More about the US monetary base and money supply

A couple of days ago I asked ‘What’s the US money supply up to?‘  I gave my own response to that question.  Now Karl Denninger adds some very pertinent comments.

The monetary base of circulating funds is not simply “money” — it is money and credit.  We all know this; most of us, in fact, nearly all, walk around with over ten if not over 100 times as much available credit in our wallet as we have dead Presidents.

. . .

I could walk into a car dealer and buy a car with the plastic in my wallet.  Not one penny of that is actual “money”, it is all a promise to earn money tomorrow.  Yet I never walk around with 20 large+ in my wallet in dead presidents — that is, economic surplus that I have already earned.

This is why hyperinflation hasn’t happened and won’t.  It is also, however, why “money printing” and “QE” haven’t worked and won’t.  As I pointed out quite early on and wrote about in Leverage when you look at where all the “QE” games have gone it has all gone into replacing the financial industry credit that went “poof” during the 2008 crisis, and that credit was built during the previous period on nothing more than hot air.

In other words there was nothing behind any of those promises; they were simple acts of pulling out the credit card and saying “Charge It!”

That’s a fabulous idea except that there are two, and only two, outcomes that must eventually result from such an action:

1. You must forego spending in the future to pay down the debt.

2. You must destroy someone’s purchasing power by diluting the currency to cover the debt.

. . .

PS: Arithmetic is not political and could care less about whether you tell the truth; it is, in fact, truth — whether that happens to be inconvenient or not.

More at the link.  Worth reading.  I’m not sure I agree with him that hyperinflation won’t happen – other authorities have a different perspective on that.  Nevertheless, I agree with his other points.


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