Gary North on current economic affairs and investment marketsGary North -- Specific Answers
HomeContact MeTell a FriendText SizeSearchMember Area
Gain immediate access to all of our current articles, the question-and-answer forums, dozens of free books, and article archives. Click here for details on how to join.

About This Site
Academic Gaps
Articles
Capitalism and the Bible
Clichés of Protectionism
College Finances
Debt Management
Ellen Brown: Critique
Federal Reserve Charts
Gary North's Free Books
Get Published Here!
Gold Price & My Report
Keynes Project
Price Index (U.S.A.)
Questions for Jim Wallis
Remnant Review
Social Security/Medicare
Sustained Revival
Tea Party Economist
U.S. Debt Clock
Yield Curve
Your YouTube Channel
Gary North's Miscellany
Advertising
Blogging
Budgeting for Wealth
Business Start-Up
Career Advancement
Digital Tools
Education That Works
Evernote: Free Notes
Federal Reserve Policy
Fireproof Your Job
Goal-Setting for Success
Great Default
Inheritance Strategies
Insurance
International Investing
Investment Basics
Job and Calling
Keynesian Economics
Leadership
Marketing Case Studies
Obamanomics
Precious Metals
Real Estate
Retirement
Safe Places
State of the Economy
Stocks and Bonds
Video Channel Profits
War With Iran
Members' Free Manuals
Our Products
Contact Me
Help
Tell a Friend
Text Size
Your Account
My 100% Guarantee
Privacy Policy
Terms of Use


This site powered by MemberGate

The Federal Reserve Is Inflating at 341% per Annum. (Don't Look for the Decimal Point.)

Gary North
Printer-Friendly Format

October 24, 2008

I have never seen anything like this. The adjusted monetary base over the last eight weeks has risen at 341% per annum. The increase in the monetary base is $300 billion



This indicates panic at the Federal Reserve. The financial system is coming unglued.

The monetary base is high-powered money. For every dollar injected here, the money supply can rise by at least 10 to one. A 10% reserve requirement is imposed on large urban banks, i.e., a 10-to-1 multiplication factor. This is the fractional reserve banking process. This is from the Federal Reserve's site.



The recession is pushing down the price of commodities. So far, the new money has gone to banks and financial institutions. They are not lending to businesses. They regard businesses as too risky. This is getting a lot of press.

http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=amZ3uCIUB8GQ

http://blogs.wsj.com/economics/2008/10/17/will-banks-lend

These articles never mention the obvious: the banks can lend at any time. They make no money if they don't. They can buy Treasury debt. Central banks do. So can commercial banks. This explains why Treasury rates have not increased, despite the increase in the Federal debt.



The Federal government spends every dime it borrows. This money will flow into the economy by way of Washington. This money will not be lent to private businesses. It will not re-capitalize the country. How can it? It is not saved capital. It is fiat money.

If the banks are not lending at all, the monetary base sits there, ready to be used by the banks. At the first sign of economic recovery, they will start making loans. The money multiplication process will take over.

If this expansion of the monetary base does not stop, it will create mass inflation when the banks begin to lend (assuming they aren't lending to the government now).

To stop it later, the FED can sell assets to shrink the monetary base. Which assets? Toxic waste loans? Who is going to buy them? Who wants toxic waste assets in the any stage of the recovery? It can sell Treasury debt, but only until it runs out. It has a little over $450 billion remaining.



http://www.cumber.com/home/Factors.pdf

If the banks will not lend at all, then the FED is "pushing on a string." But why won't they lend? They are legally allowed to. Why borrow in the federal funds market if you have legal reserves? Yet banks are borrowing in this market. They borrow because they have no reserves remaining.

Banks can buy Treasury debt, which is liquid. The debt pays some interest. Something is better than nothing. Not to buy Treasury debt is to throw money away. Banks do not throw money away. Banks buy Treasury debt; the government spends it. Businesses seeking loans find that they must pay higher interest, because the Treasury gets the money. So, the government's share of the economy grows. This reduces productivity. An economy in a recession needs productivity to get out of the recession.

The fractional reserve process takes over. The money supply grows. We can see this happening now. Here are the latest M1 statistics. You can see that the figure is headed straight up after years of being flat.



Alert anyone you think should see this. Email this page. People can monitor these statistics free of charge on my site. Go to Federal Reserve Charts and Yield Curve, which are in the Free Materials section of my site.




