Follow The Money

By Greg Hunter’s USAWatchdog.com 

In the classic 70’s Watergate movie, All the President’s Men, the secret informant, Deep Throat, said, “Follow the money.”  It was how reporters Woodward and Bernstein figured out what was really going on in the Nixon White House.  If you want to figure out what is really going on in the economy, you do the same thingfollow the money.   

This is what John Williams of shadowstats.com does so well.  He follows the money and many other statistics to reveal what is likely going to happen in the economy.  For example, at one time the government kept track of how much money was in the overall economy.  It was a statistic called M3.  It kept track of things such as how many dollars are in checking accounts, savings accounts, money markets and even cash in the pockets of Americans.  The government stopped publishing this statistic in March 2006 because it was too “expensive.”  Williams picked up where the government left off.  He recreated M3, and now calls it M3 SGS, so he could continue to “follow the money.”  By computing this number the way the government used to do it, Williams can tell if the overall supply of money is growing or contracting.

According to shadowstats.com (also known as Shadow Government Statistics), the M3 SGS (overall money in the economy) rocketed up from 2006 to early 2008 and has been in a steep decline ever since.  This means the overall amount of money in the “real” economy is shrinking.  According to Williams, the money in the system is not just shrinking by a little–but by a record amount.  In his latest report, Williams said, “the worst annual contraction in modern economic reporting of real (inflation-adjusted) broad money supply continues, signaling looming deterioration in U.S. business conditions, an intensified economic downturn or ‘double-dip recession’ in popular terminology.”  “Double-dip recession” is what is coming to the economy, not a “recovery.”  This is completely contrary to what you have been hearing in the mainstream media.

Nearly all states in the union face large financial shortfalls.  Many cities are also coming up short in the budget department.  In a Bloomberg story early last week, the comptroller of Los Angeles gave the city a month before it ran out of cash.  The only answer for L.A. is to raise taxes and fees, cut services or both to get the budget in line.  This is a recipe for some real pain.

Remember, states and cities cannot just print money like the federal government.  I predict as the pain grows in this election year, money printing will once again be turned back on full blast to bail out some cities and states. But not every state and city will be saved from massive budget cuts.  This is why I’ve been saying from the beginning of the financial crisis, the economy we are facing is a “freak show of bailout and default.”  If you follow the money, it is drying up right now.  But don’t worry, because this will give way to a new flood of money created out of thin air to ease the “pain” of living within your means.  The only thing you can count on in the future is inflation– and lots of it.

Comments
  1. Vess

    M3 money supply is totally useless for the purposes of predicting inflation. Austrian (True) money supply should be used instead.

    • Greg

      Vess,
      M3, or in this case M3 SGS, is being used to predict a double-dip recession. It is the money printing afterward that will ignite more inflation. I am a total beliver in Austrian economics. Thank you for your comment.

      Greg

  2. keith

    Greg, superinflation is certainly on the way big time. The question is not if but when, perhaps 6 months, perhaps 1 year. It has to come. Now’s the time for gold and silver purchases on a regular basis. If one prefers paper currency, then north of the border is the place to go. China has recently done just that…billions in Canadian currency. Most americans are in denial. There is a big hurting coming our way like a runaway locomotive. Over 25 million americans have left the country. This is the time to act. Thanks Greg. When gasolines reaches $4-5 perhaps some will listen.

    • Greg

      Keith,
      I just hope people are prepared. Thank you for the commnet.
      Greg

  3. Larry Formey

    prepared like in how?

    • Greg

      Larry,
      I did a post called “Where Should I Invest My Money?” a few months back. Here is the link: http://usawatchdog.com/where-should-i-invest-my-money/ Read it along with all the links and get back with me if you have with questions. I hope this helps.
      Thank you for reading the site!!
      Greg

  4. Mark Mudgett

    Hello Greg,

    Everything I read and analize leads me to the same conclusion. And then I turn on ABC, CBS, or NBC and hear how our economy is turning around. I listen to sound bites from Obama, et allia, and wonder how I could be analizing the statistics so incorrectly. But, I am not.

    Our country’s fiscal and monetary policy must be corrected before our economy will turn. Raisings taxes and fees in a recession results in a net decrease in revenues. CUT SPENDING. PRIORITIZE BY CONSTITUTIONAL REQUIREMENTS. THE COURTS, THE MILITARY, THE BORDERS, AND STATE DEPARTMENT ARE OUR FEDERAL GOVERNMENT’S FIRST PRIORITIES. CUT EVERYTHING ELSE!

    I am very sorry for screaming on your blog-site.

    Will my solution create more unemployment? Yes. Gubmint pukes need to feel the pain that I have been feeling! Let the bureaucrats eat cake!

    Ballot-box revolution or Bullet-box revolution? I don’t know. Will American’s accept full subjugation to bureaucrats?

