This graph shows the money supply. Notice what's happening right now? Yeah, we're printing money at a rate never before seen in history, except in Weimar Germany, and we've already explored how well that worked out. WWII ring any bells?
Take a look at the following graph to get a better idea of what's going on.
This is the annual rate of change graph. Notice that it tends to hang out around zero, and until this year, any positive changes in the money supply are balanced by slightly smaller corresponding negative changes. In essence, the money supply is grown a bit above the actual value of the economy in order to encourage growth. As the economy grows, money is removed from the supply to maintain value and limit inflation. Take a look at this same graph, only this time I've zoomed in on the period 1999-2005
After 9/11, President Bush increased the money supply to fund the recovery and cleanup, and to get ready to strike back. He increased the money supply at an annualized rate of almost 50%, followed almost immediately by an annualized rate of reduction of 25%. This tightening of the money supply immediately after an increase acts to put the brakes on inflation.
Now it is intuitively obvious to anyone that there is no way to either grow the economy to add enough value to match the increase in the money supply, nor is it possible to tighten the money supply enough to eliminate an inflationary effect.
The Obama administration has two options. They can put on the brakes and stop printing money, and prepare the country for a crash landing, including double digit inflation, or they can crank the presses even higher, and drive the country over a cliff into complete bankruptcy.
The first course will be incredibly unpopular, and will result in a depression exceeding the 1929 crash by several orders of magnitude. After a decade or so of struggle, America will be able to get back on its feet, smaller, but substantially better off.
The second will be a lot of fun while it lasts, but will mean the end of America as a nation.
Period.
Look at those graphs again and ask yourself a simple question. Would you invest in a business run this way? Would you invest in a currency that is being deliberately devalued this way, knowing you will only get pennies on the dollar for your investment?
Neither would I. And neither would anyone else with a brain.
