Full Blast

The US government is running a deficit 4x larger than any before, and the world's central banks have flooded commercial and investment banks with unprecedented levels of new liquidity in their panic response to the collapsing debt and corresponding deflationary pressures. Money is being created, full blast, with quantitative easing and zero interest rate policies.

The full blast money that has poured into the system over the past 18 months is circulating in tight rotations in equity markets, in bond markets, in carry trade, or to overseas markets. This will continue.

Deficit hawks and inflation hawks are both correct, because they both recognize that wealth created by expanding the money supply is just an illusion: the amount of wealth has not changed- prices have changed in response to the quantity of money.

The government thinks it can force economic trends by manipulating the money supply, when that does not work. If that was possible, the Weimar Republic would have bought the planet. Leave the money supply alone, let the markets dictate the cost of credit, and let the money supply respond to economic trends, not attempt to drive them.

The quantity of money will always settle at a level appropriate for the execution of commerce if it is not meddled with.