Friday, March 26, 2021

Money Supply And GDP

 Looking at the chart of M2 as a percent of GDP below, the spontaneous questions is..

  • How can this NOT lead to inflation? 

Furthermore, this chart does not include the latest $1.9 trillion that just started going out.  When included, the ratio jumps to 98%, though because of accounting and time delay factors the number is more likely closer to 95% (I have already factored in a higher GDP for 2021).

Why isn't this keeping Fed and Treasury officials up at night? Well... I think it actually does, never mind what they say in public, because there are only three possible outcomes:

  1. The economy explodes upwards in unprecedented fashion and brings the ratio back to around 70%.  But for this to happen nominal GDP would need to climb to $31 trillion, 40% higher from today's $22 trillion level. Mind you, that's to bring the ratio back just to 70%, which was already high by historical standards.
  2. There is an asset/debt collapse leading to mass bankruptcies, slashing debt and money supply (money=debt). 
  3. Inflation jumps to levels unseen in decades

 Outcomes (1) and (3) are related since a spike in inflation would lead to higher interest rates, further expanding M2.  Unless, of course,  the Fed keeps interest rates artificially low - which is exactly where we are right now...

Pick your poison...



  1. Bond market collapse crushes the credit markets and asset prices plunge.

    Pick your poison
    1. Credit event: Ex: sudden, large bankruptcy spooks everyone
    2. Exogenous shock: Ex: massive quake in Tokyo or SF
    3. Geopolitical event: Ex: China invades Taiwan.


  2. Part 2.
    Millions of foreclosures and bankruptcies will follow, while the rich hoover up even more assets.

    The Fed will "help" homeowners, and millions of families will find themselves paying rent-- or maybe on a 'rent-to-own' scheme-- to BlackRock.

    Authoritarianism fully unveils while both Left and Right accuse the other of being the perpetrators... "Communists!" ... "Fascists!." Meanwhile, members of 'The Club' further insulate themselves, both legally and financially, from the ongoing collapse of global industrial civilization. The Middle Class shrinks further and there is no one left to deny the U.S. has become a neo-feudal state, albeit with just enough stragglers and survivors for the ruling class to perpetuate its bootstraps and individualism meritocracy BS.

    How'd I do?


    1. Spooky! But how about this...

      Financial asset prices plunge, massive government/corporate debt write-offs (cant call them bankruptcies lol), power devolves to political powers heretofore unknown in the mainstream (eg climate change "radicals"). The "Golden Age" of Finance comes to an end, as markets, "investors", speculators, financiers, all lose power and significance.

      Permagrowth is replaced by the Cyclical Economy..

    2. Americans will never go willingly into the future you imagine. They will destroy themselves, and anyone else, if necessary, before embracing systemic change. The cyclical economy of which you speak will develop of necessity, over generations, and only after much ecological devastation, population decline, and armed conflict. America is an empire. Empire's do not act with wisdom, because they have long since replaced thought, and any other possible tool, with power. Application of power becomes reflexive, instinctual, down to the individual level-- that's why American's slaughter each other over chicken sandwiches. Call it a sense of entitlement if you like, but Americans-- all the Americans who matter-- truly believe the 'American way of life is non-negotiable.' And you won't pry away the power of an empire except from its cold, dead hands.

  3. History of The Great Barbarian Empires: Volume 2

    Barbarians are noted for their inability to appreciate culture, think logically or work harmoniously. Indeed, recent scholarship shows that the intellectual capabilities of a fully grown Barbarian, cannot match that of a twelve year old child; these findings, suggest Barbarians belong to the family of lesser apes, rather than humans. Despite such obvious inferiority, there was a time when Barbarians nearly destroyed the world.

    The United States of America, commonly known as the empire of great stupidity (EGS),

    EGS was built on two principles: free-markets and democracy.

    Free-markets is the ideology, where each person is paid according to the value they add to the world. The problem for EGS was its Barbarians were chronically incapable of working. A celestial prince, could produce a hundred times more than an EGS barbarian, yet, celestial princes were paid wages that just sufficed to keep them from starving. Thus, a free-market would mean EGS barbarians would be paid much less than needed to eat. Rather than work harder (which barbarians are innately incapable of), EGS used their next great weapon democracy.


  4. Democracy is the principle of one-barbarian-one-vote (celestial princes were not allowed to vote). In EGS, the barbarians voted that the problem was not their laziness or stupidity but because EGS was robbed by outsiders; in response, EGS would rob all these supposed robbers.

    By printing its currency, EGS confiscated the generations of investments that the celestial princes had made into EGS. Lacking money, the best and brightest of the celestial princes were brought into EGS as virtual slaves; working 120 hours a week for years on end, these celestial princes would slave to develop new technologies, at pay which was far lower than the EGS’s minimum wage. EGS professors would then claimed as their own inventions. When celestial princes tried to bring their own inventions back to their own country, they were accused of IP theft and branded as criminals.

    Neither did the EGS spare other barbarians. Through its companies and armies, the EGS would capture lands of other barbarians, strip them of all resources, leaving the inhabitants to starve in a ruined and polluted environment. The EGS even turned on it foundational barbarian tribes in Europe, denigrating the contributions of its ancestors as “patriarchal tyranny” and forcing them to follow its increasingly violent path.

