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More on the economy

Money burning

A few thoughts that I’d like to see someone in the major media discuss:

The aforementioned disappearance of the reserves of American banks: Where did the money go? Who loaned the banks the money to cover their reserve requirements? What terms did the behind-the-scenes lender(s) demand, and how will they affect the rest of us?

The saturation of the global economy with US dollars: John Williams of has reconstructed the M3 money supply and discovered that it’s growing at an annual rate of about 15%. I’m no economist, but I remember enough from my bachelor’s degree in Econ to understand basic supply and demand. More supply = less demand. That means it takes more dollars to buy stuff, simply because dollars aren’t as valuable when there are boatloads of them. (That means your house didn’t really double in value over the last ten years; the dollar lost half its value.)

The net effect of the Fed’s 3/4% rate cut — something a little more insightful than, “Hurrah! The economy is saved!” Basically, lowering rates makes credit more attractive. Which means more dollars in circulation. Which means prices will go up. How much? I don’t know, but if the supply of money is a guide, 15% inflation before the end of this year is not a bad guess.

Phony government statistics: We should force the government to explain how it can declare an official inflation rate of about 3.3% over the last decade when housing, medicine, insurance, food, and fuel costs have far outpaced that number. I have a theory: They’re lying.

The Fed’s moves to stave off recession will bring on inflation like we haven’t seen in twenty years. How long will foreign investors in U.S. debt, like China, tolerate the erosion of their investment in dollars by 15% a year?

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