hi this is mike maloney with ronnie chopra once again and ronnie's got some great insights and some great charts to share with us ronnie how are you doing very well mike good to see you again okay so uh you've got m2 and the cpi how highly correlated they are here on page number 12. tell us about this yeah well i mean there's a very close correlation between the development of m2 um and we calculate m2 per capita and inflation as you can see here well actually uh we started in the 1920s


we saw it in the 1913s very high correlation then of course since the year 1971 we're seeing much less volatility of of the cpi but but we also saw it in 2008 2009 that they were highly correlated and now m2 per capita has risen significantly while cpi has only risen um a bit and we used we use a moving average of cpi for this chart but i think at some point we will really see nasty cpi surprises and i think that now at the moment i think that the federal reserve will face increasing pressure because uh market


participants are realizing that it is not transitory well you know mike i i not only talk to to financial market guys uh thank god i talk to business owners i talk to private individuals and so on and everybody is telling me that they they fear that they um that they um see inflation that they feel it that it's coming from all different sides uh if you're talking to people from the building industry if you're talking to um people from the service industry where you know most of them say it's uh they have a


hard time filling positions uh especially for skilled labor um we're seeing that freight rates are going through the roof uh a friend of mine he he owns for uh he works for a company that that uses uh that needs quite a lot of containers and he said last year um the freight rates were 3000 us dollars for for one of one container load now there are 13 000 and of course somebody has to pay it and it will be the consumer so um from my point of view you know it's it's pretty interesting


because over the last couple of years we were always told by central bankers that inflation is too low we were always told that they will do whatever it takes to get inflation rates up now inflation is up um but they keep telling us that it's transitory so they have they have more leeway to do more and as we know they introduced this average inflation targeting recently uh in the us but now also in the in the eurozone so i think um i i don't expect hyper inflation uh uh going forward but but why not


inflation rates uh staying up at four five six percent over a couple of years i think um this in combination with yield curve control might really be the solution going forward and and as you know we always um study history and as you can see for example on page 14 this shows the velocity of money and actually the velocity of money has collapsed last year and we're seeing now lower levels than in the years 1933 or 1946 now what happened in 1933 well we saw pretty radical measures um so so uh the us government devalued


the us dollar versus gold um and in 1946 they basically introduced um uh yield curve control um so they they packed interest rates at a certain level i think on the long end it was 2.5 and this in combination with higher inflation rates of course this um yeah this has an effect of the uh uh uh uh of on the debt situation now i know that forecasting the velocity um or as as austrian economists call it the demand to hold money is is pretty tough and my friend russell napier he said forecasting velocity is really difficult


it's like trying to juggle an incontinent squid something you really don't want to do and you're very unlikely to be successful but from my point of view um velocity now that we're seeing more confidence coming that we are seeing that the worst of the whole covet crisis is basically over that people start doing um capex again they start traveling again they start consuming again i think that velocity will start rising it has already stabilized and it will meet a flood of liquidity


that was created over the last couple of months so this is the recipe for rising inflation uh yes i believe you're absolutely correct i i do want to point out some things about how the last set of charts here corally because this is my episode seven of hidden secrets of money where i talked about uh the weimar hyperinflation but how the anxiety of world war one with uh germany's borders toward the end of world war one collapsing in on them and their sons being killed and they would save every penny that they


were paid and so even though the government was creating huge quantities of currency velocity of currency was slowing to offset that even more than they were creating and they actually i had a little bit of deflation toward the end of the war even though the currency supply had had basically they had added 400 percent i believe to the currency supply it was five times larger than it was uh before the beginning of the war uh and all of that currency acts like a battery it's charged up and you said uh


you know trying to control velocity is trying to like trying to juggle an incontinent squid i love that terminology and imagery um uh it the federal reserve and the world's central banks cannot control velocity because velocity is all uh psychological it's all the mood of the public are they feeling good and if they are feeling good they go out and spend and they take a friend to dinner and stuff like that if they're feeling bad they stay home and they eat rice and beans so it all has to do with levels of


anxiety and if you go back to page 11 here with the year-over-year change of m2 and you look at that enormous spike that is the biggest you know this chart goes back to 1960. this is really like we said the death throes of a monetary system so that's the uh increase and quantity of the currency supply and then the next chart how that correlates to the previous chart you've got this uh cpi year over year and m2 per capita so you've done this m2 currency supply per person change year over year and that huge spike


