Money Supply Growth – 2009′s buzzword

Money Supply Growth

So far, it looks as though 2009 is not looking promising financially. With retailers sensibly waiting until after Xmas to put themselves into receivership, one in ten homes in the United States in mortgage arrears, the pound at it's lowest level against the Euro and everyone finally accepting that there is a recession.   Unless you happen to have a finger in a government pie somewhere. The Federal Reserve is going to make a small fortune (a large fortune actually) printing money, oh I am sorry, helping the money supply grow.

This is the latest buzzword I picked up, "Money Supply Growth," as the answer to the world's financial woes. Talk about not calling a spade a spade. Printing money is now money supply growth.

For those of you under the delusion that the Federal Reserve is  a government entity, you should be aware that this is not the case. The Federal Reserve is a privately owned group of banks whose primary responsibility is to prevent asset bubbles, by ensuring that banks are not lending out money they do not have.

Each Federal reserve bank shall keep itself informed of the general character and amount of the loans and investments of its member banks with a view to ascertaining whether undue use is being made of bank credit for the speculative carrying of or trading in securities, real estate, or commodities, or for any other purpose inconsistent with the maintenance of sound credit conditions; and, in determining whether to grant or refuse advances, rediscounts, or other credit accommodations, the Federal reserve bank shall give consideration to such information. The chairman of the Federal reserve bank shall report to the Board of Governors of the Federal Reserve System any such undue use of bank credit by any member bank, together with his recommendation. Whenever, in the judgment of the Board of Governors of the Federal Reserve System, any member bank is making such undue use of bank credit, the Board may, in its discretion, after reasonable notice and an opportunity for a hearing, suspend such bank from the use of the credit facilities of the Federal Reserve System and may terminate such suspension or may renew it from time to time. United States Code

And if you are thinking that the current financial crisis is somewhat down to the Federal Reserve lending out money it did not have, you would be correct in that thought process.

Still, no matter, they are now charged with growing the money supply by $8,500,000,000,000.00

This money is supplied to the US government at a 2% commision. $170,000,000,000

Yes, the organization responsible for making sure financial crises do not occur is getting a one hundred and seventy billion dollar commission for printing the money it lent out and didn't have. Nice work if you can get it.

You do, of course have to belong to the "right," family do get this little benefit. And there are also a few little side benefits to be had - JP Morgan, one of the founding members of the Federal Reserve just picked up Bear Sterns for $2 a share. Niiiiice

Things are not any better across the pond, with British property prices heading for a massive fall, and the big boys picking through the carcasses of the "naughty" banks that over-lent money they did not have, and the British government taking a nice little stake in all of them.Gordon Brown is printing money hand over fist and it looks like there is a serious possibility the Bank of England will reduce the interest rate to 0%.......

The only problem with creating "money supply growth," is the long term inflationary problems caused. This will mean a lot of pain for a lot of people over the short term. When everything settles down and we are back to "normal" times, you are going to discover that the dollar/pound/euro/rouble in your pocket is worth substantially less than it was.

No matter if you happen to own a bank at the top of the tree.

I wonder if we will learn from this mess and not allow ourselves to be sucked into the "buy, buy, buy" state we have been in for the last ten years.

I also wonder how much of this "money supply growth," will find its way in G.W. Bush's pocket.