The Secret Behind - Money Supply and Inflation

8/14/2019 The Secret Behind - Money Supply and Inflation

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The Secret

Behind The

Modern Religious

By KH Tang


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INTRODUCTION:

It must be definitely right to say that Money is Very Important in modern society. At least, for those

who are still working for it cannot debate with me!

From the news media, it can see a clear trend that more and more people weighted money beyond any

other principles value and ended up eating money. Therefore, it is not an over statement to state

that Money has become a Modern Religious for quite some people today. Though it is absurd, it is

fact.

Since Money has become more and more important day by day It deserves one to put in enough

effort to gain a good understand of what it is, before he decides to dedicates or sacrifices his whole life

for it. Actually, how it works is much simple than most people would imagine. If one just willing to

spend a couple of minutes to go through this article, and do his own appropriate follow up on the

internet to clarify any doubts, he would get the point.

Whether this intentionally irritating article is being well received or not, I dont care as I dont write formoney

KEY POINT: MONEY SUPPLY

There is ONLY ONE key point to bring up in this article. That is the understanding of MONEY SUPPLY. In

the simplest term: How much money does the country/region produce?

To begin, let look at Figure 1, it shows the components of the Money Supply of the USA over the period

from 1959 to 2005. Figure 2 shows a more detail breakdown the component M1, M2 and M3 in more

details.

One might not have the interest to look at the details and it is all right. But, he should understand the

impact of the Growth Rate of the money supply!!! Missing this important point would likely to cause

one has to work for money until the last day of his life in this planet.


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Figure 1

Figure 2


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COMPOUND GROWTH RATE:

One of the OPEN SECRETS that Warren Buffet makes himself one of the richest men on earth is the

concept of Compound Growth Rate! His formula is to have an average 20 over percent of return on his

asset and keep it compound year over year Which means it takes him about 3 years to double his

asset and keep doing it since 1970s

The following is the simplified formula use to calculate how long an investment will double it value.

AND, it ALSO works on INFLATION. How many years it would double the price of Education, Medical Fee,

Food, and others expense, etc.

After understand the formula, one of the most stupid things I can think of, and had been participated, is

that most company is setting something so call aggressive goal to achieve 20 over percent of growth

rate a year This is to double the company revenue by 3 years. This is ONLY achievable with break-

through technology or a new start up company with a much smaller asset based to start with. No

wonder so many CEO has to step down in every few years when they set such an unrealistic goal.

(But, then, CEO normally got something so call golden parasuit wait a minute this article should not

side track too much.)

Let get back to the story of Money Supply and Compound Growth Rate

The next following Figures are the Money Supply Chart for various countries, and lets take India for

example, in Figure 3.

Year to get Double of Original Sum = 70/Growth Rate in annual %.


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Figure 3: Money Supply of India 1950 -2006

IMAGINATION or CALCULATION

If a worker in India, after working for 15 years, say at the age of 40. Say, that he is an above average

worker and has good income. So, he got his house paid and have X amount of saving in the bank.

Now, look at the Money Supply Growth Rate In order to Maintain the same Richness (in term of

overall Ranking) in that country, he must have a means to get his house to increase the value in the

same rate as the money supply growth rate, and the X amount of saving must also increase the in the

same rate as the money supply growth rate!!! Or simply put, he must have his total asset to have the

same growth rate to maintain the same richness. For most working class people, that means that the

off-set has to be make-up with the saving of salary income. Therefore most working people cannot

make it, while keep working on the same thing harder and harder to become poorer and poorer in terms

of the overall ranking of financial richness.

One should take the time to compute the curve of a typical working class net worth as compare to the

money supply curve Since a person start to work with nothing, the net asset GROWTH VERY FAST, assalary income vs. personal financial asset (this is zero at the beginning). But, once the asset is built up

over some time, and salary increment rate slow down over time, the personal asset will go reverse

direction vs. the Money Supply Curve when computing the personal richness benchmarking in the

country for that I am sure.


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Figure 4. USA

Figure 5


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IMPACT

As the example described above, the most obvious thing to happen with high money supply growth rate

is to bring higher inflation. The simple reason is that most of the consumer stuff, such as food, drinks,

etc. is produced from limited natural basic material. While the supply of this stuff cannot keep up

increase as the rate of population growth and money supply growth, this invites the visit of Mr.

INFLATION much more frequently.

So, the only reason, I guess, that the Fed Chairman keep talking fighting inflation with more money

supply and can get away is only most public there do not think.


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Most people, especially old people, may think that the creation of money is tie to GOLD. And, they were

correct until early 1970s, when USA decided to remove the gold backing rule. That means it would

not require any backing of physical gold reserved, and back it up with the government credibility.

So People who read and understand the impact of this can be profit from this HINT.

CONCLUSION:

Only those who dont understand whats money supply and it impact will need to continue to work

harder for it and the result would be as follows:-

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The Secret Behind - Money Supply and Inflation