The Next Dollar Problem Has Just Arrived

The pace of monetary destruction is making a new leap. In the last two weeks of November, M1 money supply jumped by over 14% — an annualised rate of 367%.

By Alistair Macleod and cross-posted from Gold Money.

It is not for no reason that cryptos are roaring, and precious metals are playing catch-up. In the last month there have been developments that point to a new phase of accelerating monetary inflation for the dollar, and fiat money is only just beginning to be exchanged for these inflation hedges at an increasing pace.

Hyper-inflation of the dollar is now becoming obvious to a growing cohort of investors. It is driven by factors on both sides of bank balance sheets, with evidence that large depositors are reducing their term deposits and increasing their instant access checking accounts. This appears to be behind the increase in M1 money supply fuelled out of a shift from the M2 statistic, which includes savings deposits.

It amounts to a hidden run against bank balance sheets. Meanwhile, increasing supply chain problems against a background of covid lockdowns are leading to the withdrawal of bank credit from non-financial businesses, potentially imploding bank balance sheets as a bank credit contracts.

Foreign support for both the dollar and dollar-denominated fixed interest assets are being withdrawn, which is sure to lead to rising bond yields and dollar interest rates in the New Year, undermining the equity market bubble.

The Fed is now faced with not only financing ballooning federal budget deficits, but underwriting US supply chains in their entirety, which is corroborated by ongoing global logistical problems, tying up an annualised $34 trillion of intra-business payments in America alone. The Fed’s unwavering commitment to Keynesian monetary policies will lead the Fed to attempt to offset these supply chain problems, to rescue banks that fail to survive the inevitable contraction in bank credit, and to defray the bad debts that will arise.

It is a momentous task encompassing the whole US economy, requiring even faster money-printing, and is impossible without destroying the unbacked dollar.  

Introduction

Since May, I have been warning of a dollar collapse. I showed that commodities, stocks, cryptocurrencies and precious metals were all rising because of the dollar’s loss of purchasing power.

The media is still reporting on the economic effects solely of Covid-19. In doing so, they have consistently underestimated them and ignored other factors. To return to a normality was always there as a beacon of hope — the spring of hope in a winter of despair. And it has only been a small minority who have pointed out that far from being a solution, inflationary financing has negative consequences. And even fewer of us who have tried to demonstrate that instead of stimulating economic activity, debasing the currency actually kills it.

The pace of monetary destruction is making a new leap. Figure 1 is the money supply of the world’s reserve currency, which is soaring at a new pace. In the last two weeks of November, M1 money supply jumped by over 14% — an annualised rate of 367%.

Screen Shot 2020 12 17 at 1.39.13 PM

The hyperinflationary trend of US M1 money supply is clear. But everyone has become so bemused by these developments that they have taken to disregarding them, while prices in stocks, commodities and cryptocurrencies console them by rising. These developments must not be ignored by anyone who wishes to preserve their wealth, and they give important clues to the road ahead

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