“It’s a growth economy, Gus. We’ve already made like, 500 rupee.” – Psych
The economy is so bad, Facebook® just laid off 50 Congressmen.
I was flittering across the Internet the other day and I came across a disturbing image. I mean, who wants to even think about Barack Obama wearing just a feather boa and covered in gerbils? See if I ever go to the New York Times® website again.
But, if I may, I think I found an even more disturbing image – a graph of M1. What is M1? M1 is the narrowest definition of money: it’s the cash in your cushions, it’s the cash in your pocket. It’s the cash in your checking account. Nearly anything you can go out and spend right now and not owe anyone for: that defines M1.
M1 is not, however, credit cards. And it’s not savings accounts or the stock market or savings bonds. It’s ready, hot cash.
And the M1 graph has spiked. Spiked as in going up from just under $4 trillion last year at this time to nearly $6.6 trillion right at this moment – a growth of $2.6 trillion dollars – in one year. That’s a huge change, since it took sixteen years to grow from $1.4 trillion to $4 trillion, and those sixteen years contained the biggest recession the United States had seen since the Great Depression.
So, here, take a look. Since it’s Christmas time, I tried to get the most festive pictures I could find, even though technically one of them isn’t a bikini. Oh, sure, you feel like complaining, but what about me? I’m the one who has to flit through literally hundreds of bikini photos to find the best ones to properly illustrate economic principles while being festive.
This is the longer view, which shows M1 since 1975.
This is a close up of more recent M1 behavior. I made the last little bit on the graph thicker and orange because it was hard to see.
It certainly looks scary. The graph, not the bikini. Look at the graph.
What’s going to happen?
I’m not certain. I originally wrote, “I have no idea” but what has happened historically when a country prints 65% extra cash in one year?
I have an idea of what happens there, and it really is scary. After World War I, the German economy was pretty well wrecked, plus they had to put down a communist revolution. I’m not getting into the details (mainly because it’s boring) but the Germans just started printing money as fast as they could.
And by printing as fast as they could the printing presses were the problem. Thankfully, they managed to double money production – by only printing on one side of the currency.
That’s AOC-level super-genius thinking.
A ewe in a swimsuit just drove up in an Italian sports car. It was a lamb bikini.
Within six years what had cost 1 Mark cost 1 trillion Marks. And all because they printed money. I write on a regular basis about the world changing around us, and this is a great example. In 1914 everyone had been happy with their new-fangled electric lights, and in 1924 you had to pay 4 trillion Marks for a newspaper, but even then the news was the wurst.
The good news is that the Germans could pay off their mortgage with cheap money, right?
No.
While their money melted away in a blizzard of banknotes, their debt was (eventually) tied back to the new currency that replaced the inflated mess. As an example, mortgages were revalued at 25 billion (yes, billion) times their value in the inflated currency.
Surely they did the same thing with depositors, right?
Of course not. In some cases bonds were revalued, but only at a tenth of the value of the mortgages. As always, there were winners and losers, and, as always, most people aren’t in the club that allows them to make out like bandits while the economy collapses around them.
My crack research staff uncovered that Adams never said that even though it sometimes is attributed to him. It took a Google® search and one result. Arduous.
As I write this, a $2.3 trillion dollar spending plan was just passed by Congress. Nearly a trillion dollars of that is going directly to people, many of whom badly need the cash. Trump wants to hold out to double it, since as we’ve seen, what’s another trillion?
The rest of the bill is packed with nearly six thousand pages of “stuff”. Since it’s well known that most Congresscritters can’t spell or type, who wrote those six thousand pages, filled with things like making unauthorized downloads of movies a felony, $30 million to set up the Martin Luther King, Jr./Mohandas Gandhi Scholarly Exchange Fund.
Sounds like CoronaBux for Leftists complaining about how awful the United States treats the hordes of people that keep trying to sneak in? Probably. I could go on and on about the rest of the money we’re shooting like water out of a Super Soaker™, but I won’t. The point is, since we’re in a budget deficit already, this is just printing more money.
Okay, this one might have been a bit made up. And Gandhi was notorious for being able to put back six or seven bacon cheeseburgers at a sitting.
Not all of this money will go directly into cash. But some of it will be quickly recycled back into the United States as cash: we lend Egypt a billion or so to buy guns and jet fighters and bombs, and that money goes, partially, to the salaries of the Americans who make the stuff.
And from there right into that M1 graph.
The one thing I know is that vast amounts of money sloshing around within our economy have consequences. Right now, some of those consequences are being held in check – a steak today costs about the same as a steak last year. Gasoline costs less than gasoline did last year.
Why? Most commodity prices that I’ve tracked are still declining, and have been for nearly a decade as the Everything Bubble that followed the Housing Bubble funnels investments into ever-lower returns.
As I’ve said before – we will have inflation. But we will have deflation first. And when it whips back into inflation?
Well, thankfully, I’ll have a graph for that . . . .
