $5 trillion in 1971. Thereafter it took 29 years to year 2000 to grow by $75t to $80t. That was the exponential phase.

And now we are in the explosive phase with debt growing by over $200t in 20 years.

Anyone who can’t see what is happening is either blind or hasn’t studied history.

+$5t   – 1,971 years  – Year 0 to 1971
+$75t  –    29 years  – Year 1971 to 2000
+$200t  –  20 years – Year 2000 – 2020

We saw exponential debt expansion 1971 to 2000. Since then the growth has been explosive.

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Banana Republic Money Debasement In America, by MN Gordon

The federal government’s debt growth has reached banana republic proportions. From MN Gordon at economicprism.com:

There are many falsehoods being perpetuated these days when it comes to money, financial markets, and the economy.  But when you cut the chaff, three related facts remain: Uncle Sam needs your money.  He needs a lot of your money.  And he needs it bad!

According to the Congressional Budget Office, the federal budget deficit for the first two months of fiscal year 2020 is $342 billion.  This amounts to $36 billion more than the deficit recorded during the same period last year.  At this rate, Washington’s going to add over $1 trillion to the national debt in FY 2020.

Still, the figures from the CBO aren’t all bad.  Revenues in October and November of 2019 were 3 percent higher than they were in October and November of 2018.  Regrettably, outlays for these two months were 6 percent higher in 2019 than they were in 2018.

Jacks and Jennets both know from experience that taking three steps forward and six steps back is an inefficient way to lose ground.  They also know that the longer this goes on the more ground you lose.  So, too, they know that the more ground you lose the harder it is to make up.

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