@Wa. