Wednesday, Feb 13, 2008
Why a recession won't push down the cost of living
MoneyWeek: Why a recession won't push down the cost of living
Worried about inflation...? Oh stop your carping and set an extra place at dinner for the fast-looming recession instead. Your cost of living can NEVER go up during a recession, right...?
But remember, that near-perfect connection between money-supply growth and consumer-price inflation is one of the few clearly established facts in economics. Over a 30-year horizon, they match each other almost exactly. Which is to say they won't necessarily move together this week or next.
Posted by mary @ 09:46 AM (244 views) Add Comment
1 Comment
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1. sold 2 rent 1 said...
Great article from Adrian Ash of BullionVault.
The US government stopped reporting M3 figures in 2006 when the annual rate of change was 8pc. Why? Because they can see the abyss.
Now M3 annual rate of change is now 18.2pc
US CPI is still under 5pc.
Most of this new money (at least 10pc) must still be going into assets (or to support falling assets).
As the money supply graph shows this problem will only get worse as both CPI and M3 go vertical.
In an attempt to avoid a deflationary collapse the US needs to keep M3 growing at ever faster rates
So where will we be in 6-12 months?
Will the US have CPI at 10pc but M3 growth at 25pc?
And exactly at what point will the US have to collapse the M3 growth?
If they do then a depression is guaranteed as massive debts default. This is unwinable for the US now. They have no way out.