Tuesday, December 18, 2007

More On Why Inflation Will NOT Be A Problem

Exhibit A: See graph below (click to enlarge) of the Adjusted Monetary Base, from the St. Louis Federal Reserve, from 2002-2007. Notice the decline in growth from 10% to 2%, suggesting a deflationary trend in high-powered money.

Exhibit B: See graph below of the Adjusted Monetary Base vs. M1 Money Supply, from 2002-2007. Notice that as the growth in high-powered money growth, controlled by the Fed, has come down from 10% in 2002 to 2% in 2007, the M1 Money Supply has stablized at about $1.36 trillion.


At 12/18/2007 12:34 AM, Anonymous Anonymous said...

Energy, health care, and import prices have spiked. The S&P is on all-time highs yet Bernanke cuts aggressively at the first sign that Wall St bonuses may be in jeopardy. Spare us the charts and academic mumbo jumbo. We can all see the commodity prices and the performance of the dollar. Quit trying to convince us that the sky is not blue...

At 12/18/2007 1:13 AM, Anonymous Anonymous said...

With the way that inflation is actually calculated it won't be long before we start to see negative inflation while actually paying more. So we'll be in a deflationary period according to the government but everyone will be paying more for goods and services!

But that is all good because unemployment is low and is going to stay that way regardless of how many workers the BLS simply drops out of the labor force so they can make their target unemployment rate.

The really cool thing about the unemployment statistics is that the Realtors and other commissioned sales people who haven't made a sale in months are still counted as being employed full time despite earning zero dollars! w00t! What is even better is that none of those commissioned sales people are eligible for unemployment benefits!

At 12/18/2007 4:17 PM, Anonymous Mike Sproul said...

If the supply of base money stabilized at the same time that the Fed was losing assets, then we could still have inflation because the Fed would have less backing per dollar. Stability of the money supply is only half of the picture. The other half is the asset side of the Fed's balance sheet.

At 12/18/2007 8:01 PM, Anonymous Anonymous said...

Ahem... What about the 30% increase in M1 from 2001 to 2004..I guess that doesn't count. M3 got so bad that it could not be owned ... So it's no longer published... Price inflation is above 5% as a consequence of past increases in money supply.

At 12/18/2007 9:39 PM, Anonymous Anonymous said...

Not so odd th at M1 is dropping since there are better places to park money than in the banks. Also you can park it in another currency. Since the Dollar is falling it is not unreasonable to place deposits in a non-dollar form. M3 is expanding rapidly (See shadowstats.com) So more price inflation is coming not less!


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