*****Fed planning 15-Fold Increase in US monetary base*****

Market Skeptics ^ | March 20, 2009 | Eric deCarbonnei

[givemELL]

"The fed is planning moves that would more than double its balance-sheet assets by September to $4.5 trillion from $1.9 trillion. Whether expressing approval or concern over the fed’s move, most commentators fail to understand the real magnitude of the projected expansion of the US monetary base because they don’t take into account the amount of dollars circulating abroad......................The fed’s planned balance sheet expansion results in a 15-fold increase in the base money supply.

262 Billion = US monetary base as of September 2008 (minus dollars held abroad) 3,818 Billion = projected US monetary base in September 2009 (minus dollars held abroad)

3,818 Billion / 262 Billion = 15-Fold Increase in US monetary base

This is a staggering devaluation of the US currency! That means for every dollar that existed in America in September 2008, the fed is going to created fourteen more of them! Below is a rough sketch of what this Increase in US monetary base would look like:

>GRAPH<

This 15-Fold Increase will be impossible to reverse

Next September, when the fed realizes it has gone too far and tries to reverse its balance sheet expansion, it will be unable to do so. The realities which will hinder the fed’s control of the money supply are:"

[Chances Are]

...and when it does come to pass, you can bet her tack then will be along the lines of, "If you evil, evil Republicans hadn't indulged in these self-fulfilling prophecies, and just had faith in The Obama, like me, then none - NONE - of this would have happened!!

"I'm reporting you!!!!"

CA....

[LifeComesFirst]

http://en.wikipedia.org/wiki/Quantitative_easing

[Myrddin]

Brainwashed air head. My condolences on sharing the office with people that clueless.

[Pagey]

That’s a pretty heavy Link, Whew!

[Atlas Sneezed]

How does one decide whether home ownership will be a good idea? On the one hand, the monthly cost (mortgage) is fixed (assuming a fixed rate mortgage). On the other, the cost of repairs and maintenance is bound to skyrocket.

---

Owning may be a minor hedge against inflation. the real benefit is OWING. A fixed rate loan is probably your greatest asset in inflationary times, because you can pay off that house is significantly inflated dollars.

As far as repairs, most of that is labor, and your own wages (or investment income) will inflate along with the plumber’s wages.

[AirForceMom]

Our youngest girl and her husband live out in the boonies. That’s where we’d plant. The seed pack we have coming plants a full acre.

[Atlas Sneezed]

Oddly, I have never heard that definition before. is this your inventive interpretation, or do you have some other evidence to support it?

[Atlas Sneezed]

Main Entry: -fold

Function: suffix

Etymology: Middle English, from Old English -feald; akin to Old High German -falt -fold, Latin -plex, -plus, Old English fealdan

1 : multiplied by (a specified number) : times —in adjectives and adverbs

2 : having (so many) parts

http://www.merriam-webster.com/dictionary/-fold

[MrB]

It was a biblical interpretation I read...
“10 fold” means 1024 times

However, I believe it has been “vernaculared” into meaning 10X.

[lakertaker]

Oh I hate picking on her. She is a nice kid but like a lot of other kids that age they get their news from “The Daily Show.”

[sanchmo]

I don't want to minimize the dramatic, unprecedented and dangerous nature of what's happening, but wideminded is right that this article's conclusion of immediate hyperinflation as a direct result of base expansion durign a debt-deflation trend is not accurate. (Although read further to see why I think there's a real risk starting around aprox 2012)

wideminded shows that monetary base expansion is projected as 3-fold, not 15-fold. (I haven't reviewed the numbers, but that sounds in the right order of magnitude from what I've heard elsewhere). But a 3-fold increase in the monetary base does not mean a 3-fold increase in total money, or a 3-fold increase in prices. MV=PQ, meaning that prices change proportional to the change in money supply times the change in velocity (how often money is spent), plus total output/production.

Fractional reserve means that banks inflate when they lend, but also means that banks visciously deflate when they hold back. Since last summer, moetary base has doubled. But M1 has increased by less than 15% and M2 by approx 5% from is long-term trend. That is because lack of lending and spending, is preventing the base from multiplying into the economy the way it usually does.

