“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 . . . .
I like it better when the bikini graphs feature inflation, not deflation.
We are long past the point where what we call “money” has no basis in reality. A few years ago I would have been aghast at the idea of these direct payments of make-believe money but now? I figure why shouldn’t I get in on the looting. The money might be make-believe but the firearms, ammo and food I can buy with it is very real.
You can find ammo? Know a source for primers and powder?
I can find ammo but only by constantly scouring the web for it, it is damn near a full time job and the prices are ridiculous. Primers? No go on those.
Very true. And looting is probably just the right word for it.
I knew they had been burning up the presses, but not too that extent. Could some of it be money moving out of the market into cash? The market is way over valued and who wants to invest in a busy, or grow it. So everyone just went to cash.
If they did to go cash (plus the goose’ng (sp) by the FED), once everyone gets comfortable with the economy, the buying spree will be crazy.
Supporting your story on money are the prices of gold and silver. Interesting that their prices jumped about the time the M1 took off. It is always disconcerting to see gold jump in price. Bad omen.
It is. I don’t think so? Generally the big guys park their money in bonds and other ways so they earn interest . . .
The Fed exploding its money printing and M1 is only part of the ongoing debacle, which is all interrelated.
The Fed prints new money to buy new Treasury notes and bills (new debt) to finance ongoing US Government spending, which is accelerating. The reason the Fed must buy Treasury notes is because nobody else will do so, in particular China and Japan, the rubes who have financed us for the past twenty years with money they earned from selling us cheap imported goods while undercutting our wage structure. Key point, the Fed controls not only the money printing press BUT ALSO the Federal Funds Rate (FFR) which is the interest rate the US Treasury pays on the debt. The FFR is effectively zero and has been for some time. This literally means money is free so of course it gets printed and spent in an M1 supply explosion.
This is all Alice In Wonderland economics, but the inevitable end result of giving a single entity like the Fed control of BOTH the money printing press AND the interest rates simultaneously. When reality (inflation) rears its ugly head, FFR interest rates will have to go up as the mechanism to determine who is healthy enough to borrow it responsibly and who is not. When those interest rates go up, the Fed will have to print still more money to cover the suddenly increased interest on the Federal Debt, which will suddenly become the dominant component of the Federal Budget. At that point the US Government will just be a payday loan bum.
The Fed exploding its money printing and M1 is only part of the ongoing debacle, which is all interrelated.
The Fed prints new money to buy new Treasury notes and bills (new debt) to finance ongoing US Government spending, which is accelerating. The reason the Fed must buy Treasury notes is because nobody else will do so, in particular China and Japan, the rubes who have financed us for the past twenty years with money they earned from selling us cheap imported goods while undercutting our wage structure. Key point, the Fed controls not only the money printing press BUT ALSO the Federal Funds Rate (FFR) which is the interest rate the US Treasury pays on the debt. The FFR is effectively zero and has been for some time. This literally means money is free so of course it gets printed and spent in an M1 supply explosion.
This is all Alice In Wonderland economics, but the inevitable end result of giving a single entity like the Fed control of BOTH the money printing press AND the interest rates simultaneously. When reality (inflation) rears its ugly head, FFR interest rates will have to go up as the mechanism to determine who is healthy enough to borrow it responsibly and who is not. When those interest rates go up, the Fed will have to print still more money to cover the suddenly increased interest on the Federal Debt, which will suddenly become the dominant component of the Federal Budget. At that point the US Government will just be a payday loan bum.
When the collapse comes, it’s retirees who will be hurt the most…
https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/US-Treasury-holdings-TIC-foreign-v-US-2019-12.png?itok=qZoz3UdK
You’re right – because their window is so short. On the flip side, in the US the retirees are (as a group) stuffed with assets.
So – what’s the collective wisdom of the group on what to invest in as a hedge against hyperinflation? Guns, ammo, medical supplies and food (tangibles) are obvious as is paid off mortgages and automobile loans. I like the idea of a dozen gold wedding rings over gold coins (less likely to be robbed). An installed solar array / battery seems reasonable. Curious if it’s possible to pay property taxes several years in advance – ideally holding “Paid in full” receipts might be proof against sudden tax increases. Believe spyware stocks like Planatir, L3 and Harris Engineering would move with the market – the government will never stop buying spyware. Any other hedge suggestions?
I forgot elective surgery … repair your ACL, de-bunionize and tweak that throat to eliminate snoring and CPAP dependence. Medical costs are likely to increase as access decreases. Hopefully none of those mods can be repossessed
At least for us, our property taxes change every year so we can’t pay in advance. I recommend the four G’s: gold, grub, guns and ground: https://www.arthursido.com/2019/10/the-four-gs-of-investing-in-2020.html
For a ‘hedge’ against ‘hyper-inflation’:
* Skills.
* Experiences.
* Relationships.
* bag-pipe lessons.
* Posting in the ‘comments’ sections of humor-blogs on TheWorldWideWeb.
And always be adding to your manifesto in your hundreds of non-sequential color-coded composition-books in tiny handwriting… page numbers optional.
* mouse-traps.
* bag-pipes, because ‘two is none’.
Ohhhhhh, I need a manifesto! (I laughed at that one!)
