Money Supply | Table O Contents

Money supply is the key to low inflation …

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Quantitative Easing

Hint. Ever wonder why in the face of an (8) year recovery and the umpteen trillions of dollars of Quantitative Easings engineered by the Federal Reserve and other central banks around the world …

Still to this day the Treasury yield curve represents a flat future vis-a-vis inflation.

The Key to Low Inflation

“Money supply is the key to low inflation.” ~ Milton Friedman

When too few goods and services are met by too much money supply hell bent on chasing too few goods and services, a jump in price occurs to balance out the equilibrium of supply and demand.

This “price jump” and the concomitant rise in wages to match is called “wage-price inflation”.

Only when the supply side is ramped up sufficiently will inflation start to subside.

Along with a subsequent tempering of the subject nation’s money supply, the wage earners remaining will now have earned a reprieve.

At least enough to stretch his or her budget into greater purchases once again.

Which will kick start the lending cycle and the trailing cycle of growth.

Thus, increasing the money supply.

The Annual CPI Index

Consumer price indices are averages.

Setting a 2% target for the CPI without targeting the underlying mechanics of inflation is folly, per Ken Fisher.

A thorough reading of the economics text book “A Monetary History of the United States by Milton Friedman, 1963” explains.

After (8) years of bull market, our nation’s money supply continues to contract, not expand.

Even though our GDP expands, but does not contract.

Perplexing, heh?

Janet Yellen, RIP

Now you know why Janet Yellen is soon to be OUT as Federal Reserve chairwoman.

Take our dismal inflation rate of less than 2%.

Add to our dismal inflation rate, the rate of our current GDP expansion, also around 2%.

That gives us 4% ( 2% + 2% = 4% ).

It’s not rocket science, but our nation’s money supply has just clocked in at the lowest rate of any expansion in our 200 plus year history.

In an expansion, the money supply should grow at approximately the same rate as the inflation rate plus real GDP expansion.

Da Banks

So, should we blame the banks?

After all, when a bank lends, the money supply expands through the multiplier effect.

But, put yourself in the seat of a banker for a second, and look out at those payment streams.

Are they “just coming back”?

Or, are they “coming back with profits”?

The Bottom Line

No, we are not growing our money supply at a rate that matches our real economic growth in GDP plus our inflation rate.

In fact, we are chugging along at about 1/2 that rate.

Over the last (8) years of bull market expansion, our increase in money supply has averaged 2%.

Not the “par” rate of 4%, almost double the lending effort.

Suppress or Expand

FACT: QE is an economic suppression engine on the grandest macro scale.

By depressing long turn rates artificially through the purchasing of large amounts of bonds ( and, other financial instruments ), the Federal Reserve in the name of depression inadvertently created a depressive money supply environment.

Why? Because the banker will not lend without a stream coming back in the outer years to compensate for today’s need for profit … just to crack the deal.

Purchase short term money to lend long term.

But, when the long term rate flattens to the short term rate, what incentive do we have to lend?

Zero incentive.

Hence, no lending, no multiplier effect, no money supply expansion, no wage increase, continued oversupply.

A “blah” economy watching a bull market run.

Strange, indeed …!


The Federal Reserve must begin to wind down its $4 to $5 trillion dollar accumulated balance sheet of assets, by not simply letting expiring notes “roll off” without replacement.

And, also … the Federal Reserve must call in its equally large ledger of cheap liabilities granted to foreign nations.

Rates gotta go up, people.

The continuation of the (8) year bull market expansion requires it.

But, not short term, only long term.

And, that will take a little classic Friedman “wage-price” inflation expanding and trickling up the yield curve.

Until then, you can’t sell, you can’t buy.

Only stagnate.

Last Subtitle

More to come …

Note. The above synopsis was derived from an article written by Ken Fisher [2] and a (.pdf) written by Robert Shiller [3].

  1. Ken Fisher: #200 on Forbes list of the 400 Wealthiest Americans. Published by © 2017

  2. Narrative Economics in 2017 by Robert Shiller. Published by © 2017


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