GDP, M2, and Inflation

The Commerce Department came out with the Q4 GDP today and it is worth a look. The first chart is the GDP for the past few years, unadjusted and adjusted. The downturn is now quite evident. The question is could this have been anticipated.

Following this is the M2 numbers from the FED.


















Note that the M@ numbers have continued to escalate as the FED has pumped more money into the economy. But that is still just part of the story.


















Now look at the velocity, GDP/M2. It is falling off the cliff. No one is spending anything, the velocity is dropping quickly, and that is good since we are pumping the money in but the money is not turning around causing inflation. However it is like blowing air into a balloon, sooner or later it will burst.


















Now look at the impute inflation. We are concerned as to what this is what it will look like if we suddenly break this ice jam. We may be looking at a 30% plus inflation rate and we have not even touched the Democrats spending spree. More on that latter. It really is worth looking at the CBO HR1 analysis of the proposal. Even better look at the details as to where all of this is going. The Democrat House is going absolutely wild. This will make for a few thousand PhD theses in economics, if they don't go out and hunt everyone of them down first!


The current inflation rate has been in the 3-4% range. We see it dropping because of the fall in GDP numbers but this may explode again. We have analyzed the HR1 Package in our recent White Paper.