The next dollar problem has just arrived

The next dollar problem has just arrived. By Alisdair MacLeod.

It is not for no reason that cryptos are roaring [Bitcoin just hit US$34k], and precious metals are playing catch-up [but gold is still below US$2k]. In the last month there have been developments that point to a new phase of accelerating monetary inflation for the dollar, and fiat money is only just beginning to be exchanged for these inflation hedges at an increasing pace.

Hyper-inflation of the dollar is now becoming obvious to a growing cohort of investors. …

The hyperinflationary trend of US M1 money supply is clear. But everyone has become so bemused by these developments that they have taken to disregarding them, while prices in stocks, commodities and cryptocurrencies console them by rising. …

They are yet to appreciate that the phenomenon is of the purchasing power of the currency falling rather than prices rising. …

So far, the Fed has been acting conventionally in Keynesian terms to rescue the US economy. In order to ensure that the consequences of covid are contained, it has promised unlimited QE, currently running at $120bn a month, to fund the increase in the Federal budget deficit. They have imposed zero interest rates to keep funding costs down. The initial round of monetary inflation financed two-thirds of increased federal spending in the second half of fiscal 2020 to end-September, the remaining third being from revenues. A second “stimulus package” is due shortly, which will be financed by yet more monetary inflation.

[As the world slides into recession,] bank depositors holding in excess of the FDIC $250,000 limit on protection will attempt to reverse their current bullishness on equities by liquidating their positions. The traditional safe-haven attractions of swapping bank deposits for US Treasuries will be swapping creditor status at insolvent banks for collapsing bond prices in a collapsing currency. The only refuge is likely to become a choice between precious metals and cryptocurrencies, in an attempt to rid themselves of dollars.

There can be little doubt that the monetary, banking and economic developments and their requirements for an additional and unlimited expansion in the money supply is set to destroy the dollar and all the fiat currencies that take their cue from it, as surely as John Law’s currency collapsed three hundred years ago.

Hiding the Money Supply Figures. By Dave Kranzler.

The Federal Reserve quietly announced on December 17, 2020 that it is redefining the M1 and M2 Money Supply Measures (H.6 Release) by shifting the savings deposits component into M1 from M2. …

That reduces the apparent rise in M1.

Recall that the Fed decided to no longer report the all-encompassing M3 monetary supply aggregate in 2006. The Fed’s stated reason for this was that it was not worth the expense involved with calculating and reporting M3 because the difference between M2 and M3 was primarily eurodollar deposits (not an insignificant quantity of money). The disingenuity of this excuse was palpable. The U.S. is the only major industrialized nation that hides the M3 calculation.

In the late 1970s the West solved stagflation — simultaneous high inflation and high unemployment — in part by (1) redefining unemployment so as to lower the headline rate, and (2) redefining “inflation” as the consumer price index (CPI) instead of growth in the the money supply. Thus, asset prices since 1982 have soared even while wages/CPI have been subdued and there “is no inflation”. Not under the old definitions!