Wednesday, November 3, 2010

The FEDs Announcement and Inflation

We have done a simple back of the envelope calculation of anticipated inflation if the FED gets it money out into the economy.

We have assumed that:

1. GDP would grow at 5% rate

2. The M2 to FED BS ration would go from 3.0 back up to 8.0 in four years

3. Velocity remains constant

4. Fed pumps 1.5 Trillion into economy.

The results are as follows:

The above demonstrates the FED BS and the M2 growth. The FED pumps money into the economy and the M@ grows accordingly

Now we show the imputed inflation:

Admittedly we will not see the jump as large short term but we will see the longer term inflation rate of in excess of 20%!

The FED's actions are tantamount to another 9/11 on the US economy. Since we have been correct for the past two years perhaps we are correct again. Terrifying!