Tuesday, January 20, 2009

Money storm ahead

I'd like to point out to my readers some quite disturbing developments concerning the monetary system of the United States:


This is the estimated amount of Federal Reserve notes (or "US dollars") circulating within the economy or being held in commercial bank deposits. As anyone should be able to grasp, the current strategy of recklessly pumping money into the economy could very likely lead to massive inflation.

The reason why we still experience deflationary tendencies could be a notable drop in bank loans and credit, a so-called "credit crunch". Robert Higgs has shown this view to be false. Little to no money has been destroyed in the credit sector, in fact, credit is at an all-time high.

An alternative explanation could be provided by this particular measurement of bank excess reserves. This is money that banks are currently holding, but have not put to use, i.e. loaned out, yet. Let's compare some numbers here:

1978-12-01 0.232
1988-12-01 1.061
1998-12-01 1.512
2008-01-01 1.640
2008-02-01 1.724
2008-03-01 2.978
2008-04-01 1.844
2008-05-01 2.011
2008-06-01 2.272
2008-07-01 1.977
2008-08-01 1.988
2008-09-01 60.051
2008-10-01 267.905
2008-11-01 559.051
2008-12-01 767.422

Such an accumulation of excess reserves is unprecedented, at least in the records of the St. Louis Fed, and combined with a stable credit market, raises the possibility of a hyperinflationary depression considerably. Basically, what it means is that as soon as banks start lending aggressively again, they have about 700 times their usual amount of Federal Reserve notes available so that 700 times more loans can be given out. You calculate what that'll do to your savings account.

It has been repeated over and over again by countless friends of liberty, but among the best investments these days are in fact stable foods, common caliber firearms/ammo and physical gold in your own hands. Don't expect government to provide for you or defend your family once prices are going through the roof and a substantial part of the population find their savings vanishing and the store shelves empty.

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