Massive US Monetary Base Expansion

Massive US Monetary Base Expansion

As of November 2009, the ratio of the US monetary base to the valuation of the gold reserves was nearly 7 to 1. The monetary base is now greater than that measured by M1 as the value of bank reserves has now exceeded that held by the public’s checking accounts and other demand deposits.

Look at the above chart. In Very Simply Language, this is the Amount of Dollars that the US Government has printed over the past century. Since 2007, The US Government has increased its Monetary Base (Money in Circulation + Bank Reserves)  from $ 880 Billion to $ 2000 Billion ($ 2 Trillion).

In other words, the US Government has printed money out of thin air and doubled its Monetary Base in past 2 years only. US Government has never ever print this much amount of money in the past whole century.

See in the Chart that after 1971, the Money printing activity by the US Government has been increased exponentially. This is because President Nixon has removed “The Gold Standard” in 1971 and thus the Dollar became a free float currency without having any intrinsic value in it. This is known as “Fiat Money”.

in 80s, the bailouts were in Millions, in 90s the bailouts were in Billions and today they are in Trillions. Every time to bail out the troubled assets, banks, financial institutions and the big businesses, the US Government prints more money and push it into the circulation.

Still the printed money is in Bank reserves. But when the banks start lending this money, it will flow into the circulation and dilute the purchasing power of the existing money in the world economy. This will lead to Hyperinflation like Germany in 1920 & Zimbabwe in 2008.