The federal government continues to borrow and spend at a staggering rate. On March 1, the national debt pushed above $28 trillion for the first time. This rate of borrowing wouldn’t be possible without the Federal Reserve monetizing the debt through quantitative easing. In practice, the central bank buys U.S. Treasuries on the open market, creating artificial demand for U.S. bonds. The Fed pays for these Treasuries with money created out of thin air that then gets injected into the economy.
Quantitative easing has continued over the last year at a record pace, and this is reflected in the growth of the U.S. money supply. Money supply growth hit another all-time high in February as the Federal Reserve continues to churn out dollars and inject them into the economy.
As measured by the True Money Supply Measure (TMS), the money supply grew by 39.1 percent year-on-year. That was up slightly from January’s record growth of 38.7 percent.
To put the growth in money supply into some historic perspective, the rate in February 2020 was a mere 7.3 percent, which was a healthy increase from the under 2 percent growth we were seeing in 2019.
February marked the eleventh month of remarkably high money supply growth in the wake of unprecedented quantitative easing, central bank asset purchases, and various stimulus packages.
Money supply growth also broke a record as measured by M2. By the more traditional measure, the money supply grew 27.0 percent. That compares to January’s growth rate of 25.9 percent. M2 grew 6.8 percent during February of last year.
The “true” or Rothbard-Salerno money supply measure (TMS)—is the metric developed by economists Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. This measure of the money supply differs from M2 in that it includes Treasury Department deposits at the Fed (and excludes short-time deposits, traveler’s checks, and retail money funds).
Historically, the growth in the money supply has never been higher with the 1970s being the only period that comes close.
Ryan McMaken at the Mises Institute says the growth in the money supply won’t likely slow anytime soon.
It appears that now the United States is nearly a year into an extended economic crisis, with around 1 million new jobless claims each week from March until mid-September. Claims have remained above 600,000 every week since. Moreover, more than 3.8 million unemployed workers are currently collecting standard unemployment benefits, and total unemployment claims have failed to fall back to non-recessionary levels, even a year after lockdowns began. More than seven million additional unemployed are collecting “Pandemic Emergency Unemployment Compensation” as of February 27.
“The central bank continues to engage in a wide variety of unprecedented efforts to ‘stimulate’ the economy and provide income to unemployed workers and to provide liquidity to financial institutions. Moreover, as government revenues have fallen, Congress has turned to unprecedented amounts of borrowing. But in order to keep interest rates low, the Fed has been buying up trillions of dollars in assets—including government debt. This has fueled new money creation.”
You might be tempted to say, “So what?” This is just government number-crunching. It really has no effect on me.
But it does.
By definition, an increase in the money supply is inflation. And inflation is a hidden tax on every American.
As the Fed creates more and more dollars, the dollars that you have in your wallet and in your bank account become worth less and less. Inflation particularly impacts the poor, those on fixed incomes, and people trying to save. We see the effects of inflation in rising prices. While the powers that be insist inflation isn’t a problem, it relentlessly chips away at your purchasing power. You know this if you’ve been to the grocery store or gas station recently.
The level of inflation we’re seeing today (remember, money creation is by definition inflation) poses a grave danger to the economy. It could ultimately result in hyperinflation. The U.S. has escaped the fate of Zimbabwe and Venezuela so far, but just because price inflation hasn’t gotten out of control yet doesn’t mean it won’t.
Financial analyst Peter Schiff warned months ago that all of the people who think this can go on forever are in for a rude awakening. Things that can’t go on forever don’t.
Just because we’ve gotten away with it for this long doesn’t mean we’re going to get away with it forever. … I think we’re very, very close to a major collapse of the dollar, a major breakout in the price of gold, to a breakdown in the bond market. And it isn’t going to happen overnight. It’s going to sneak up on people when they least expect it. … It’s not a crisis until it becomes a crisis. And then it becomes a crisis very, very quickly.
The Federal Reserve is the engine that runs the biggest most powerful government in the history of the world. Without the central bank monetizing the debt, the federal government would find it impossible to continue its massive warfare and welfare state.
Money is power and the Federal Reserve serves as an unlimited spigot pumping dollars into the system, enabling the biggest government in the history of the world to keep on truckin’. Without the Fed, there would be no foreign wars. There would be no massive, unsustainable social programs. There would be no police state. There would be no corporate welfare programs. The federal government would truly be limited.
If you want to end unconstitutional, overreaching federal power — end the Fed.