This graph shows the cental banker's equivalent of standing at the edge of a black hole, where infinite gravity prevents anything of value from escaping into the economy:

Additionally, inflation can't re-emerge until people spend. During the 1990s and 2000s, we had savings rates under 5%, sometimes negative. Compare that to the inflationary times of the late 1970s when savings rates were prolonged in the 10%-12% range. People are suddenly changing their mindsets and trying to get back towards those higher savings rates, which means lower spending for several years, which prevents price increases.

In 2009 or 2010, I don't see how this can cause any infation, or at worst nothing higher than 5% inflation - and even though I agree that 5% is high, it is less catastrophic than some other potential outcomes in the probability tree right now.

That being said, there's a real exit stretegy problem. More precisely, lack of a well thought out exit strategy. We do not have a case study that takes this through its entire lifecycle, that takes it successfully to the other side. Not one. None. Never.

[Drill Thrawl]

Don’t you make fun of my Providers!

[mvruckman]

Really? I was able to D/L it. What sort of error did you get?

[old curmudgeon]

I don’t think that will create a food shortage as much as it will change where your food comes from.

You would still find food in the stores and you could still garden for your own use or purchase from a grower if you went to his property to purchase.

So the key is to have something the store or the grower wants in the event that money becomes worthless or in the event you lose a means of getting enough money.

[Chances Are]

Blank page...that stayed blank!

I’ll give it another shot....

CA....

[ellery]

That being said, there's a real exit stretegy problem. More precisely, lack of a well thought out exit strategy. We do not have a case study that takes this through its entire lifecycle, that takes it successfully to the other side. Not one. None. Never.

Thank you for your post. So what is the typical (unsuccessful) outcome of this situation?

[sanchmo]

So what is the typical (unsuccessful) outcome of this situation?

There is no "typical" because this is a completely unique situation. We're not doing what Weimar Germany or Zimbabew did, so that's good. We're kind of doing what Japan did, but we're in a much different situation than they are. These are unchartered waters, the central banker's version of Columbus sailing east from Spain in 1492... nobody really knows what's on the other side.

What the Fed annouced - Quantitative Easing, even if they did not use those very words - is central-bank talk for what in previous times was called "printing money." It's called Quantitative Easing because it is increasing ("easing") the quantity of money.

We all know about Weimar Germany's experiment in the 1930s, and Zimbabwe's more recently. Those two printed physical bills in absurdly larger quantities that Fed is planning, and got a combination of depression and hyperinflation. So out situation is not an exact match to theirs for a number of reasons.

Japan tried it in the 1990s in the middle of a prolonged deflationary slump. If I remember correctly, they used the same approach the Fed is now planning, except they did it slower and in smaller quantities. The result was that they stayed in a slightly deflationary and slightly depressed slump (no growth or slightly negative growth) for over a decade afterwards - although it's impossible to say with certainty if it would have been better or worse if they didn't do it.

The one thing that is certain is that Japan started with very small levels of national debt and ended with with of the highest - 180% of their GDP. We **started** out with national debt of 60% of GDP, and it will easily grow to 125%-150% in a few years assuming our spending is not as high as theirs. Additionally, they were a net exporter before & during & after, which helped their cause - obviously the US is not. Lastly, the US dollar has a unique position, in that our robust economy has made it the world's reserve currency. That has made it a good safe haven during global troubles, but also gives US citizens a low-probability high-impact risk if that position changes.

This is one of the most daring and impactful economic experiments of all history. When we come through the other side, we will either sigh a deep sigh of relief, or we will curse the day this ever happened. Either way, decades from now, your children and grandchildren will be reading about this in economics courses.

[Toddsterpatriot]

I'm not a finance expert but I can see that there's a lot of bad math in this article.

I just saw an example of this guys work on a more recent thread. It also left a lot to be desired. First, he's talking about cash in circulation. Then he somehow imagines that the increase in the Fed balance sheet will be paid for with cash. Suddenly giant new truckloads of $20s, $50s and $100s will force inflation thru the roof.

But shouldn't the old monetary base be computed the same as the new? In other words it should be 1.9 trillion - 583 billion = 1.317 trillion.

That would be less alarming. He's some 28 year old kid trying to live off ads on his website. Kinda like ex-Texan, with a better resume.

[Fan of Fiat]

Kinda like ex-Texan, with a better resume.

LOL!!!!

[dollarbull]

low premium collectible US coins will not be confiscated and will increase the same or better, in percentage terms than gold will.

Example. PCGS graded MS-62,53,64,65 St. Gaudens $20 gold pieces