Here we go, folks

We've Never Been Here Before
[Peter Robinson]

If you'd like to know just how much Ben Bernanke has expanded the money supply during the last few months, just take a look at this chart on the website of the St. Louis Fed.

I'm not at all certain that there are any adjectives that do the event justice, but "astounding," "flabbergasting," and "utterly astonishing" come close.

Note, incidentally, the tiny little wiggle at the year 2000. That represents the Y2K monetary expansion, judged huge at the time. There are plenty of people who would argue that the Fed's efforts to shrink the money supply afterwards—that is, Greenspan's mopping up operation—burst the high-tech bubble, causing the last downturn. How will the Fed mop up after this expansion?

HT: Andy Kessler. It's impossible to run into Andy at Starbucks without learning something—often enough, something alarming.

From The Corner at NRO

Yeah, yeah, Klown, why do we care?

Below is an excerpt from here:

Why Is the Money Supply Important?

If the money supply continues to expand, prices begin to rise, especially if output growth reaches capacity limits. As the public begins to expect inflation, lenders insist on higher interest rates to offset an expected decline in purchasing power over the life of their loans.

Have you heard anything in the media about inflation concerns? Of course not. Later on, the libs and the media will all pretend they're very shocked. They'll say, "Well, if only so and so hadn't happened we wouldn't have all this inflation ... oh, the bad luck that is ours ... nobody could have seen this coming ... the only answer is MORE GOVERNMENT INTERVENTION and to vote for more Democrats"

I took the excerpt below from here. A nice synopsis. Not too complicated but still covers the essentials. I edited it just a small bit.

Why do we have to manage the money supply?

Lets assume the money supply is held constant. Economic output is constantly expanding, (efficiencies/more people are born and doing more work) so if money supply is held constant, this means that prices have to go down (deflation). Less money available for everyone means the value of your money goes up. Deflation shuts an economy down as investment drys up because just holding onto your money will increase its value by not doing anything. And if you borrow money to invest, you owe more as time goes on (since money is increasing in value.) So deflation is to be avoided. In order to avoid this, the money supply must grow at the same rate as economic output. If velocity is constant, and growth in output = the growth in supply then prices will stay constant.

The opposite happens when the money supply grows too quickly. It causes inflation as there are now more dollars per unit of real resources. However, a little bit of inflation is considered to be better then a little bit of deflation, so central banks generally err on the side of inflation (and for right or wrong, there is a temptation for idiots/politicians wanting to get elected to inflate the money supply to temporarily boost the economy at the expense of long term inflation)

In simpler terms, if the money supply does not grow, but output does, then there will be fewer dollars per unit of real economic resources, and the value of each dollar then becomes worth more. The result is, that prices go down, requiring less dollars. But even though this might sound good, as explained this shuts an economy down because investment dries up.