Increasing Money Supply Buys White Bread and Raw Sewage

Money supplies all over the world are increasing – 10% per annum in the United States, 10% in Europe, 14% in Asia. The hedge funds, mutual funds, private equity funds, investment banks – the green stuff is everywhere…and everywhere it is chasing more green stuff. The world has gone green.

“It’s incredible,” said our friend from London. “Everywhere I go I run into other investment managers, all looking for something – anything – that is still at a reasonable price. I was just in Zimbabwe, for example. Now, there at least you’d expect to get assets for nothing. The inflation rate is something like 100% per month, and nobody has anything.

“I went into one of the finest restaurants in Harare. I mean, this was a restaurant that used to be the best in all of Africa. But they gave me an old menu, listing an assortment of cakes and desserts – and when I asked for one, they said, ‘I’m sorry, but we don’t have that any more.’ So I asked for something else, and they said, ‘I’m sorry but we don’ t have that any more, either.’ So, I tried a third one and got the same reply. Finally, I asked, ‘What DO you have?’ And they said, ‘White bread…’

“And this was in the best hotel in the city. A fine hotel. But the city’s sewage treatment plant had collapsed and the raw sewage was running into the same river where they took in the city’s water supplies. So, even in the best hotel in the city, the water was a little brown and smelly…and you were afraid to even take a bath.

“And then I’m sitting at the table in the restaurant, and whom do I see at the other tables? Other fund managers…also scouting around for bargains. There is just so much money floating around the world, no one knows what to do with it.”

Against this huge increase in the supply of cash and credit is a relatively modest increase in actual wealth, if any at all. Of course, we don’t know how much, because our measuring stick has such a wiggle to it. We live in an era of ‘managed’ currencies. We measure our wealth…and our profits…in managed currencies. And we have faith that the managers know what they are doing.

When that faith goes…so goes the value of our currencies…and so goes much of our wealth.

Practically unnoticed in the worldwide euphoria of rising prices was the falling dollar. In the two weeks we were in South America, the dollar lost about 2% of its value against the euro. Against gold, it lost 3%. Measured against gold or the euro, Americans – even if they had all their money in the Dow – got poorer while we were away.

Someday, all that liquidity is going to turn a little smelly…like the Harare sewage.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

Bill Bonner

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