Saturday, March 07, 2009

Inflation Nation

This is something I've been increasingly worried about, with the trillions of dollars the Feds are pumping into the economy.

First, take a look at this graph from the St. Louis Fed of the US monetary supply over time, with indications of when we were in a recession.

Then-candidate Barack Obama bemoaned those simple-minded rural folk in Pennsylvania who "cling to guns and religion" in response to economic despair. Since Obama's election, however, Americans have clung to guns like never before. With hyper-inflation looming, a catastrophe initiated by Bush and continued by Obama, guns are thriving and religion may follow suit.


This may be an economic tsunami rolling toward us with little warning. The new money has no nexus whatsoever with the country's economy, which is comprised of the goods and services produced, bought and sold by humans. As this money supply has grown, the economy has contracted. This means the value of cash can only plummet. George Mason University law professor Todd Zywicki, who specializes in economics, explained on his blog that consumers haven't felt the inflationary effects of the inflated money supply only because of hoarding, brought about by economic fear.


"Presumably because the ‘velocity' of money has remained low - people and banks are hording money, rather than spending, borrowing, and lending it. Assuming velocity rises again, however, we may be looking at an inflationary spiral like we've never seen before in this country."

Now, go read the whole piece.

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