Inflating The Money Supply Causes Problems!
Many of you have seen this chart of the adjusted monetary base:
I was reminded of the chart when I received the latest “Early Warning Report” written by Richard J. Maybury. He writes,
When the FED inflates the money supply, the money does not descend on the economy in a uniform blanket. Some areas receive a lot of new cash, others receive less, and still others none at all.
Areas that receive a lot become hot spots. The hot spots deceive business managers and investors, who create new firms or expand existing ones in those areas.
Key point: these firms become dependent on the influx of fresh money.
If the influx slows or stops, the firms go broke.
If you want proof, just look at the housing industry and all that depend on new housing from suppliers, architects, interior designers, furniture stores, mortgage brokers, real estate agents and banks. All have experienced the worst times of the last ten years.
Remind me again why we allow government to help us!
I spend too much time with CNBC. I find myself shaking my head, from time-to-time, listening to the guys who went to business school, the MBA guys who took the minimum requirements in maths and economics telling folks that “all is well.”
The simple truth is, Y = C + I + G. If G is growing faster than Y, the market will achieve an equilibrium state, even if that state is not the one either predicted or sought by increased expenditures in G. Or, as I tell my golfing buddies, you can’t buy a swing.
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Hey, I just found that missing hockey stick the guy over at man made global warming was looking for. lol
It’s outrageous! It took 25 years to go from $350 billion to over $800 billion and in one or two years blow up to 2.6 trillion! The guys that are doing this have the brains of a hockey puck!