|Source: Fairy Tale Friday|
Problems inevitably arise when money supply growth outpaces savings growth as the former tends to bring about not only overconsumption, but also price rises for both consumer goods and, arguably even more important, producer goods.
If accumulated savings are insufficient in an inflationary environment, both consumers and producers will sooner or later discover they’ve not set aside enough money to sustain their spending- and necessary investment levels. This becomes evident when new credit becomes difficult to come by or whenever the costs of that credit (interest rate paid on new loans) rise as both spending and investment then must fall as a result.
Therefore, the higher the ratio between the money supply and savings, the higher the potential economic distortions and the bigger the risks that something will go wrong and coped with in an unsatisfactory manner on a large scale.
The chart below therefore begs the question: has the U.S. economy ever been in a worse state than now?
If this does not end in the largest U.S. stock market crash in the last few generations I seriously will not doubt that the Federal Reserve and the U.S. banks that own it will be able to continue walking with no clothes for many more years to come. They've done so for about 45 years already (Nixon closing the gold window in 1971, though the link to gold did not ever put an end to monetary inflation during the decades preceding 1971). But one day they MUST run out of other people's money (read: savings), surely.