Adjusted for Quantity of Fiat Money, Gold Trading at 64% of its July 2008 Price!

goldAdjusted for the quantity of fiat money, gold at $1200 nominal is now trading at 64% of its price in July 2008. At that time systemic risk was not fully understood by investors, and FMQ has since hyper-inflated. If gold returned to the same valuation today as before the Lehman crisis, it would be priced at $1883, without any premium for systemic risk or the increased possibility of a dollar currency collapse, the increasingly likely result of FMQ’s post-Lehman hyper-inflation.

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By Alasdair Macleod, Gold Money:

By November, the most recent month for which statistics are available, the US Fiat Money Quantity (FMQ) had grown to $12.351 trillion. This is $4.96 trillion more than it would be if it had grown in line with the established average monthly growth rate from 1960 to the month before the Lehman Crisis. By this measure monetary inflation since August 2009 is now 67% above trend. This is illustrated in Chart 1 below.


FMQ Chart1 201213

Since the beginning of the year quantitative easing (QE) of $85bn has been driving the increase in FMQ every month, at double the rate of the increase in bank reserves held at the Fed with respect to purchases of Treasuries from the primary dealers. This is because the Fed buys them from primary dealers, crediting their banks with reserves on its own balance sheet, and the primary dealers are in turn credited with deposits at their banks. Alternatively when the Fed buys mortgage assets this can be also regarded as creating deposits at both the Fed and at the banks, though there may be some timing differences involved when banks sell their own assets to the Fed.
The approximate effect is therefore captured by taking twice the increase in reserves on the Fed’s balance sheet, and then subtracting the increase in FMQ, so we can estimate how dependent we have become on QE. The result is shown in Chart 2.

Chart2 QE less FMQ 201213

At the beginning of 2013 QE was significantly greater than required by the banking system. With the exception of the March aberration shown on the chart, this amounts to a Fed policy of injecting more fiat money into the economy than the economy actually needed, which is consistent with the Fed’s objective to kick-start the economy. Gradually however the financial system has become increasingly reliant on QE with all of it now required by the financial system. This is reflected in the linear trend line on the chart which has now moved into negative territory.

Put another way, all the excess liquidity injected by the Fed through QE is now being used up in the banking system and has now become fully dependent on QE. Therefore, the $10 bn reduction in QE announced in December’s FOMC minutes, in the absence of other liquidity provided by the Fed, can be expected to put pressure on overnight rates to rise. Until there is an expansion of bank credit consistent with an economy that is definitely expanding, the Fed may be forced to increase QE again, or to take other measures in order to keep interest rates at close to zero.


The third chart shows the price of gold adjusted for the increases in FMQ and above-ground stocks of gold since July 2008, the month before the Lehman crisis.

Gold adjusted 201213


In these adjusted terms gold at $1200 nominal is now trading at 64% of its price in July 2008. At that time systemic risk was not fully understood by investors, and FMQ has since hyper-inflated. If gold returned to the same valuation today as before the Lehman crisis, it would be priced at $1883, without any premium for systemic risk or the increased possibility of a dollar currency collapse, the increasingly likely result of FMQ’s post-Lehman hyper-inflation.

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  1. I noticed a lot of “there is no inflation” trolls on the financial blogs lately. They go hand in hand with the gold trolls.
    The Ministry of Truth appears to be working overtime.

    (From Here – Post 4270829):

  2. SIlvermail  That reminds me of something I recall said about the $85 billion in QE.  Wasn’t it ‘at least or at minimum $85 billion’   It seems Kunstler is on to something.
      $95 billion, $100 billion in QE? 
    How about the  $1.3 trillion loaned—shipped to—given to– the Euro banks in Feb, March and April of 2013
    Like Doc’s post   Nothing is real, everything is lies and unreality

    • @ AGXIIK

      We can say that in the Fed sit bad people . But we can not say that in the Fed sit stupid people .
      Now they are forced to sell their gold reserves for a pittance. We understand it. But they too know and understand it.
      Why do they do it?
      - Because they buying time.
      Why are they buying time in exchange for gold ?
      - Because they have a plan of action.
      Why for some action in the future, they sell their gold for nothing right now?
      - Because they hoped to regain their gold back .
      How they are calculated to bring back their gold back?
      - From the big war. They buy time to organize a big war, far away from the U.S. border.

      We must recall, that during the Second World War , the stock of gold in the United States increased by 60%. This official data. In fact, to much more.
      So, who will be fight in the war, by plan of Fed – Israel vs Iran? Or China vs Japan? Or Russia vs Turkey?

    • Obama is pushing for war with China…


  4. @Doc-Looking forward to it.

