monetary base in 2004 was about 800b and pop was about 283m so that gives us a ratio of about 2827 dollars per person.
In 2011 the monetary base was about 2800b and population was about 303M. That gives us a ratio of about 9241 dollars per person.
So that is a ratio increase of 3.3x.
Yet, strangely, milk does not cost $10 a gallon.
Nor does gas.
Inflation is strictly defined as a change in nominal effective demand. Our demand has not nominally changed all that much because while there are more dollar bills in existence, purchasing power in the aggregate (in other words, our economy) has not increased significantly.
Nor has there been some great cost push to drive it up suddenly like in the 1970s with oil.
The reason is that much of the nominal (and real) economic growth prior to 2008 was predicated on leverage.
Then there was a grand deleveraging event and tripling the money base hardly moved prices.
Most of that M1 increase went to cover losses and shore up balance sheets at banks.
Pallets of money were not newly lent (at least not to end user producers and consumers) and prices did not shoot up.
That may happen in the future but history does not bode well for ultra-daring risk (mis-)management in the short to medium term.
Banks are not smart but they can stay scared for a long time.
Unlike Rich, I think that fear (along with the scary, scary “GOV” intervention) will keep inflation well below 10% for the next 5 years at least.
I guess we’ll see.
Here’s a fun bet.
I bet you 100 dollars that the CPI stays below 60% between now and 2016.
Hey if I lose the dollars will be worth $40 in today’s funds.
