Friday, October 17, 2008
Fed Increases Monetary Base by 16% in One Week
Howard S. Katz recently put this week's increase in the monetary base on his blog. The increase of over 16% in one week is historical. The United States increasingly looks like the Weimar Republic. Just one month ago I had a conversation with an economist who previously worked for the Fed. She insisted, correctly, that the money supply had not increased in several years (because foreign governments were monetizing our debt for us, creating an unstable monetary "game"). In just five weeks Ben Bernanke has proven her utterly wrong. The monetary base has gone from $888 billion on 9/11/08 to $1.74 trillion on October 16. In other words, Reserve Bank Credits increased better than 16% this week. This should double the money supply in the coming two years. This will cause inflation and a bull market in stocks, at least temporarily. However, there also may be dollar sales as foreign holders panic at this historic devaluation. A rocky road ahead. The chart and numbers follow.