There are five apocalyptic engines pushing the growth in US money supply:

1. the government’s budget deficit,
2. the government’s debt trap,
3. the financial condition of the banks,
4. the delusion of Keynesian solutions and, lastly,
5. simple compounding arithmetic.

1. The U.S. government collects only 55c in taxes for every dollar spent. It is relying on economic recovery to reduce welfare payments and increase tax revenue to close the gap. This prospect is receding and establishment economists advise against cutting government spending.

2. The US government’s debt trap is concealed by the exceptionally low interest cost of funding. The only reason this cost is not higher is the Fed maintains a zero interest rate policy. However, as surely as night follows day, price inflation will start rising as monetary inflation feeds through, forcing the Fed to allow interest rates to rise long before any economic recovery occurs. The rise in interest costs will escalate the budget deficit, which will be financed, directly or indirectly by further monetary expansion.

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3. The banks’ balance sheets are considerably weaker than stated, because of unrealised losses on assets, loan collateral and write-downs on their own debt. Real estate collateral write-downs alone probably exceed bank equity of $1,400bn. On an honest analysis the US commercial banks are collectively bankrupt. To simply survive the banks have no alternative other than to reduce loan exposure while requiring continuing monetary support from the Fed.

4. Keynesian economists, aware of the banks’ difficulties are terrified of bank credit contraction. For this reason, the macroeconomic establishment strongly promotes the expansion of narrow money to buy off a deflationary depression.

5. As the purchasing power of the dollar falls – the result of past monetary expansion – [even] more dollars have to be issued to cover increased government costs. Past inflation becomes a compounding factor behind price rises.

Conclusion

Essentially, money will be printed at an accelerating rate to buy time rather than face the three realities of:

1. government default,
2. an over-indebted private sector and
3. a bankrupt banking system.

The Keynesians are belatedly aware of the dangers and see no alternative to printing as much money as is required to defer these problems. The monetarists in the central banks are hesitant, torn between Keynesian fears of outright deflation and worries about the rate of monetary expansion so far. [Nevertheless], the history of monetary inflation confirms that once it enters a hyperbolic phase, it is almost impossible to stop. Armchair critics have derided the stupidity of central banks and economists in past hyperinflations, such as in Weimar Germany, Argentina and Zimbabwe.

The truth is that when hyperinflation has become visible at the price level, it has already gone past the point of no return at the monetary level.

*http://www.24hgold.com/english/news-gold-silver-gold-price-set-for-hyperbolic-increase.aspx?contributor=Alasdair+Macleod&article=3749038912G10020&redirect=False