Lies, Lies, Lies

The truth is that the feds can control either the quantity of the nation’s money or the quality of it. At the heart of the world’s next — and probably greatest — financial crisis is the sad fact that they cannot do both at the same time. Alas, there is always some catch…some restraint…some skunk in the woodpile. We cannot grow wiser without growing older. We cannot grow richer in the future without forgoing the chance to enjoy our money in the present. We cannot make the Devil’s food cake of an expanding money supply without the gooey spoons and burnt pans of inflation hidden somewhere in the kitchen sink.

Next month, the feds will cease reporting the M3 figure. Thenceforth, it will be harder to figure out at what rate the U.S. money supply is expanding. That is to say, it will be harder to know how much money the feds are hoping to steal from the world’s savers.

Yes, dear reader, the great American Empire faces the future, not with grace and resolve, but denial, delusion, deceit, and more debt.

Will the Bernanke Fed protect the quality of the dollar, or will it tend to favor the quantity of it? We already know the answer. He has told us himself: he will hire helicopters to drop the green paper all over the country, if it comes to that, just to make sure the quality of the nation’s currency does not improve. In Bernanke’s big, black book of economic alchemy, there is no worse sin for a central banker than to allow deflation, otherwise known as an increase in the value of money.

And so, the feds deceive in order to continue their delusions of power, grandeur and mediocrity. Yes, they say that the current economy is nothing special. It is mediocre — just the way it ought to be.

What? Is the yield curve not upside down? Do Americans not spend more than they earn (the savings rate is net negative) for the first time since the Great Depression? Are house prices not at record levels, after more than $5 trillion in appreciation since 2001? Are inventories of unsold houses not also at record levels? Is the country not at war (for the first time ever) with an unnamed enemy? Will the feds not borrow half a trillion dollars in the next fiscal year, while the country buys $800 billion more from foreigners than it sells to them? Did gold not outperform all major asset classes last year? Are all these things not exceptional? Surely, they are anything but mediocre.

We suspect that increases in the money supply will also be exceptional in the years to come — even spectacular. We further suspect that it was to avoid noticing these exceptional increases in M3 that the government decided to stop reporting the figures.

Eventually, of course, the inflation news will get out.

"But how about the inflation-price statistics that are announced monthly?" asked Richard Russell yesterday. "For instance, the latest CPI figures show a rise of 0.7% in January or at an inflation rate of almost 9%. To hide this the Fed depends on the ridiculous u2018core inflation’ rate, which eliminates food and energy. How about this — the core rate has been lower than the overall gain in the CPI for 39 consecutive months. That’s the longest such stretch since the government started computing the core rate back in the 1950s."

What a shock! Government quants created the "core" measure in order to eliminate the volatility of food and energy prices. This would give us a more accurate and consistent picture of inflation, they said. What it really does is persistently understate the actual inflation figure.

Lies, lies, lies…and more lies. But, what do you expect, dear reader? Yet, who doesn’t like lies…so long as they are flattering?

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.