You are correct. I mis-spoke. I should have said that M3′s growth rate decreased substantially as M1′s growth rate increased.

M1 went from approx 0% to 16% growth. M3 went from approx 17% to 7%.

I do use Shadow Stats, so good link for your readers. I also have an old professor of Economics that I converse with that runs the numbers himself. They are usually pretty close to Shadow Stats.
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I am one of those bloggers who is sounding the inflation alarm bells. In fact, last month I did an entire week’s worth of posts on the inflation threat and ways to protect yourself.

It may take a year or three, but if we continue down the path of spending trillions of dollars bailing out every bank, car company, insurance company, over-extended homeowner and state government that gets into trouble, inflation will be inevitable — and I suspect this time the Fed will be unable or unwilling to raise interest rates high enough or fast enough to quickly contain it.

The problem I see is this: If the Obama Administration sticks to its guns and runs their 8-year budget plan as projected, $10 trillion will be added to the National Debt by 2015. That is more debt racked up under one administration than all of the other administrations combined.

That $10T will be paid for by printing the money, rather than by directly taxing businesses and private citizens into economic oblivion.

With that much debt, the only politically viable (albeit short-term) solution left will be the tacit devaluation of the dollar via massive inflation, which would be manna from heaven for a nation as deeply in debt as the US would be.

Of course, the losers will be those of us who have been financially responsible who lived well within their means over the years, as the value of our savings and retirement accounts will be severely eroded. Those of us who are working should be able to tread water, but folks on fixed incomes will especially feel immense pain.

What is the solution? Before it’s too late, the government needs to stop trying to “save” failing companies and individuals, and allow creative destruction to restore our economy back to health. Let businesses and corporations fail. Let homeowners default on the loans they should have never be approved for in the first place and reduce our massive government bureaucracy.

In the end, I refuse to put my faith in the Fed to control inflation once all the money that is currently on the sidelines starts to infiltrate the economy.

After all, those are the guys that got us in this mess in the first place by keeping interest rates too low for too long.

My $0.02 (after taxes – and inflation)

Len
Len Penzo dot Com
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As you mentioned, the government is therefore creating inflation. This is healthy. AND it will entice the banks to actually lend the money which should spur consumption and investment. Once the economy recovers they can start limiting inflation.

One thing about your graph, though, is that it is misleading. It doesn’t say what metric of money supply it is going off, but I am making an assumption based on what most people refer to as money supply that it means M1*. M1 is, of course, what most people think of when they think of money supply… the tangible monies. That is going up. But M3, based on the estimates I have seen, has gone down about an equal amount, maybe slightly lower. So overall, the money supply is not changing by much… except for maybe a slight increase.

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*wiki:
M1 represents the assets that strictly conform to the definition of money: assets that can be used to pay for a good or service or to repay debt

M2 Equals M1 + savings deposits, time deposits less than $100,000 and money market deposit accounts for individuals. M2 represents money and “close substitutes” for money.

M3 Equals M2 + large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets.
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