Monday, September 01, 2014

Patiently Awaiting Recession Number Three

1 September 2014

I have posted before that the US government, in my opinion, doesn't manage money very well. These charts are meant to serve as one illustration of that.

Basically, "reserve bank credit" is new money printed by the Federal Reserve Bank to keep the economy moving along when things slow down (most notably after 2000 and 2008, but it's actually been going on for a long time on a smaller scale).

One interesting factoid, the total US (broad) money supply as recently as the year 2000 was less (about $2.8 trillion) than just the Fed's balance sheet today (about $4.4 trillion).

Fed injections of "new money" (a euphemism for money-printing) have brought the current US money supply up to the $10 trillion range.

So, if you're not feeling 250% richer, that is probably because money-printing mainly just causes inflation.

The official statistics show inflation as "low," but as they say, it's easy to lie with statistics. If you have noticed necessities, in particular, getting more expensive, it might have a lot to do with the antics of the Federal Reserve.

Does money-printing solve anything? No, it actually makes things worse, by encouraging short-term thinking, and by giving more options to the ultra-rich (who are able to play games with money) than to anyone else.

As soon as all this stops, the economy will slow down --- again, and a lot.

That won't be fun, but it will cause people to start making longer-term and better decisions.

The Federal Reserve may not be permitted to do this a third time, as people may eventually figure out that economies improve through capital investment (based on having a real business plan and confidence in the future), rather than through running the (now-digital) printing presses.

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