Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at thinking, intelligent individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

28 May 2010

A Measure of the Government Wealth-Taking

In May 2008, M2, a measure of the money supply, stood at $7,733.5 billion.  In April 2010 it was up to $8,595.5 billion.  The government had added $862 billion to the M2 money supply.  This is an 11.15% increase in about 2 years.  One consequence of this is that everything you own, when given a dollar value, was devalued by 11.15%.  This does not mean that the dollar value as given dropped, but it does mean that other things being equal, your assets lost 11.15% of their value.  Measuring their value in terms of other currencies than the dollar may not indicate this, since most other currencies have also been similarly inflated during this time.  But, when measured against a holdable and valuable commodity such as gold, platinum, and silver, it is only reasonable that this would mean that your asset lost value in terms of those valuable commodities.

The stock market in this period fell from 1409.34 on 1 May 2008 to 1186.69 on 30 April 2010.  This was a drop of 15.80%.  Of course other things are not equal, so a drop of 11.15% was exceeded.  Among other unequal factors, the U.S. GDP fell by 2.33% from 2008 to 2009, so that might simply be added to the 11.15% drop to create a drop of 13.48%.  Of course, if productivity is increasing fast enough, an increase in M2 may not result in a drop of stock prices, but during the recession with more money chasing few goods, it is not surprising that our stock market investments have lost value.  For the many Baby Boomers approaching normal retirement ages, this has been a disaster.  We can largely thank the federal government for this and attribute it to its influence on Fanny Mae, Freddy Mac, AIG, the Federal Reserve, and its many efforts to push financial institutions to provide sub-prime mortgages to people who could not afford them.

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