In Jim Cook's Archive


Back in the 1970’s the money measurement known as M-2 was something we lived and died to hear each month.  It had a history of accurately predicting the inflation rate.  It was an important guide post in financial markets.  Over the years it fell out of favor and was largely ignored.

What we believed in the 1970’s was that the percentage monthly gain in M-2 translated into an equivalent percentage gain in inflation six months later.  So if the M-2 money supply increased by 5% we could expect 5% inflation to be forthcoming.  I can remember being impressed with how accurately this worked out.  So I came to believe in M-2 as a forecaster of inflation.
Recently I saw that M-2 was on a roll.  The annualized growth rate over the past 6 months has exceeded 15%. If the formula we followed in the past still works our inflation rate is approaching 15%.  That’s not the inflation number the government provides but their number doesn’t jibe with prices at the supermarket.

Everything points to high inflation ahead.  The Fed and the government are most likely on the verge of massive new money creation to pay the bills.  If they inflate the currency on the eve of big price increases for consumer staples they are really asking for trouble.  Inflation can get out of control.  At a certain point people start to buy things just to get rid of money.

Tangible assets like silver should see higher prices ahead if for no other reason than they also inflate in price along with everything else.  The dollar has lost 98% of its purchasing power in my lifetime.   This trend appears to be accelerating.  The great Austrian school economist Ludwig von Mises said that inflating could not continue without eventually leading to hyperinflation or a crash.  We’ve had the crash and we are inflating worse than ever.  Everyone should take measures to protect against high inflation of a kind they have never experienced.

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