but the cpi has not caught up yet and you uh pointed out that this is a moving average of the cpi so you can't yet see the change but remember that the cpi was only up at about five percent we've got it close to a thirty percent year-over-year change in the quantity of currency in the m2 the next one u.s savings rate this is what is slowing velocity when your currency goes into a savings account it's parked it's not moving so the velocity is zero when it's in a savings account


and this is all disappear all of the currency that this world central banks have been creating was disappearing into savings accounts because of the anxiety that people had over uh covet 19 and the economy the lockdowns and the slowing of the economies and stuff and all of the unemployment so people got scared they were saving it just like during world war one uh the end of world war one when everybody in germany had a lot of anxiety and they were scared and then you show that velocity the velocity fell off a clip cliff on


page 14 because it went into even though they're in creating more currency a lot of it stopped circulating because it ended up in in uh savings accounts and then on page 15 you say as soon as velocity starts to rise and this is m2 velocity and the inflation rate and when that velocity rises this battery of all the you know the fed cannot decide to just take uh the currency that that people have in the fed the world's central banks that people have in their in their uh savings accounts these


storage accounts these charged up batteries the world central banks have no control whatsoever they cannot discharge the energy that is stored in everybody's savings account and bank checking account and that's where all of this currency creation went as this velocity that's what slowed down the velocity when that decides to come out that is exactly what happened you know after world war one uh the german government stopped printing currency for a little while but there was a 700 percent


pre-hyperinflation inflation before the uh the big hyper inflation that happened in 23. uh there was a pre-hyper-inflation hyperinflation and uh uh prices rose by 700 percent as all of that currency that had been stored up during the war came out of hiding so you know you said that you don't think there will be hyperinflation i think that there's actually the potential of approaching those levels at least double-digit inflation is highly possible what's your thoughts on double-digit inflation


of course it can happen of course it can happen and then i think the big question is how is the federal reserve going to react because then i mean i've got i think there is no way that um they they find a way not to to to increase interest rates now the big question is what's going to happen to the bond market then what's gonna happen to equity markets then so so so this is really the trap that the federal reserve is in now and that that central banks in general are in now um and of course i think that the


main reason for that is that they have completely underestimated the the time lags um um that uh that affect those those processes and and now i really think as i've said i think it's um it shouldn't be left to to academics and um statistics i think it's really important to talk to people to business owners to to uh to investors of course to to to private people and i and i just feel that that um a wage price spiral will soon start so i think this is really the the big next topic because people say


well you know everything just costs significantly more you know have a look at um at fuel prices uh college tuition um um social security expenses um eating a dinner out whatever costs are really rising uh between seven or or or ten percent for for for for those things that that are important and at some degree people will say well you know we want a higher salary so this whole wage price spiral will start and it will accelerate at some point and therefore i think that you know something that for a mainstream


economist is absolutely impossible stagflation um might be something that we will talk about quite a lot in the in in the future ahead so um we all know and and and we did a a a huge amount of work uh on um stagflation and what it does to your portfolio so so so that should should even further um improve the situation for gold yes you know you talked about the bond market or the uh and the equities market uh the fed is trapped because if they raise rates uh the uh the we can't the governments can't refinance


their debt and everything crashes and if they raise rates the stock market collapses if they don't raise rates the way they keep bonds down when nobody wants to take the risk to buy them is for the central banks to buy the bonds that the government is issuing so they have to buy more and more and more and when they do that it creates currency so it goes into this uh positive feedback loop of just uh ballooning the currency supply and creating enormous inflation eventually uh as soon as currency becomes a hot potato and


people don't want to and you know with inflation rates where they're at these savings accounts eventually will become a hot potato and i do see the possibility of them going in the inflation rates going into double digits then the fed really the the fed the ecb everybody the world's central banks really do have to raise their interest rates but if they raise their interest rates they crash the stock market and then you go into deflation yeah it's they are so trapped it's it's just


amazing there's nothing they can really do to get out of this but the individual can get prepared because these events in history that are generally bad for the majority of the people are very good for the people that are prepared so i want to tell everybody you know research this come to your own conclusions and get prepared i want to thank you so much ronnie for your time and uh we'll see you in the next edition thanks thanks see you soon mike