Monetary Tsunami Is Coming
By: Frank Shostak
Aug 31, 2011
In his speech at Jackson Hole, Wyoming, on August 26, 2011, the Fed chairman disappointed most pundits. He did not promise another massive infusion of fake money, i.e., QE3. I suspect that a strengthening in bank lending is an important factor behind the Fed’s decision to postpone the pushing of more money into the economy.
The yearly rate of growth of our measure for banks’ inflationary credit jumped to 8.2 percent so far in August from 4.3 percent in July. A visible strengthening in commercial bank inflationary credit, i.e., credit “out of thin air,” will provide the “necessary” monetary stimulus. This means that the massive amount of money pumped by the Fed since 2008 (over $2 trillion) is starting to be funneled into to the economy by the banks.
his has long been the hope of the Fed, and the goal of the huge increases in bank reserves that have been created during the downturn. Until recently, these reserves have been stuck in the system — unable to find lenders and borrowers willing to make a deal. This has been a good thing because prices have been held somewhat in check.
That is now changing. As the pace of lending picks up, and the fractional-reserve system of loan pyramids kicks in, we could see new floods of money pouring through our economic life and causing untold damage.
For the time being, the pace of pumping by the Fed remains buoyant. The yearly rate of growth of the central bank’s balance sheet stood at 23.6 percent so far in August against 23.1 percent in July. The growth momentum of our monetary measure for the United States (AMS) jumped to 13.1 percent this month from 11.8 percent in July.