Still Not Inflationary

Here’s an update to the monetary base exploding vs. money circulating in the economy graph (previous rant here). This has October data.

As before, banks are sitting on a huge pile of money that isn’t circulating in the economy, and therefore, has no impact, just like that quintillion dollars of perfect counterfeit bills I made and then buried in my backyard. This isn’t strictly true, as the existence of this money is known by many, and their inflation expectations can have a noticeable impact on consumption and prices. However, just ask yourself how much additional purchasing people around you are doing for fear that their dollars won’t buy as much tomorrow. Expectations for a lousy economy seem to be trumping inflation expectations.

You can think of this as a coiled spring. When it is finally sprung, don’t be the last fool holding dollars.

What I find particularly frightening right now is the fact that bank reserves are greater than the amount of base currency actually circulating in the economy. This has never happened before in the history of the US dollar.

My standard disclaimer: it is unfortunate that there is such a lag in this data. If the red line started curving upward beyond the current trend, it would be reason for worry. However, you’d probably notice the effects on your daily life before the data was made available. You wouldn’t need my graph to tell you to panic.