First off - have a very Merry Xmas and a fabulous 2009!
Today I am continuing with the series and will be considering the cost of the bailouts. Before I do that let me give you my two main sources of data:
Shadow Stats produces data that provide an accurate picture of the US economy and ECRI have fabulous leading indicators.
My perspective of the FED bailout is based on Austrian economics. To have a thorough overview go to:
In essence, the Austrian school believes that an expansion of the money supply without a corresponding increase in productivity will lead to inflation. But, wait a minute you say, M3 has declined back to 8.9% after hitting a peak of 17%. So where’s the problem.
The problem is highlighted in the St. Louis Fed’s Adjusted Monetary Base. This is the tool traditionally used by the FED to control the money supply. It now stands at up 97.5% from the year before. Prior to the FED ‘bailout’, we had a growth of 3%! So what does that tell us? It tells us banks are still not lending. When they do, watch out! The FED will have no option but to increase rates.
Even without increasing rates, the US was in danger of a sub-prime second wave tsunami. An increase would just about nail the coffin down. The inflation following the bailouts is going to be far worse than the The Great Inflation. In my view, the inflation and its consequences will bring about a deflation.
That’s the fundamental picture - what about the technicals? Tomorrow.
Refer this blog post to a friend or colleague…
