Monday, October 18, 2010

Money Supply & Inflation

Above is a chart of the US Money supply from 2006 to the current day. You can clearly see the stimulus package of 787 billion that was produced in late 2008 under the Bush administration to 'save' the financial system. Since then, the government (Obama administration) has printed up more dollars in an effort known as quantitative easing. (See the video post last week for an example)

The picture is getting clearer why Gold and Silver as well as other commodities are rising in value. The U.S. Government as well as other countries are printing up fiat 'money' to bail out the economy, banks and mortgages. (Purchasing toxic assets).

The problem with fiat currency is that governments can print up as much of it whenever they want. Fiat currency is not tied to Gold, Silver or any commodity so it is easily devalued/debased when the printing presses are started. The dollar is a piece of paper with ink on it, you can take a match and burn it to ashes. Hard assets such as Gold and Silver are a rare commodity which has been used as a currency for thousands of years and they cannot be reproduced or printed. It may be a few years away before the world realizes that the only real money is Gold or Silver...

With higher commodity prices outside of Gold and Silver - Oil, Gasoline, Corn, Wheat, Soy, Sugar, Coffee, etc, the food manufacturing costs will rise as a result. It's a matter of time before you see rising costs at the supermarket. I know that many people already see the higher costs over the last few years, but we have not seen hyper-inflation yet...

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