I'm working on a new economic theory which I call Total Monetary Supply, for lack of a better term. This is based partially on a theory called Monetary Sovereignty, which claims that the debt doesn't matter, since it will never be paid back. So the actual ratio of debt to GDP is also immaterial. The only thing that matters is the possibility that inflation could get out of control.
The number as of 9/30/12 was 19749. But what was it before the crisis of 2008? I want to pick a date at the end of a month, where the total debt held by the public and increase in M2 was less than 50 billion for that month. It looks like a good date is 6/30/2008.
Total Monetary Supply as of 6/30/2008:
M2 (as of 6/30/2008) 7713.2
Public Debt (as of 6/30/2008) 5285.1
Less Debt owned by Fed (as of 6/26/2008) 478.8
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Total Monetary Supply as of (6/30/2008): 12519.5
So the total monetary supply has increased 7230 in just over 4 years. Just to be clear, that is over $7 trillion dollars.
Compare the GDP numbers:
GDP as of 9/30/2012: 15776 bn
GDP as of 6/30/2008: 14295 bn
Compare the price of gold:
Gold as of 9/30/2012: $1775/oz
Gold as of 6/30/2008: $930/oz
How many ounces of gold could be purchased (assuming enough was available) with the total monetary supply?
On 9/30/2012: 11.1 bn
On 6/30/2008: 13.5 bn
So even though the monetary supply vastly increased, its actual value in gold decreased.
The obvious points are that: 1) Inflation is actually occurring right now as we speak. It is almost 1% per month. 2) It's not showing up in price indexes, because it is not being spent. Very wealthy people are receiving most of this increase and they are just sitting on it. Some of it is going into the stock market. 3) The only way to protect yourself is to buy gold. Duh.
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