E Bank Run, Or Run From The Banks?

The Consumer’s Price Index (CPI) has been our most accepted national measure for increasing prices.  But, who determined that it was correct to include certain expense items in a government agency’s computation of the CPI, and to exclude others?  Who benefits from this particular definition of price inflation and its calculation?  Realistically, cost inflation is the effect of the issuance (inflation) of new or additional currency into our economic system.  Arguably, cost inflation should measure all increasing prices to which a consumer is subject to.  If consumers buy homes or invest in stocks, then these costs should be reflected in an honest calculation of price inflation.  But, they are not.  So is the CPI actually not deceptive about the true level of cost inflation?

Are CPI government statisticians expecting people to never buy a home, nor ever to purchase financial assets?  Not including such items in the calculation of the CPI hides the full price inflation from the persistent issuance of currency within a fractional reserve banking system. This exclusion is particularly egregious since money creation has largely ended up in the financial market rather than in the economy, increasing the gap in income and assets between the already rich owners of financial assets and everyone else.  This driver of financial inequality may one day soon give rise to civil unrest and revenge violence.

For a number of years the FED has had an announced policy to increase price inflation. How long could rising price inflation persist, as the public has been assured by the FED very recently that it will be transitory?  Well it could be as short-lived as when President Nixon stated in 1971 that “we are temporarily closing the gold window”.  An event which confirms the quip that “nothing is as permanent as a temporary government program”. 

In addition to the understating of an actual level of price inflation, agencies have been discontinuing the reporting of important economic data. The most recent and astounding denial of financial information has come from the FED’s discontinuance of reporting M1, the most basic measure of currency in circulation.  The fact that this drastic step had to be taken, so that the public observers of FED money printing malfeasance could no longer be tracked and reported on a consistent basis, shows just how desperate the FED has become.  Our economy has been increasingly manipulated with drastic actions by the FED ever since the financial crisis of 2008!  If over this time period the economy could not normalize – it really means that it is never going to recover fully – and we will first have to experience its actual demise.  It is only after a crash, a new monetary system, with diminished military geopolitical goals, and limited social entitlements that the nation’s economy will be able to rise again.

Here is the important chart which shows that the original M1 measure of money stock has been discontinued.  It also demonstrates that money growth has been on a tear.  If we take the years 2000-2020, the growth of money has compounded at about 15.1% - a highly inflationary rate for so long a time period.  And if we look at the growth of money stock from 2020, which reflects the 38.6% rate cited previously - that growth is simply destructive to an economy and its currency! 

According to the FRED’s website, it states “In late February and early March of 2020, the Fed cut its policy interest rate dramatically to help ease credit conditions during the COVID-19 crisis. The resulting acceleration in the supply of M1 can be understood largely as banks accommodating an increase in people’s demand for money.”  Should that be interpreted as a walk, jog, or run on the banks?

Another measure of the money supply adds savings deposits to M1, which is known as M2.  From the graph shown for M2, and data, we can calculate the growth rate of M2 for the 2000-2021 period at 6.6%, also a very high rate or growth – far in excess of the 2% inflation that the FED has announced to seek.

Unfunded government spending is continually accelerating the collapse of our dollar’s value.  As a result, anyone depending on it for sustaining one’s quality of life will be disappointed – the quality of life will fall proportionately to the loss in the value of that currency.  Increasingly, it is not that people don’t have savings or money, it is that currency has diminished value.  Indeed, the value of people’s fiat savings will simply drop, likely forcing them to sell other real assets for sustenance.  This is not a constructive basis for a recovery or a dynamic world leader economy. 

Protection from Leviathan and central banks

By using crypto currency such as Bitcoin, which cannot be eroded away by corrupting government policies or FED money expansion, people can protect themselves from currency debauchment.   While cryptocurrencies such as Bitcoin (BITCOMP) or Ethereum (ETH-X), due to their volatility appear risky, at some point soon it will be more risky to be out of the crypto market than to be in it.  Also, continued expansion of debt and money creation is one sure and important driver of rising crypto prices.  

Round Silver and Gold Coins

Pexels

Our government never advised us to buy gold (as even Communist controlled China did for its citizens), and they will not advise you to buy cryptocurrencies.  Understand that no government will protect your assets, and you yourself must become informed enough and be responsible for such value protection.  You must determine now how a run on the banks or a run from the banks is likely to affect your savings. 

Could Americans become victims of hyperinflation?  Let us first have a common understanding of hyperinflation – it is the rise of prices by at least 50% per month. That means that by the end of one year of hyperinflation prices would have risen by 86 times! So it is likely that we will not experience hyperinflation.  However, at a less elevated rate of 10% per month, prices by the end of a year would have risen by nearly three (2.9) times.  Given the 15.1% growth in M1 since 2000, or the 6.6% growth rate in M2 in the 2000-2021 period (take your pick), an 8% monthly rate of seems more reasonable – yet it would rise prices by 2.3 times by the end of one year.  That would still be enough to destroy America’s economy and its currency – and its global leadership.   

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and ...

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William K. 2 months ago Member's comment

Transitory Inflation? More like permanent intentional inflation to save their banker friends. Bitcoin better than gold??? That is the biggest lie ever told, I think. Bitcoin price is as unstable as it's claimed actual value, which does not exist, except in the minds of the holders.