I'm not a finance expert but I can see that there's a lot of bad math in this article.
The underlying news is that the Fed is going to increase the amount of treasury securities it holds from 1.9 trillion to 4.5 trillion.
The article subtracts the currency currently circulating abroad from the new amount of treasuries held by the Fed to get a figure for the new "US domestic monetary base" of 3818 billion.
It then defines the old monetary base as the currency circulating in the US = 250 billion.
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.
This would mean the the US monetary base is increasing by a factor of about 3 rather than 15.
Also the article assumes that all the new money created will circulate in the US. Taking this into account would mean that the US monetary base is increasing by a factor of less than 3.
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.
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.