I’ve been saying that inflation was coming here for many years. That was because the dollar supply (M1 or M2) had vastly increased vs. the US GDP – in other words, more dollars chasing around after relatively fewer goods.
The amount of dollars includes not only or even mainly physical dollar bills. It also includes the amount of debt. That’s because, for example, if a bank lends you $10,000, the bank has an asset of that amount because they expect to be repaid and you have that amount to spend on whatever. There are different ways of measuring the “money supply”, but the most common is M2. Based on the statistics from the St. Louis Fed, M2 has increased by 229% from 2000 to 2019. The most common way to measure total production is the GDP. That is an inexact measurement, but as long as we use that same measurement we can get an idea of how production has increased. According to stastica.com production increased by 109% during those years. In other words, the dollar supply (the amount of dollars chasing around after goods) increased by double the amount that production of goods increased.
International role of dollar
That is the recipe for inflation, which I used to predict regularly. However, one thing I didn’t account for was the international role of the dollar. Given the economic, political and military power of the US, the dollar still remained the safe haven for all international investors. So the capitalists of other countries willingly sopped up the surplus of dollars, in the form of buying US Treasuries as well as conducting international transactions in dollars.
The relative decline in US imperialism vs. its rivals – especially Chinese imperialism – means the ultimate unwinding of that system, but when?
It seems to me that this crisis opens up a totally new situation. Normally, when stocks go down the bond market rises. That’s because investors have to invest somewhere… usually. This time, both are sinking together. Not only that, but last I looked gold was also going down. What’s happening is that investors are keeping their money in dollars as an extreme safety precaution. But what happens if the dollar collapses? “Nowhere to run; nowhere to hide.”
Will the dollar collapse at this time? Among other things, there are proposals to give everybody $1-2,000. Just hand out free money. At the same time, production is bound to sink. What would happen then?
A signal of the result is the case of a real scum bag, Matt Colvin, who a few weeks ago went around his home state of Tennessee and also surrounding states, buying up all the hand sanitizers and similar cleaning products he could get his hands on. He then went on Amazon and tried to sell them for as much as $70 per bottle. Amazon shut him down and he’s now stuck with that product. But isn’t that exactly how capitalism in general operates? If production collapses and the dollars are floating around to buy more stuff, I can’t see how the prices won’t increase. And sooner or later the power of the US dollar internationally must collapse. Is this the time?