Right, Like That's Not Going to Cause Inflation

The beautiful and illustrious Kate sent me this chart this morning;


It shows the monetary base (the actual cash money supply) skyrocketing up as idiots in Washington think somehow printing more money will save this economy.

But to get a real feel for how much money is being printed you have to compare it to GDP, the amounts of goods and services we're producing;



Typically, the monetary base as a percent of GDP has hovered around 6% during times or relative peace and absence of war or Great Depressions. However, many thanks to the sub prime dead beats, socialist housing policies, nepotism and cronyism in the incompetent financial sector, as well as simple greedy bankers, the monetary base has effectively doubled in just months to over 12% GDP.

Now, I know this is ignoring other measures of the money supply such as M2, M3, and the long abandoned L, but this chart provides an excellent explanation as to how inflation occurs and why you just can't print off more money. The reason why is it juxtaposes the two main factors that determine inflation;

1. The supply of money (Monetary Base)
2. How much stuff we're producing (GDP)

Understand that money has no value in itself. It is just worthless coinage or paper. The only real reason money has value is that something can be bought with it. So for example, you can print off a trillion dollars for every person in America, but without a proportionate increase in the amount of X-Boxes, cars, food, clothing, housing, etc., "stuff" nobody is any richer. Ergo, all you do in printing money is increasing the amount of money to buy the same amount of goods (GDP, or as I like to call it "stuff"). Therefore, you have more money per unit of "stuff" which is the definition of inflation.

Now, as I said before, it is a little more complicated when you factor in things such as other money supply measures, but not much. The founding principle stays the same;

If you print off more money without a corresponding increase in the amount of stuff (GDP) you produce you will have inflation.

Get ready for the 70's all over again folks. It's what you pay for when you believe in hope and change and flowers and Skittles and free lunches and clouds and fairies and unicorns social security.