Stockman David A. - The Great Money Bubble : Protect Yourself from the Coming Inflation Storm

David A. Stockman

www.humanixbooks.com

Humanix Books

The Great Money Bubble

Copyright 2022 by David A. Stockman

All rights reserved

Humanix Books, P.O. Box 20989, West Palm Beach, FL 33416, USA

No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any other information storage and retrieval system, without written permission from the publisher.

Humanix Books is a division of Humanix Publishing, LLC. Its trademark, consisting of the words Humanix Books, is registered in the Patent and Trademark Office and in other countries.

Disclaimer: The information presented in this book is meant to be used for general resource purposes only; it is not intended as specific financial advice for any individual and should not substitute financial advice from a finance professional.

ISBN: 9-781-63006-219-4 (Hardcover)

ISBN: 9-781-63006-220-0 (E-book)

Inflation has always been about more than bothersome high prices, such as a three-dollar cup of coffee or a four-dollar gallon of gasoline. And nowadays, it also encompasses far more than the simplistic idea that inflation reflects too much money chasing too few goods.

Under todays policy regime, in fact, inflation is global, virulent, and ubiquitous. Thats because its the toxic spawn of unhinged central bankers who have flooded the financial system with trillions of fiat credits snatched from thin digital air in a manner that contradicts and defies every textbook written before 1995.

This bacchanalia of central bank credit and liquidity is economically and socially ruinous. It showers windfalls on the rich while penalizing workers, savers, retirees, small businesses, and most of Main Street economic life, even as it fosters rampant fiscal profligacy in Washington and egregiously speculative excesses on Wall Street.

How did we get here? It starts with the late economist Milton Friedman, the originator of the common too much money, too few goods view of inflations origin. His antigold, proFederal Reserve monetary philosophyone followed by his myopic disciple Ben Bernanke, the former Fed chairmakes Friedman one of the great villains among the macroeconomic thinkers of modern times. Nevertheless, his famous rule of money supply growth does shine a powerful spotlight on the infernal inflation machine that has arisen on the banks of the Potomac.

More than a half century ago, Friedman contended that as a matter of common sense, high-powered moneyrepresented by the Federal Reserves balance sheetshould grow no faster than the economy itself. If the money multiplier remained constant, therefore, the broader money supply would also be constrained to a fixed growth rate of around 3 percent so as not to validate inflationary GDP gains above the real growth capacity of the economy.

Lets consider how that idea worked out in practice as measured by the Feds balance sheetwhich, like any bank (and any business or household), has assets and liabilities. The assets are U.S. Treasury securities and government-guaranteed mortgage debt. Its liabilities are U.S. currency in circulation and dollars held in reserve at the Fed by ordinary banks.

On the eve of the Lehman Brothers meltdown, in September 2008, the Feds balance sheet stood at $925 billion. It had taken nearly 94 years to get there from the day the bank first opened for business, in late 1914. In a sense, that roughly $10 billion per year average growth of the Feds balance sheet reflected the orthodox central bankers version of the Ohio State football team offense: three yards and a cloud of dust, relentlessly moving the monetary football slowly down the field.

So at Milton Friedmans rule of thumb of 3 percent growth per year from its September 2008 level, the Feds balance sheet today should stand at $1.3 trillion. Alas, its actually pushing $8.8 trillion and expanding at a $1.44 trillion annual rate, at least until further notice from the wannabe monetary politburo that today rules all finance and economics from the Feds headquarters in the Eccles building in Washington.

The wellspring of todays virulent inflation is the $7 trillion excess above Friedmans rule that has been piled high on the Feds balance sheet. Thats modern inflation in its protean form. Its the monetary fuel of what I call Washingtons infernal inflation machine.

Well-nigh all of todays economic ills arise from this bloated balance sheet. These include slowing real GDP growth, hollowed-out domestic industry, stagnant real wages, rising wealth maldistribution, runaway government debt, massive speculation and financial bubbles, a nation of indentured debt serfs, and most recently, surging prices for goods and services.

Because it is so monumentally and so ahistorically outsized, this tsunami of Federal Reserve credit has literally flooded into every nook and cranny of the financial system and the Main Street economy itself, seeking outlets just as air under pressure seeks release. Consequently, inflationary upwellings occur far and wide, well beyond the narrow boundaries of inflation as most people understand itrising prices for goods and services we see reflected in the consumer price index (CPI).

This kind of rampant central bank monetary inflation is something wholly new, and it has spread throughout the entire global economy. As a result, the traditional economic models and vocabulary are not fit for purpose when it comes to explaining it or assessing the financial maelstrom this kind of inflation portends. Thats what this book is all about.

Most especially, this new and rampant form of inflation means that the historical focus on goods and services prices is woefully deficient. When it comes to todays rogue central banking regime, the rising price of assetsseen in the skyrocketing cost of housing, soaring debt, fantastic stock and bond bubbles, and speculative enterprise generallyis far more relevant and far more dangerous.

There is a powerful reason, in fact, as to why monetary inflation has first manifested itself in soaring asset prices and rising debt rather than in consumer price increases, as Friedman would have predicted. In essence, the Feds monetary inflation project was globalized by foreign central banks following in its footsteps. That led inexorably to a race to the monetary bottom, making the tools of traditional economists obsolete.

One such common tool is the Phillips curve, the notion that when the labor force and production capacity of a country are fully utilized, demand outruns supply and inflation takes off. Scratch a central banker or Wall Street economist these days, and this overflowing macroeconomic bathtub story is what they will tell you.

In short, prices are held to be rising because farms, factories, and services cant keep up with how much people want to buy. They have also insisted in recent years, somehow with a straight face, that any absence of accelerating consumer inflation proves there is still plenty of room in the tub for more stimulus from the easy-money central bankers.

Yet the Phillips curve as the fulcrum point of modern central banking always was and remains a thoroughly pernicious idea. As a Reagan supply-sider, I rejected it, even as it applied back in the day to the United States as a stand-alone superpower economy.