Thursday, August 9, 2012

Lots and lots of money

The economy is lackluster with signs a downturn is looming. Some politicians talk of a financial cliff ahead when they see what's likely to result when tax cuts expire at the end of the year, but those saying such things aren't the ones running for office. And even then, they're not suggesting a long-term fix, just stop-gap extensions to reduce the risk of the issue attracting more interest before the election.

Meanwhile, the Federal Reserve has shoved an unprecedented amount of money in circulation and is keeping it there in an attempt to make things seem normal. Have you taken a peek lately?

Adjusted Monetary Base* Jan 1, 2008 - July 1, 2012
It's been about four years since the Fed turned the spigot and let the money come streaming out. Are you better off with all this new money out there? If this is the new normal, what's the plan if things do start to go over a cliff? How much more money will instantly appear in attempts to keep a facade of normalcy intact?

Even those with only a limited knowledge of economics should know what happens when too much money chases too few assets. Prices for goods and services are bid higher in what we call inflation.

I've blogged along this theme before, and I will again. Charts like the one here deserve visits again and again. Don't expect the media to spoon-feed updates.

Our country's economic status and financial well-being should be the first and foremost issue this presidential election year. But since the primaries, I've yet to hear a candidate even hint at how dire our situation is. Sure, candidates and pundits talk about jobs and scapegoat things like outsourcing, but they won't fess up to a wider view of our unsustainable mess.

Elections in America aren't won by telling the truth anymore, we vote for the candidate who comes the closest to telling us what we want to hear.  Elections are won by candidates who woo us, and who make us feel all warm and fuzzy. Problem is, warm fuzzies won't fix what's broken. And warm fuzzies won't break any falls when we do indeed go over the cliff.

The Adjusted Monetary Base is the sum of currency (including coin) in circulation outside Federal Reserve Banks and the U.S. Treasury, plus deposits held by depository institutions at Federal Reserve Banks. These data are adjusted for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. They are updated monthly by the Federal Reserve Bank of St. Louis.

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