I like optimizing home insulation, lighting efficiency, garden soil fertility, small machine tools, ham radio equipment, musical instruments, and reference books, among things that have enduring utility. Financially, I like Series-I savings bonds, and TIPS. They may not “keep up” with hyperinflation, but they’ll do better than actual fixed-income investments (unlike credit-union CDs, or T-bills). Stock in companies with actual assets (e.g., CSX, which owns a railroad), also makes sense to me.
Big money from NY is buying up farm ground and timber here in OR at exorbitant prices to park money right now. They wouldn’t be doing that if they weren’t worried.
In a WP-eaten comment I mentioned that bricks of vacuum-sealed coffee (of whatever you would want to drink yourself) make excellent trade goods.
Long story.
You can’t escape the tax man!
Market is difficult to say – because it’s based more on perception than anything else. There is (for instance) no reason Tesla should be valued more than all other United State car makers, combined.
Rural real estate and nonperishable consumer items?
Seems like we’re currently experiencing a deflation where lots of people can’t pay rent, can’t buy food, etc. Lines of cars for food banks all over the US says a lot. But … there is inflation in capital assets, like housing, stocks, precious metals.
Even though new money is being printed, it’s mostly a.) leaving the country courtesy of our reserve currency status or b.) being placed in “storage” instead of spent.
Why would newly printed money be placed in “storage”? Because it’s mostly avoiding the hands of those who need it to spend and many who receive it often aren’t sure when they’ll see it again, so they save as much as they can.
This can be seen in an Velocity of M2 (includes M1) Money Stock graph -> https://fred.stlouisfed.org/series/M2V.
During times of hyperinflation, velocity of money increases ferociously as people can’t wait to get rid of the bad currency hot potato to convert it into tangible goods or “good money”.
Yup. Velocity is key. That was one of the biggies from ’08 – everything just stopped . . .
I think we are going to need a bigger printing press.
Got cashless, chaps?
“cashless chaps”. Priceless!
A personal example of hyperinflation from recent years.
In one of its socialist spasms, in between Generals/Bolsonaro; when the cruzeiro supply was inflating like the Adam P. Wassname Memorial Dam, my cousin (A school teacher) would send her son to the grocery store during the school lunch period to buy food, because by the end of the day the prices would’ve gone up. Her husband, on payday, would hit the stores buying whatever real goods: shoes, tires, electronic parts he could find that could be traded for food, medecine , etc.
I used to bin things up and take them to St. Vincent de Paul’s (and the like). Now… I’m hanging on to them. Coffee’s a useful trade good if you get the vacuum-sealed bricks.
And on a lighter note, Mr. Wilder demonstrates the consequences of cutting corners on research. Had he spent more time reviewing scantily-clad pin-up material, his first graph would have been easier to read.
A personal example of hyperinflation from recent years.
In one of its socialist spasms, in between Generals/Bolsonaro; when the cruzeiro supply was inflating like the Adam P. Wassname Memorial Dam, my cousin (A school teacher) would send her son to the grocery store during the school lunch period to buy food, because by the end of the day the prices would’ve gone up. Her husband, on payday, would hit the stores buying whatever real goods: shoes, tires, electronic parts he could find that could be traded for food, medecine , etc.
I used to bin things up and take them to St. Vincent de Paul’s (and the like). Now… I’m hanging on to them. Coffee’s a useful trade good if you get the vacuum-sealed bricks.
And on a lighter note, Mr. Wilder demonstrates the consequences of cutting corners on research. Had he spent more time reviewing scantily-clad pin-up material, his first graph would have been easier to read.
I think I speak for everyone here when I say John should emulate the Fed and print more M1 graphs.
I’m lucky that I have my chief graph-transparantizer here at home with me now.
This time will be different. Just ask ’em.
“Let us now imagine the scene in the boardroom of a German bank in the spring of 1914. A
directors’ meeting is in progress. The chairman of the board polls the assembled about the
financial outlook. “Anyone care to venture a forecast of the rate of inflation eight years out?” he
inquires.
Here is what nobody says in reply: “A great war will shatter Germany and the world.
Nothing will ever be the same again. The German cost-of-living index, now set at 1, will hit
218,000 million come November 1923. The mark will become worthless, after which it will
become very worthless.”
James Grant
Nov. 6, 2014 at the 32nd annual Cato Monetary Conference in Washington, D.C.
That’s why we like Mr. Grant!
While a lot of people looking at the future seem to be expecting social disorder on a wide scale, my take is just that we’ll be busy trying to get by in a sudden state of poverty. Jobs and savings may evaporate, but fighting about it won’t put fuel in the furnace or food on the table. But poverty doesn’t necessarily require misery. I’m hopeful that a spirit of “muddling through” and “we’re all in this together (except the 1%, but they don’t live around here)” might make it tolerable. So, I’m looking at ways to support local farmers and craftsmen, and to develop my garden and craft. It’s a strategy that pays off even if Business As Usual goes on for years to come. (The crisis I’ve been expecting for the last 40 years is long over-due, which just goes to show how poor I am at prediction.)
Yeah, it’s the apocalypse versus the Bladerunner future.
Neither are attractive. Unless 1983 Sean Young is there.
We need to rebuild here, and your local is purchasing is a huge start.