May 22, 2009

IS THERE ANY WAY OUT?



Listed Below is government supplied data: ranging from money supply to national debt. Hot off the press is the most current release of the monetary base numbers. This does not include at least 4 trillion of government purchases of MBS, bailouts, treasury purchases..etc. This is basically a rough estimate of money inflation that the government has admitted to thus far. It excludes the more dangerous credit inflation, which is more significant threat to our currency at the moment. It has increased 250% from 2006-2007 excluding about 150billion of treasury securities soon to be purchased.
This is representative of credit inflation, although the ratio of nonperfprming loans can't sustain single digit figures(government will print money to abil people out, inject capital like 900 billion they have already done & another reset of ARMS is coming up). Nonetheless, it has increased 400% since 2004.
This is the current public debt as of Q4 2008. I am sure we were able to convince some country in the world to buy more debt since this report. A conservative estimate would be 12 trillion? More? I would like to know the interest in this debt, as I suspect it would be 800 billion dollars+ per annum. 
Below is the real danger in terms of inflation- It is the current reserves not adjusted for reserve requirements. Those unfamiliar with the banking system should realize the 800 billion in reserves can create an additional 7.2 trillion either to cover loan losses or make new loans. I highly doubt the latter.

Even more telling of the above graph, is the reserve balance with the FED. It is currently about 940 billion. WHAT DOES THIS MEAN? Well 940-800= 140 Billion of currency created by the fed. This can then create 1.26 trillion which most likely went to cover bank defaults (not recorded in the loan loss reserves above). This hasn't yet been counted into the money supply, see where I'm going?


This still excludes consumer credit defaults, the 2.165 trillion of securities the FED currently holds. Their 1.25 trillion of MBS at best may be worth 20 cents on the dollar. Wait! remember our fiscally irresponsible president, who will likely run the deficit for 2009 well past 3 trillion, not the mickey mouse number given to make the public feel good. Oh when will the bailouts stop?

Conclusion: If anyone can see a way out of this, please enlighten me. You don't even have to do that, just convince me hyperinflation will not occur. My optimistic side hopes for just a 5-8 fold increase in consumer prices, but this becomes more and more of a pipe dream everyday as I hear a new bone head stimulus plan announced. 

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