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St Louis Adjusted Monetary

The chart above is that of the monetary base in the U.S.  The monetary base is considered “high power” money.  It consists of cash in circulation and commercial bank deposits held at the central bank.  In essence, this is a graph of the most liquid money (currency) in the system.

Imagine that you had no idea whatsoever what this chart was “of,” could you make any inference as to what it means?  If you had no idea whether this was a chart of the stock market, bond market, soybeans, gasoline, climate temperature, the population or even food stamp usage, would it tell you anything at all?  Well, we have some numbers on the left and what appears to be a “timeline” on the bottom, the chart goes from lower left to upper right and appears to have been rising at a greater rate of speed over time.  That is until 2008 when it went full retard to the upside!  It would be safe to say that “whatever” this chart is “about” changed very drastically starting in 2008 and with the exception of 3 minor jogs sideways since then it is continuing straight up vertical.  Again, not knowing what this chart is about you can glean one thing for sure…”something” changed very drastically and does not appear to be reverting back to what the “norm” was prior to 2008.

But we do know what this chart is about; it is the monetary base going all the way back to 1918.  This is a chart of “the juice” if you will.  The juice always worked in the past…ALWAYS!  If the Fed wanted to speed up the economy?  Simple, no problem…just open the juice spigot and 6 months or so later the economy would come back to life.  If they wanted to slow the economy down?  Again, very simple, just slowly close the spigot and ration the juice and presto, the economy slowed down 6-9 months later.  As a side note, prior to sometime early last decade under Alan Greenspan, the Fed didn’t make “policy statements.”  They didn’t “tell” you what they were doing.  They would tell you what the discount rate was PERIOD.  Investors could “watch” the M’s (money supply); they could watch Fed funds and follow the prime rate.  The really good investors would watch this stuff like a hawk and those who got it right made bazillions because they knew whether the tide was coming in or going out.  This is a very important concept and where the phrases “the trend is your friend” and “don’t fight the Fed” came from.  Maybe because they “deemed” us investors “too stupid” OR they wanted more control over the herd, the Fed now gives us a statement and tells us all we need to know…

Well, “all we need to know” until you look at charts like the above and then use a little bit of common sense.  Since we know what this chart is, we can make a couple of common sense determinations.  First, they have been “juicing” the economy full blast for 5 years with the 3 very short exceptions (the end of one QE until the beginning of the next).  We also know that the economy has not responded to any of these outsized blasts of juice.  We also know that this “juice” is made up of dollars and the more dollars that are introduced into the system “dilutes” the already existing dollars in the system.  This dilution is seen by the currency depreciating in value and thus the “cost” of goods rising (inflation effects) by requiring more dollars to purchase the same amount of goods over time.

So, why would I even write anything as basic as this?  First off I think charts will tell you things that words can’t, i.e. a “picture is worth a thousand words.”  I also wanted to show you (in a chart) exactly why you thought of, actually did or are thinking of “selling” your dollars and replacing them with a “better money,” gold and silver.  I also want those who purchased gold and silver at higher prices (and maybe feel badly now) to graphically see that no matter what price you have already paid, it was below “true value” and that sooner or later the metals will reflect this and follow the “juice” chart parabolic ally.  It is clear that there is no “turning back now.”  Turning back as in stopping, tapering or even keeping QE at current levels is impossible because just as a car motor needs to crank out more and more horsepower as the car’s speed increases at a slower and slower rate until “max speed” is reached, just keeping the economy where it is now will require more and MORE juice to keep it from contracting.

In layman’s terms, we reached “max speed” in 2008.  Technically (or maybe not so technical) we reached “debt saturation” levels on the private side of the economy in 2008.  The various sovereign governments then picked up the baton, added leverage and thus “maxxed” themselves out also until…here we are.  Central banks are trapped of their own makings and have only one option left…MORE juice even though the juice isn’t working anymore.  This experiment does have an ending which will see the greatest wealth transfer in all of history from paper currencies and back into precious metal real monies.  Virtually all of the “wealth” that parked itself in paper currencies will accrue back to where they belonged all along.  This is a very simple concept and I hope that whenever you question the wisdom of gold and silver that you will refer back to the above chart, it speaks volumes without words.  The easiest exercise in the world would be turning this chart upside down…this will visually show you the crude “worth” of dollars.