With all the talk about money printing and buying back of treasuries we decided to have a look at the US Monetary Base on Friday. We knew that it had blown out late last year but had gone sideways for the first six months of the year. Actually we have neglected to look at it ever since the end of July.

We almost fell off our chairs when we saw the graph and what has happened since August. The US Monetary Base has literally exploded. To be honest we are having a lot of trouble comprehending the likely consequences of this blowout and we thought that some of the readers could enlighten us on reasons as to why we are not going to see inflation at levels that will make the 1970s look like child's play. By that we mean before year end 2010 crude above $200, gold above $2000, yields on US 30 years above 8%. Yes this may seem completely off the wall but this is our best guess given what we are seeing in the charts below!

US Monetary Base 1998 -

Those two little insignificant blips were the Y2K thing and 9/11. Actually at the time they were not so insignificant!

US Monetary Base 1970 -

If you want to know what the bubble is in world markets it is to be found in the chart above, everything else we are seeing in the world right now is merely a symptom of the Fed and/or US Treasury having gone completely mad!

Yield on the US 30yr Treasury 1980 -

We get this sinking feeling that yields on the US 30yr are going to also blow out like we have not witnessed in modern history. Goodness knows what flow on effects that will have. Please someone inform us with your objective reasons why yields will stay relatively unchanged over the coming months!

What are we doing? Buying insane OTM call options on DBC and equally insane puts on TLT!