“Nearly every major government is doing exactly what past printing press owners have done, but – thanks to modern technology and globalization – they’re doing it on a scale that have never been attempted before. So this time around, the entire global financial system find itself drifting inexorably toward the chaos that has claimed all previous fiat currencies.”
~ John Rubino, The Money Bubble
Written by Bryan Lutz, Editor at Dollarcollapse.com:
Nowadays, most mainstream economists believe that consistent increases in the money supply not only benefit the economy, but can pull the nation out of a recession.
And that makes a growing money supply good.
For them, it shows that an economy is growing, but in fact that may only be the case for a short period of time.
Moreover, it is also the way money becomes worthless.
Now, let’s look at the past two years until we see the pattern.
After about two years of the Fed’s plan to reduce their balance sheet we see M2 growing once again.
According to their reasoning, this should improve the economy.
Is the expansion of the M2 supply improving the economy?
Since the Fed started raising interest rates in 2022, you can see the velocity of the M2 Supply increase, below.
Velocity is the frequency at which people are using their money to buy goods and services. So, it is how often the money is being used to contribute to real things.
Now it is flatlining, but over time we see it following the same downward path.
The pattern is fairly consistent.
Overall, as the money supply increases, it becomes less and less effective in the real economy of goods and services.
Now you can see M2 Supply increasing, and velocity returning to negative percentage change overall.
So relationship seems to be correcting itself.
Whenever the Money Supply increases, it increases for a moment then the effectiveness of the new money wears out.
The whole process repeats itself from the mid-90s onward. That’s when the Clinton administration chose to start Big Bank bailouts.
This eventually happens until there is so much money no one really knows what effect it can have on the economy.
Then money dies.
On another note…
To make this hit home, here’s what to expect from the pattern in the next year.
The pattern is also the same when you look at changes in the Velocity of M2 versus CPI.
Every time there’s a recession the response has been to fill the economy with more money.
Then inflation rises dramatically as the new money enters the economy until inflation hits once again.
In 2008, the answer was to add more money, then start sucking it up out of the economy through Quantitative Easing(QE).
As you can see, printing more money, and engaging in QE has not improved the effectiveness of the US economy.
QE has only brought increases to inflation intervention after intervention…
When you compare the intervention of 2008 to 2020, the same pattern is playing out again, only on a larger scale.
This time the money will become worth less much faster.
7 thoughts on "How Money Dies, In 3 Charts (Plus One More on What’s Coming Next)"
I’ve been studying economic history for 4 decades.
have a Masters from a top school, etc.
my conclusion is that inflation is here to stay in the USA.
Form a plan and take action.
glta. Tom
I have come to the same conclusion. Steady inflation until the eventual collapse of the USD and USD-denominated debt. No return to sub-5% rates. Monumental efforts will be made to hide it; once angry people are ready to lynch, they’ll finally acknowledge its existence and pin the blame on a scapegoat.
The only way out is to balance the budget. Bring back manufacturing, cut taxes, reduce or eliminate government spending on welfare, and the military. This includes vetting the people getting welfare. Stop the migrants and stop paying them to come here. Stop the forever wars. Repair relations with other nations and become an exporter. Stop wasteful programs such as the green initiative and EV cars. They are less efficient. Stop burning food processing centers and closing farms for stupid reasons and offer tax relief for farmers to bring down food prices. Get rid of destructive politicians and their policies. It is working in Argentina, it can work here.
excellent
Karl nails it. Trump will try to implement, Harris will double down against it.
You writings indicate that you understand inflation better than most. I have a theory that I think history validates.
Inflation is a ratio between money creation (paper or hard money) and productivity. If you have 5% productivity growth and 5% money growth you have no inflation. But if as during covid you have rapid money printing and you shut the economy down you have inflation. A reverse example would be in the late 1800’s when productivity growth was high and money growth was restrained by how fast gold and silver could be produced you have periods of deflation.
Food for thought and I understand if you don’t have time for a response. I see numerous articles about inflation but none with a solution of how to control inflation.
Dock Treece
Thanks for your thoughtful reply, Dock.
I don’t know if I can validate your theory, but there does seem to be a relationship between the two time periods.
Probably the most difficult gap to overcome in our thinking is the idea that controlling or managing inflation is a linear process (ie. “If you have 5% productivity growth and 5% money growth you have no inflation.”). When there are actually individuals making decisions that non-linear, short-term basis, it makes it difficult to manage inflation.
Most Fed Chairs managing the money supply attempt to manage inflation in a non-linear fashion(ie. wait-and-see) while attempting to create the linear relationship you describe.
There was a time when the target inflation was 0%, like you described, but it is not that way anymore. There is too much debt, IMO.