  5. Jamie Dimons is skating on very thin ice.  I hear the rumbling and the people have had enough of that corrupt POS!

  6. I like gun shows for large quantity buys of ammo.  We got about 4,500 rounds at the Reno show. But those shows are hit and miss
    Doc, do you think you would be willing to trade silver and gold for larger scale ammo buys?  
    I’m on a kick of purchasing goods and services with precious metals.  The present price of precious metals is no where near as important as being able to access quality commodities with a different atomic weight.
     With due respect to my local town vendors, they get one chance to trade with me based on a price in precious metals.  I’ll know I accomplished my goal when Costco starts accepting junk bullion at market price   :-)

  7. Gold 64% of 7/2008 price.  Will not last forever.  
    Ammo did not go down 36%.  All PMs.  
    As Charlie says, keep stacking

  8. Copy that Doc  thanks  I can stack for my local homies and maybe others. I flush with silver. FIAT not so much
    Silvermail  I would agree that some really evil people sit at the tops of the Central Banks.  They are really smart too. But some of the dumbest you’d ever see.  These overeducated intellectualoids are so dumb they couldn’t pour piss out of a boot if the instructions were printed on the heel.  They are like hot house orchids.  Exposed to the elements they would die in a day
    But they are good at two things. 
    Helping central governments debase the currencies and financing wars profiting immensely at both.  Right now I see some nasty conflicts coming our way  Being Cyprused is just one battle being fought on a multi front war that starts with currency wars.  Currency wars lead to hot wars.  The whole world is on edge right now and conflict could break out any minute.  The Chinese/Japanese conflict over the the Sendaku Islands is one spot.  Iran is another  Saudis will buy nukes from Pakistan.  If I had a soveriegn wealth fund worth $1 trillion dollars and know nukes are a complete game changer in the middle east, whats $10-20 billion for a dozen nukes.  Just one would ruin Iran.  There’s no love lost there . The petro wars brewing between those two countries goes back decades. 
    If Iran getsa nuke or Saudis think they are a month of building one, they will buy from Pakistan or North Korea.  DPRNK is run by a completely insane person    Mini Me 3 is nutzo and then some

    • Costs of any war always pay all ordinary people. But profit from war, always receive only the most wealthy people.
      Who, from the millions average people, was get profit from the war in Iraq? Nobody.

      Thus, the war – is the most effective way of withdrawal of benefits from the poor people to the rich class.

  9. ooops   bad typo
    correction  I’m Flush with silver  not I flush with—
    I flush with gold (Plated toilet fixtures
    FIAT is good for TP
    Hawk   Glock 22   Git it. Dont screw around.  I love Glocks.  I almost bought a 22 this weekend at the gun show
    Private seller, no tax or  Brady 
    But there was a brand new Springfield XD 40 cal with 3 mags for $475  
    I had to buy it since the seller wanted about $600 for the Glock. 
    This XD filled a nice sloct in my Springfield box.
    You might want to look into the Glock 26. It’s smaller than nearly anything made by Glock. A  nano 9mm, it drops into a pocket or jacket and conceals really nicely. 10 round mags come with it but I carry 3 Glock 19 mags (15 rounds) and they fit equally well plus extent about 1 inch below the mag well so you can get a better grip on the stocks and the extra mag length makes it easier to change out the mags.  Glock 26 mags are just a little light for my taste.

  10. PS  Glock 27 is the nano version of the 40 cal just in case you like the 40 cal more
    The XD is my first 40 cal and I had to buy one since I have about 1,800 of 40 cal and needed a means to fire it.  If I dont like the 40 cal and I flip it for a nice profit.  

  11. -The “T” word is a bit strong but perhaps it’s because I’m new here…

    -Historically, no one needed to debate inflation or least log on to a message board to debate the issue to the death because most sectors (including the consumer) could see it clear as day. However I don’t think anyone can deny that we something different in this environment and this precedence is in uncharted waters. From that I can say nothing is certain.

    I get that the PM market is small enough to be manipulated and gold is the staple barometer for inflation (thus has political motivation to stagnate its price levels). However, I also acknowledge that smart money has not piled onto PM as they should in a true inflationary environment.
    Your basic consumer is relatively clueless but notices that their flat wage does not seem to go as far as it used to. The family minded have noticed the incredible inflation within higher education (particularly in the last 5 years).

    Most on this board seem to voice that fiat creation automatically creates inflation and anything otherwise is pure manipulation. There is historical context to make this believable. However, my inclination is that PM growth has been based on credit expansion and that PM have always been manipulated. We don’t live by currency nor have we been in a long time but rather a ‘creditopia’ as mentioned by Richard Duncan. From this view, a ceiling of $1900 is a joke if it were a true free market . The credit and dollar of the US is as good as our military, period.  Our currency creation is just flushing down blackhole toilet one ugly balance sheet to the next. I feel we are psychological attached (including myself) that printing money makes it more worthless and thus gold is a viable option but it was actually worthless long before that.  
    No time to cry for the world we ‘should have’. As a PM investor I’m hoping for a break but I just don’t see it yet.

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