Recent Actions Taken by the Federal Reserve
US Money Supply is Rising as Fast as in the late 1970's
The really big story now is the trend change in the US. In 1994, US money supply increased just 1.5%. That was far less than the GDP, and is why inflation stayed so low till now. But things have changed. Bill Clinton manipulated both the Fed and the US Treasury, and has forced inflation into the system.
Alan Greenspan told the markets the Fed was pursuing an inflation fighting policy. You have seen the attempts to indoctrinate you. Inflation is dead and buried." Total victory was, supposedly, finally accomplished.
Markets are in Jeopardy But Fed monetary actions speak louder than Greenspan's words. The Fed has allowed the US money supply to soar. At the same time the Fed has lowered interest rates. Incredible. You are seeing an across-the-board re-inflation. And the media and the markets are completely ignoring this information. It is placing the markets in grave jeopardy.
Numbers Don't Lie
Here are the numbers. M3 is the most complete measure of money supply. It includes checking, savings, CD's and money market funds: i.e. all cash in circulation in the economy. From December 1994 to February 1996, M3 has soared nearly 10%. that's the biggest increase since the great inflation of the late 1970's. It's nearly 5 times as big as the increase in GDP over the same time.
Whenever money supply goes up faster than GDP, inflation follows: more money is chasing the same amount of goods and services. Usually, it takes 6-to-12 months. Already inflation has been increasing on the wholesale level. In the past few months,wholesale inflation has risen at greater than a 5% annual rate. Finally that is spilling over to the consumer level.
The Consumer Price Index (CPI) had not registered much inflation in 1995. But in January, 1996, the CPI shot up by .4%. That's close to 5% inflation on an annualized basis. It represents the biggest increase in inflation in four years.
For the First Time: A Global Inflation
Globally we are seeing the biggest increases in money supply ever. The world is awash with record amounts of money. The massive coming inlation won't be limited just to the US. We are on the verge of global inflation.
The vast increases in money supplies are just the start of a much broader inflation crisis. The Fed has vastly increased the amount of money banks can loan. This high-powered money is known as "free reserves". All during 1993 and 1994, free reserves in the banks rose: this was because banks were NOT loaning the money, but were holding it. Since then, free reserves have dropped 17%. That means that banks have opened up the money spigot. They are making huge amounts of loans. When bank free reserves go down, the money supply goes up. Because of the way banks are allowed to loan money and borrow from the Fed, increased bank loans increases the money in circulation. Bank lending is money creation.
Another critical inflation number is Federal Reserve balances at the US Treasury. When the Treasury cannot sell all its debt issues to the market, the Fed buys the balance. But the Fed does not have the cash to buy anything. It "buys" the debt and the Treasury prints the money to cover the purchase. This is the source of printing press money. Over the past year Federal Reserve holdings of US government securities have increased by close to 12%.
The US Debt is Unmanageable
The Fed now holds more US government debt than in its entire history: the incredible figure of $480,000,000,000. Last year alone they printed enough money to cover close to 1/3rd of the published US deficit. That is called "monetizing the debt," the most inflationary thing the Fed can do!
Back to D&G Fund Page
Send E-Mail to: LLONDON@LFCITY.COM