[ExI] M0 singularity... you're soaking in it

[BillK]

On Sun, Jan 25, 2009 at 4:34 AM, Damien Broderick wrote:
> Look at the chart at the site:
> <http://www.safehaven.com/showarticle.cfm?id=12403&pv=1>
>
> The author comments:
> ...I can't believe what is happening in narrow money. M0, the narrowest
> measure, is usually called the monetary base. It is simply currency (coins
> and paper dollars) in circulation and in bank vaults plus reserves
> commercial banks have on deposit with the Fed. These reserves are critical
> because they are the base from which all other forms of money such as
> checking accounts are created. The monetary base directly controls the
> ultimate size of fractional-reserve banking.
>


Don't look for easy, 'one indicator explains everything' solutions.
The Safe Haven writers tend generally to be gold bulls. They see the
solution to every financial problem as 'Buy gold!'.  Historically this
has not always been the best option. (Though if you are a gold bullion
dealer, you do like people to buy and sell gold at all times).
As with all investments, you have to try to buy cheap and sell dear.

Yes, M0 has hugely increased. But the current problem is global
insolvency. Debt, in plain-speak. The pile of debt dwarfs the money
supply increase. New money causes inflation when people spend it, buy
stuff and drive the price up. For years to come, people will be using
any extra money to pay debt off and clear the decks for a fresh start.
After that has happened, you can start worrying about inflation.

See
<http://globaleconomicanalysis.blogspot.com/2009/01/is-big-inflation-coming.html>
for a criticism of the orginal article and more explanation.


BillK