Printer-Friendly Format

 Tip of the Week
Sign up for my free
Tip of the Week
Verification Characters:    Type     2  A  H  7  S     here   


Tip of the week archives
On what this icon
means, and how it
can help you,
click here
 Q & A Forums
General Q&A Forum
Advertising and Resumés
Affiliates
American History Topics
Backyard Food Gardening
Banking and Politics
Blog Sites and Web Sites
Books Worth Reading
Bumper Sticker Slogans
Business Forum
Buying Smart
Christian Service Forum
College -- The Cheap Way
Copywriting
Education Alternatives
Food Storage
For Women Only
Fukushima
GNC Benefits
GNC Testimonials
Gold and Silver
Great Default Forum
Health and Diet
Health Insurance
Homeschooling
Investments Forum
Iran War
Job, Calling, and Career
Leadership Development
Legacy Building
Less Dependent Living
Local Political Action
Non-Retirement Forum
One Good Idea
Police State
Privacy
Public Speaking
Real Estate Forum
Remnant Review Forum
Safe Places Forum
Taxation Policy
Typographical Errors
Video Production Basics

 Archives
Reality Check
 Discussion Forum
Search Discussion


Recent Forum Posts
• insurance
• Foreigners Stop Buying Treasury IOU's
• Technical Analysis
• Blood Moons Tetrad
• 60 mins piece, stock market rigged! Why Invest.
• 60 mins piece, stock market rigged! Why Invest.
• Sean Hyman Absolute profits secret calendar
• Investment Portfolio - Inverse Funds
• DowJones Ind Avg is a hoax
• Digital textbooks
• Joint Venture Oil & Gas Investing
• Trading Or Gambling?
• 5 year return on investment in Stock Market
• Bottom for Mining Stocks?
• Home Equity Loan for investment
• RIch Buy Real Estate, Poor Want Gold
• HUD bringing a bit of Chicago to Dubuque
• Buying a home/ putting it in child's name
• CNNFN Rent rate tool
• proposed elimination of 1031 exchange
• Business card for real estate
• Buy rentals in NW Indiana
• Market and Timing
• Housing Advice Sought...
• Too many Eggs in one basket???
• edit
• Sit On Two Mortgages?
• Motivated sellers
• Recommendations for Pre-Approval for Mortgage?
• Rental properties in hurricane country
• Middle Class squeezed out of Chicago
• An Article on Chile
• 5 Amazing, Cheap Places to Live as an Expat
• Oil Field Job Security
• Moving to TriCities Area
• PJ ORourke on the Baby Boom
• Is Vegas DOOMED?
• Mint.com
• Second Passport- Mexico?
• Radiation dangers to US,World Confirmed
• Safety in numbers? Questions…..
• Best in Asia?
• Simple Exercise
• Coming to an airport near you ...
• S.W. New Mexico not looking so safe...
• I take it Retirement Armageddon is not available
• Post Retirement Career
• Social Security - when to start collecting
• 401K Risk
• Detroit Retirees Fight 83% Health Care Cut
• Lump Sum Early DROP
• Underfunded pensions
• 401k strategy
• Can I Avoid Medicare Entirely?
• Looking for a Financial Planner/CPA
• How to calculate retirement needs
• Two IRA questions:
• Rentals
• Why?
• Teaching in non-retirement
• On Law Enforcement and Government
• MC = MR: True but useless?
• Ruppert Article
• Up from Slavery
• Don't accuse customers of cheating
• Constantine's Sword: The Church and the Jews
• Money Banned
• Question about gold not being ultimate asset
• Gary has wisdom
• help finding a decent rehab center
• Rodent Congressmen
• Evernote and Moleskine team up to create smart bus
• Up Credit Limit on Card?
• New study warns on effects of wireless technology
• 3D Printer RepRap
• free service?
• How to quit my full-time job
• Fair joint ventures?
• Intern to Equity Holder
• Oil field business ideas?
• Turning Over Tables on Craigslist
• This might be crazy. Maybe not. I don't know.
• Best Ways of Starting an Online Business
• Copyright Law for Textbook Problems
• Help Needed with Music Appreciation Course
• Engineer starts rubber band braclet business
• Is my USP unappealing?
• Startup of a Daycare
• Last payment
• Employee Death