A slowdown of M3 growth while the economy contracts still means there is more fiat money produced compared to the declining purchases of goods and services with these funny colorful papers that are only backed by the belief they will buy the same amount of goods and services in the future as they did in the past.
GRAPH: Absolute growth of money supply M3 clearly shows that even in a contracting economy (Q1: minus 4,8%) the ECB showers the Eurozone - or more exactly its banks with ever more money. The weekly financial statement to be released next Tuesday will show another upshot due to the record €442 billion 371-day "liquidity providing" tender.
Not only nominal but also the relative change of M3 - hovering above the ECB's reference rate (whatever that means) shows that we are still experiencing monetary inflation at its best.
GRAPH: Don't get confused: Month-on-Month change of M3 is still way to high in order to return to the ECB's meaningless reference rate of 4.5% annual M3 growth, a growth rate it has never reached since the inception of the Euro. Chart courtesy ECB. Click for larger image.
Another way to see that the ECB will have to face runaway inflation is the comparison of weak GDP growth since 2000 and the balance sheet of the ECB. Repeating above mentioned meekly economic growth of 18,98% or 19,64% (depending on the data source) lags far behind the 162% growth of the ECB's balance sheet between
January 2000 and
end of 2008. In absolute figures the balance sheet grew from €792 billion to €2,072 billion. This is a lot more money sloshing around in comparison to GDP growth.
While these additional €1.3 trillion (on Tuesday it will be €1.75 trillion) are now kept within the ailing banking sector who ran agog creating derivatives, thereby exploding leverage to dimensions never seen before in history, this money has to trickle through into the contracting economy, pushing up nominal and real prices at one point. After all, for every loser there is a winner who will try to maximize his gains again.
Gold Again Proves Its Role As Inflation Shield
Although the next chart from Gary Dorsch is a bit outdated, stemming from February 2008, it again proves the point that gold is a most reliable canary in the coal mine of monetary inflation.
GRAPH: Observing since a while that gold only gyrates against Federal Reserve Notes but remains more or less steady priced in Euros this year is another indication that the dollar's days will come to an end soon. Chart courtesy Gary Dorsch via MarketOracle.
I sign off with John Pierpoint Morgan's historical quote when asked by congress in 1907 what money actually is.
"Gold is money. Everything else is credit."
And finally I like to promote this phrase, brought to my attention by
learntotradefutures.com publisher Duncan Robertson.
Gold is the money of kings.
Silver is the Money of merchants.
Barter is the money of peasants.
Debt is the money of slaves.