    EGS created an economic system whose watch-word is freedom; the freedom to slave your whole live away such that a pampered EGS kid could discard your work as a lousy Christmas gift; after all, freedom is slavery.

    Over-weight EGS barbarians would protest in the streets about being exploited, while over the seas, millions of others starved to death; after all, ignorance is strength.

    EGS armies would fight and kill millions overseas, while enforcing a global peace that no one asked for; after all, war is peace.

    What then the the EGS do with the vast stream of wealth it confiscated from around the world? Being barbarians, they squandered it. Trees that grew over hundreds of years were made into tables, then discarded into landfills. Using their companies, they filled the seas with poisons and the air with chemicals. Of course, they did this in other countries, then accused those countries of not protecting their environment, thus deserving greater intervention by EGS. The EGS then proclaimed themselves leaders of protecting the world; the world they destroyed in ignorance and stupidity.

    Fortunately (as all school children know), the celestial empire united the world and overthrew EGS.

    We have rigorously applied EGS’s free-market principles to themselves. Since they have contributed negative to the world, they have to pay it all back at a compound interest of 5 percent. Thus, every EGS (and their descendants) are required to leave a negative carbon footprint through slave labor in rehabilitating the environment.

    The celestial empire has also adopted the principle of democracy. The vote for considering EGS descendants as members of the lesser apes takes place tomorrow. Vote wisely.


    P.S I do think Americans are horribly pampered, spoiled and sometimes stupid…. But I do believe that thus far, the U.S. has been a force for good in the world…. However, given its ideological contradictions, there is a real possibility that the U.S. morphs into an evil empire. Thus, this is a warning of that; the power of propaganda (and the ability to phrase arguments); And the price of failure.

    P.P.S Please remember the last point… This is not a game gentlemen.

    1. A force for good? Even after removing several democratically elected governments during the Cold War era from Iran to Zaire to Guatemala to Chile? And having some of those said elected presidents killed? Or before the Cold War, another democratically elected president in Mexico, Francisco Madero 1913, was removed by a plot from the American Embassy. The US has been engaged in extremely nefarious acts during history. Not too unlike from their enemies on the Soviet block.

    2. Hi camabron, I am saying on average.... I dun think the Chinese would have been better... actually, I am almost sure we would be a lot worse

    3. Hi camabron... I think what I am saying is that the U.S. people actually have some desire to do good. Though a lot of times they don't actually. And for people so rich, they are surprisingly aware of the suffering of others.

      Now, maybe I am sort of cynical and I feel that if someone even cares, that is so wonderful... but I see this so rarely in others. In many places, if you look below the surface, there is so much casual cruelty that stems from a fundamental belief that no one else matters.

      I guess the easiest to reference is Japanese school bullying... or how individual Japanese soldiers were so brutal in ww2.... don't look at the event itself, think abt what the person is actually thinking when they do those things.

      I think the Chinese are the same... its just harder for you to get the relevant material to read.

      Best Regards,

    4. Yeah, the US's counterparts have been equally awful. Or worse. But the hypocrisy of the US government is just outstanding. So is the propaganda. As individuals, yes, there's a very good vibe (open to charity, etc.) among millions of US citizens. The government is another thing, not too good imho. And the good they do do has interests behind it. Just like the Chinese for example. The US doesn't have friends, it has interests. As the old saying goes.

    5. Hmmm... I see the point. Yup, the U.S. govt is not good in the way the Bible would define good.

      I feel when I say the U.S. govt is good, I am implicitly thinking about all the things it could do but did not. For example:

      1) I think the U.S. could have won the Vietnam war. Divide the country into sectors, kill everyone in each sector. Sort of the way the British did in the Boer war/ Malaya. The U.S. chose to accept defeat rather than kill too many (enemy) civilians. If I was making the decision, that would never have happened... so I respect them for that.

      2) The U.S. need not restrict itself to toppling govts. It has the means to take over each and every country in the Americas. Why not get more living space? Would my people be so measured in our response?

      3) When I first read world history about the U.S. getting the nuke... I puzzled for a long time. Why they did not immediately go for world domination?

      4) Their research system is actually very generous to the less developed countries. If they closed of their publication systems, it would be much harder for poor researchers to start... I benefited a great deal from it... so for all the problems with their system (and it has been very many), I do give them credit.

      5) In many ways, the world we have today is a good (if imperfect) world. As I blame the U.S. for the problems in it, so too must I give them credit for the good in it. It is not easy to build such a world.

      6) The US has friends. I guarantee you, it has at least one. =)

      Thanks for asking and giving me a chance to clarify.

      Best Regards,

  5. Replies
    1. Please keep it up, highly appreciated 😁😁😁😁

    2. Aye... I think talking with you and camabron is good for me... sharpens my thinking and forces me to make sure my arguments are logical... =)

    3. Thank you AKOC, just think of me as that floaty little yellow ducky people talk to when they bathe🐤🐤🐤 🤣🤣

    4. :) having to articulate one's position always does that. Appreciate it as well.