    I am so discouraged!

    markm

    • Greg

      Mark,
      I know and when it really gets bad people who listened to the MSM are going to feel betrayed. Thank you for weighing in.
      Greg

  5. Larry S.

    Interesting comments from you all. Looks like you are all up to speed with economic developments. I have a slightly different take about how these problems can be resolved. Curious your reactions.

    The Constitution requires real precious metals to be used as our money. Therefore all currency used since Nixon took us off the Gold standard is illegal. Therefore all contracts formed around the usage of the American dollar are illegal and can be ignored. Our currency without Gold and Silver backing is fraudulent. Honest citizens, those that do not want to continue with the fraud, should understand that debt created fraudulently is not legally required to be repaid.

    This goes for the whole world actually. The only way out from under all this crushing debt is to excuse everyone and every nation (to forgive) their debts as all the debts were entered into with a currency that has no value.

    I’m sorry to point this out… But investors will simply have to start over. Using legal currency this next time around.

    Larry

    • Greg

      Larry,
      I am betting the government will inflate the debt away, as they are already doing. You do make a very good point about starting over!!
      Greg

  6. Larry S.

    I view inflating the debt away as being wishful thinking given current economic conditions. R. Kipling once wrote a poem about “… Not making dreams your master…” Thinking about inflating the debt away is a dream not a practical solution as we all know inflation will harm everyone and for a long time too. In the end, the economy will crash anyway (history teaches us this) and we will be forced to recognize the fraud for what it is and what it has been.

    Why not eliminate the threat of inflation and go directly to legitimate money now. Let individual people decide their own fate by “walking away” from their fraudulent contracts and the use of fraudulent currency by converting to “honest money” gold and silver coinage.

    The debt load on our Nation and it’s people will never be able to be inflated away. Intelligent, honest people who understand the size of the derivatives know this is true. There is only one way out and that way is for the world to forgive all fiat based debts and to start anew with money that has its own value built into it instead of using a currency with a value determined by a government entity.

    All other discussions concerning the economic future of our world that does not first start with excusing debt and conversion back to sound money, are to me, fraudulent discussions.

    Larry S.

    • Greg

      Larry,
      The true inflation rate right now, according to shadowstats.com (economist John Williams), is 9.5%. We already have inflation high inflation, and it will no doubt get worse. I too wish we had sound money but we will not be getting it for awhile. You do make some very good points that I cannot disagree with. Thank you for your intelligent comment.
      Greg

  7. Mark Yelland

    Hi Greg,

    You are of course correct about the shrinking money supply issue, but miss the reason for it I feel;

    Private banks currently create around 97% of the money supply as DEBT. That is, when you go and borrow say $100,000 from the bank, they do NOT lend you the savings of their other depositors – they quite literally create money out of NOTHING.

    When you get a loan from the bank, the bank simply types the numbers into a computer and creates a deposit in your new loan account. They simultaneously record your loan agreement (or “promise to pay them back”) as an asset on their balance sheet, and record their loan to you as a liability on their balance sheet (since you will naturally be wanting to draw cash on this or buy something with it).

    Incidentally, remember, the “asset” is tradeable (as per the sub-prime mortgage market preceding the 2008 crash), and enables “securitisation” whereby the banks can sell the asset (loan), thus making it appear that it has been paid off, which allows banks to technically speaking, create loans beyond that permitted by their capital reserve requirements.

    In any event, going back to your £100,000 loan; since no money has actually left the banks reserves, and since you now have $100,000 that previously didn’t exist before that morning, the overall money supply has just swelled by that same amount.

    Of course, in time, and all things being well, you will repay this sum, plus interest; say 10%, back to the bank, where the original sum lent is extinguished and removed from existence, and the Banks take the $10,000 interest as their profit.

    In any event, the amount of money that the banks create in this way is not actively determined by regulation, reserve ratios, the government OR the Fed, but largely by the confidence of the banks at any given time:

    When banks are confident, they create new money loans and bank deposits for borrowers. When they are fearful, they reduce lending and hence limit the creation of new money. In these circumstances, when perhaps more loans are being repaid than are being issued, the money supply shrinks, and you have what we have now – recession.

    This issue of money destruction really is a critical issue, and this is why various central banks around the world embarked on Quantative Easing programs – to slow down the shrinkage of their nations money supplies.

    This effectively means that private banks are both controlling the VOLUME of the money supply, and in being the ones who decide WHO gets a loan and for WHAT purpose, broadly deciding what the overall spending priorities of our nation’s economies are.

    Best wishes!

    Mark Yelland, UK

  8. Mark Yelland

    Sorry, I forgot to say; further to my previous post, the BBC in the UK have just had to pull one of their educational videos “How do banks work?” from airing and their website, for failing to point out the role of private banks in money creation, and for subsequently misleading the public about this critical aspect of money creation and destruction!

    Cheers!

    –Mark

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