None of the money supply increase has even gotten out into the larger economy, it's all "frozen" with banks that refuse to lend. Wouldn't that be evidence that these numbers are signs of a statistical aberation, and not a newly developing trend?
 

I'm not sure why you are saying it's all frozen with the banks. The money aggregate M1--which includes currency in circulation, checkbook deposits, traveler's cheques, and other very liquid assets--was up 17% in 2008, most of the rise coming in the 4th quarter.

Don't get me wrong, the banks are sitting on MOST of what Bernanke has pumped in, but even so, the money stock held by the public is up. They were just so panicked that they absorbed it all by having rising cash balances (in terms of purchasing power).

Like I said in the original post, for all we know this could turn around again next month. But I think this is the beginning of serious price inflation.
 

Bob,

When did this rise in M1 occur? You gave an annual figure but I am guessing it correlates with the announcement of increased FDIC insurance on a wider range of accounts?

My initial question was related to the fact that the PPI was reporting increases in prices related to goods that are utilized in the early-stages of manufacturing. You cite an increase in M1 which looks like money that would be used in late-stage purchases of finished consumer goods. I would think that, with the way our economy is structured today and the way most financing occurs, the early-stage goods must be purchased on credit with the assistance of banks. That would mean bank credit would have to be freely-flowing to promote price increases there, wouldn't it?

I don't know if you read Karl Deninnger's Market Ticker blog but he covered this an hour ago and his take is that this is a sign of businesses desperately trying to increase margins, which they'll fail on. Additionally, some argue commodity prices overshot on the downside. If they're "correcting" toward the upside, early-stage, commodity-related factors of production might see a small price increase right now.

Your thoughts?
 

If the Fed does its job, it will remove reserves from the banking system as the fractional reserve multiplier increases, preventing the money supply from rapidly increasing.

I don't know how likely this is, but lets at least give them a chance. The Fed may not be a productive institution, but it beats the hell out of a lot of other central banks around the world.

Of course, I think they did pump in too many reserves. As a political monopoly, the Fed cannot calculate the demand for money, and I think it over-supplied. But thats not Bernanke's or Greenspan's faults - they can't change the system - its congress' for making the stupid thing and giving it such silly mandates in the first place.
 

So, should Wenzel be looking to prepay for the dinner he will owe you? He may want to lock in his losses at today's prices.

Didn't you say CPI >8% by the end of the year.
 

PPI is up for a few reasons. First, in 2008 many companies bought contracts for commodities thinking prices would stay high. When manufacturing slowed down, those contracts were still in effect, so demand for commodities was so slack prices dropped. Now most of that is out of the system and off the shelves and they can start buying materials again. With all of the layoffs and plant shutdowns, companies reduced their breakeven points to be adjusted to lower levels of demand. Their pessimism means that they will not be adding capacity or workers any time soon, and will do whatever they can to raise prices. The PPI increase was off a reduced level, so it's not that big --- yet. Remember CPI and PPI do not have quantities demanded in their calculations. Inflation will come, but I expect it will be in small surges that will startle experts for a month and then lull everyone to sleep unless they have a longer view