Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Money Supply Growth Will Drive U.S. Dollar Lower and Gold Higher

Commodities / Money Supply Jan 21, 2009 - 06:45 AM GMT

By: Ned_W_Schmidt

Commodities Best Financial Markets Analysis ArticleThe 1930s was the birth of Keynesianism. Economists needed a simple answer as to why they had been so wrong. Since then, the U.S., and much of the rest of the world, has endured 70 years of economic concepts that have generated a continuous lack of success in economic matters. Most professions would seriously review their methodology when faced with as many repeated failures. Not so for the economics community. They just keep coming with more of the same failed policies.


Consider their advice at the present. Too much reliance on debt caused a considerable portion of the current economic mess. So, economists now advise issuing more debt. For you see, now will be different. This debt spending will be for wise ideas generated by themselves and those darlings running governments. See the difference?

Easy money was a goodly part of the last two economic meltdowns. Easy money gave us the internet bubble and burst. Easy money gave us the housing market bubble and burst. If easy money is the solution to economic ills, why are two successive economic bubbles and burst associated with easy money? Does easy money have unintended consequences that are being ignored, again?

The world is really at one of those points in time where the community of economists must prove that they can get it right once or twice a century. Creating financial bubbles that burst, producing massive financial carnage, really does not take a degree in economics. Any out of work mall cop could accomplish the same. But enough of that criticism, economists have been good to some us, especially those that did not take their advice. Did not their advice create a financial environment in which Gold rose from less than $300 to more than a $1,000?

Obama's administration is already providing that much promised change. Bush's current annual Federal deficit of $1.3 trillion was created after taking office. Obama is creating an additional deficit just shy of a trillion dollars before taking office. See, already change that is more efficient. But, who buys the $2.5 trillion of debt to be created in Obama's first year is an matter of great importance, and may be the more important change.

Consideration of who buys the debt is an important matter. For some time, the Federal Reserve has not had to monetize much of the debt of the U.S. government. Foreign central banks have been both willing, and sufficiently gullible, to purchase much of that debt. That situation may change as governments around the world embark on their own economic stimulation plans. China, for one, is committed to almost $600 billion to stimulate domestic demand. Could the Federal Reserve be forced by political considerations to monetize the massive Obama debt mountain?

But note, the Federal Reserve has not been idle. It has been monetizing assets wherever they can be found. From that effort, a massive burst in the U.S. money supply has developed. This week's chart, found below, portrays that money supply growth. Redline, using the right axis, is the annualized rate of change in the U.S. money supply, M-1, NSA. As is readily apparent, U.S. money supply growth has exploded, and is now running at more than a 40% annualized rate. And as money supply growth TODAY influences TOMORROW'S prices, we can reasonably expect higher FUTURE inflation in the U.S.

In simplest of terms, a lot of U.S. dollars are being created. Demand for dollars in this world is limited. It has an upper limit. That supply of U.S. dollars may be starting to over power the demand for dollars. In the chart above is a second line that represents our dollar index, a better measure than the improperly designed popular index.

This vast quantity of money being created seems to becoming dominant. That supply of money may be capping the value of the dollar, and will likely over come it. Money supply growth this excessive can only push down the value of the currency, in this case the U.S. dollar. The dollar index seems already to be topping out. Investors must answer an important question. Has any currency created in such abundance ever appreciated?

Two U.S. Presidents have been very good to Gold investors. Obama is likely to continue that run of Gold prosperity. $2.5 trillion of debt, largely to be financed by Federal Reserve monetization, is indeed change. No economic hegemon has ever been so financially irresponsible. While such debt monetization has been practiced in “banana republics” for over a century, it is new to the market for U.S. dollars. As a consequence, the clearest investment theme for the Obama era is Gold, bought on any and all price weakness.

By Ned W Schmidt CFA, CEBS

Copyright © 2009 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html

Ned W Schmidt Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in