“Whenever, therefore, people are deceived and form opinions wide of the truth, it is clear that the error has slid into their minds through the medium of certain resemblances to that truth.”
Socrates
BC 469-399, Greek Philosopher of Athens

http://www.shadowstats.com/alternate_data/money-supply

Inflation is defined as an increase in the money supply and not as many economists falsely refer to it as an increase in the cost of goods.  The price increase is a direct result of inflation, but it is not the definition of it, but just a symptom.  Looks at the two charts, it is easy to immediately spots how dramatically the money supply has increased in the last 12 months.  In less than one year, the money supply has risen to a level that is double that of 2003.  M1 is increasing at levels not seen for over 40 years – take a moment to digest this fact.  When the economy is broken, when savings are low, when companies are scaling back, we have drug addicts driving the printing press to the breaking point.  1 + 1 always equals two and pushing the printing press into overdrive must equate to some form of very strong inflation and most likely hyperinflation.

History clearly indicates that when the money supply increases, inflationary forces increase and the more dramatic the increase, the more profound the inflationary effects are.  It goes without saying that the current rate of expansion is basically illustrating that hyperinflation is moving closer to a reality with the passage of each day.

Note that the current administration has many ambitious plans, improved funding for Medicare, improved social security, providing universal health coverage, improved infrastructure, increased troop levels in Afghanistan, the future money this administration will be forced to lend banks once the commercial mortgage sector starts to crumble, etc.  All of these programs need extra money – money this country does not have and the only way to create this it is to print it as no nation is going to lend this country the trillions of dollars it will need to fund all of these ventures.  Therefore, it goes without saying that unless this administration dramatically cuts back spending or increases taxes by a backbreaking amount, inflation and then hyperinflation are going to hit this economy soon.

In the not too distant past, the world at large was busy proclaiming that the U.S. economy no longer had as much of an impact on the rest of the world’s economies as it once did.  That myth has come to an end.  When the U.S. housing market tanked and the credit markets froze, the rest of world crumbled also.  The old saying still applies – when the United States sneezes, the rest of the world catches a flu and in some cases bronchitis or pneumonia.  Thus, whatever happens here will have a global effect and other nations are not going to be able to come out and say that it is different this time for the reality is that it is not.  

For a long time, individuals in the Eurozone assumed that they were better off.  The reality is that the situation is a lot more troubling in the Eurozone than it is in the United States.  Several of the countries that make up this zone are in deep trouble, so the long-term prospects for this zone are not very bright at least for the next few years.  The question comes down to which location is least ugly for most nations are in deep trouble. 

For this reason, we are strongly advocating commodities-based investments regardless of the currency they trade in.  We expect them to trade significantly higher in the years to come.  If we had to choose between the euro and the dollar, we would not.  Instead, we would deploy our money into the following currencies – the Canadian dollar, the Hong Kong dollar, the Chinese yuan (probably the main one) and maybe the Australian dollar.  Those looking to invest in currencies should spread their money in at least 2 or 3 of these currencies.

This is an excerpt from Jul 2009 issue of Trader's Journal.