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Saturday, January 07, 2006

Mind-Numbing Stuff About the Fed, Money Supply, M3, and the Possible End of the World As We Know It

Reader Morrighan forwarded this link concerning the Federal Reserve's decision to stop publicizing a "bottom line" figure on total money supply, and exploring the ability the government and the Fed will have to manipulate the money supply -- and even to spend public money on individual stocks -- without the rest of us knowing.

I'm not sure whether I think this is perfectly consistent with my fears about our ballooning debt and trade deficit and China's ability to threaten us with a "Debt Bomb" more destructive than any nuke, or whether it's tin-hat conspiracy nonsense.

Three points come to mind as I chew on this:

1. If the U.S. starts madly printing money, our overseas debt shrinks in real dollars. Creating hyperinflation this way would be a sort of economic, instead of nuclear, mutually assured destruction: if the Chinese start selling our bonds and cripple our economy, we print money like Weimar Germany and make the world's U.S. holdings worthless. It's actually not a stupid idea, at least no more than nuclear counterstrikes were -- if it's intended as a threat to keep the peace, and not actually implemented. But making such machinations secret by discontinuing reporting of M3 doesn't really make that threat more credible; it just makes it more likely, which is different.

2. The new Fed chairman is said to be less inflation-averse than Greenspan was. And now the Fed seems to be setting itself up to create inflation without public knowledge of its role. I'm sure that's just a coincidence.

3. Some people seems to be hell-bent on having the government start investing in the stock market, which would both prop it up and enable insiders to earn tremendous illicit profits by boosting the prices of specific stocks. Social Security privatization would have done this, but that's dead in the water. So, shortly afterward, the Fed Board sets up a mechanism that allows semi-governmental agencies to do the same thing, without public knowledge? That's a little scary.

I don't think there were two shooters in Dallas. I don't think there was a nefarious bulge underneath one of the airliners that hit the WTC. I don't think a cruise missile hit the Pentagon on 9/11, I'm not afraid of the Elders of Zion and I like my brother in law even though he is a Mason. In other words, I do not generally cotton to conspiracy theories. But I do know that the world is a complex place, and that conspiracies and plots do occur.

NeoProgBlog readers: please help me out here. I'm just a country lawyer/mediator, not an economist. Is there a story here?


Anonymous Anonymous said...

if all this is true, it is indeed very scary stuff. i know we are in up to our eyeballs with china, and it does explain one of the reasons why chimpy was so hot to "piratize" social security.

however, i am one of those gullible / paranoid people who sees a conspiracy in just about everything. a lot of the time, i'm wrong. but sometimes, i'm right. i'm like the boy scouts. my mottoes are better safe than sorry, and be prepared.

is there something to this? who knows? but i wouldn't put anything past those in charge today. not a damn thing. especially if they have anything to gain.

---her eyes

1/07/2006 10:28 AM  
Blogger QL in NY said...

T2, the one thing that will prevent a complete breakdown is that the Chinese need Americans to buy their goods. So I don't fear an immediate depression, or even one in the next ten to twenty years. It will happen gradually. Once the Chinese can buy their own stuff, that is when the shit will hit the fan.

So I'm pretty sure we have some time to turn it around, but we have to get cracking cause there is an awful lot to fix.

1/07/2006 12:47 PM  
Anonymous Anonymous said...

"...we print money like Weimar Germany and make the world's U.S. holdings worthless..."

Gee..think about the Social Security he so noted; all those worthless treasury Bonds sitting ina file cabinet. What better than to stiff someone else for your lack of financial irresponsibility.

What would the possibility be that Bush is actually thinking along those very lines of thought...print up tons of "money" to make the dollar totally useless on the market and our treaury bonds hold the same value as used toilet paper?

I'll bet they're expecting the world to forgive the US because we are so indispensable to the world economy.

1/07/2006 1:01 PM  
Anonymous Anonymous said...

Her eyes: Just because you're paranoid doesn't mean "they're" not out to get you! And it's not a stretch when you consider that "they" aren't necessarily trashing the economy for personal profit, just ensuring that no matter which way the economy goes, they can profit. That way, it's not immoral, right?

ql: I agree we probably have some time (although the bond rate inversion I blogged about more recently may signify a problem sooner). As we approach the day when China et al. stop buying our bonds, though, our economic situation will slope down and down and down, and our political position will weaken as we recognize that we have to give way to Chinese demands, whatever those are, in exchange for continued support.

So even a slow decline is ugly in my book. Maybe even uglier than a crash.

1/11/2006 12:14 AM  
Anonymous Morrighan said...

Ah, those Chinese.

I respectfully disagree with ql. No conspiracy here, only facts. Your thoughts?


1/23/2006 7:07 AM  

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