M3 is plunging at a rate not seen since the Great Depression. The Obama administration shrugs; the Keynesians inhabiting it have never read Friedman and Schwartz’s Monetary History of the United States, and don’t think money supply is interesting enough even to report. They pile on debt at unprecedented rates, and are now contemplating further “stimulus,” since earlier attempts, though dwarfing all previous deficit spending, seem to have accomplished nothing.
This suggests a nightmare scenario, in which the United States accumulates a massive amount of debt only to find that it must pay the money back in dollars more valuable than those it borrowed. A lot of people have thought the Obama administration’s plan was to inflate their way out of the debt, and have been buying gold, stocks, etc., as a result. But what if the opposite happens? What if deflation occurs, and the debt, not just here, but across the world, becomes much worse than it now appears? It now appears oppressive and, for Greece, for example, unsustainable. What if it becomes unsustainable for everyone?
I’ve been puzzled for a while now by the inflation numbers, which have been well-behaved in the face of ridiculously large deficits, with more of the same projected over the next decade. Maybe their benign appearance despite indicators that would normally be inflationary is a sign that the underlying economic forces are actually deflationary.
I’m not asserting anything here. But I am worried. There is a possibility that things could get very bad very quickly.