http://www.bloomberg.com/apps/news?pid=20601087&sid=a8v_AvouiIjQ&pos=9

What are you thoughts on this? Do you think that this will result in political deadlock and thus no passage of policy that could be beneficial to the nation when it needs it most? Or shall I say a failure of the democratic state to act (an extreme result)?

The monetary base is not only in a vertical ascent, but also without precedence. We have never seen anything like this. The monetary base is essentially the Federal Reserve Bank’s currency and reserves. Now, with an expansion like this you would think inflation would be rearing its ugly head, but as hedge fund manager John Paulson points out “that’s because this base money has not yet been lent out and multiplied throughout the economy. Yet the monetary base and money supply are highly correlated, “almost 1-to-1 between the two.”

So what does this mean? I think it means that soon or a later the money supply will follow, and if money supply grows faster than the economy, that will create inflation. I don’t know how you feel but it looks to me to be practically impossible that the economy could outgrow that hideous spike in the monetary base over the last several years.