Adjusted Monetary Base Explodes

The adjusted monetary base was a little slow taking off after the Fed initially announced QE3 back in September 2012.  Then it added to its QE with an announcement of more money creation in December.  Now we are starting to see it all show up in the monetary base.

I like to use the monetary base because it is the amount that the Fed directly controls.  It is the money supply.  While there are other measures and charts that are important, the monetary base really tells us if Bernanke and the Fed are doing what they say they are doing.

This is what the long-term chart of the adjusted monetary base looks like now.

For a shorter-term look, you can go here.

Since the end of December (a little over 2 months ago), the monetary base has gone from a little under $2.65 trillion to over $2.9 trillion.  That means, in about two months time, the monetary base has gone up over $250 billion.  This is quite extraordinary when you consider that the total monetary base was less than $900 billion just before the fall of 2008.

If the Fed holds true to its word, then we will likely see over $900 billion added to the monetary base just in 2013 alone.  In monetary terms, this is massive inflation.

We will also continue to keep an eye on the excess reserves held by commercial banks.  If this does not continue to go up with the money supply, then we can expect higher price inflation to happen sooner rather than later.  If the excess reserves keep going up, then it may take a little more time for things to develop.

Of course, we are already seeing asset prices go up.  We cannot expect to see the monetary base go up by this much and not see higher price inflation and/or higher asset prices.

2013 will be an interesting year and probably not in a good way.  We may have to wait until 2014 until we really start to see the devastating effects of a reckless monetary policy.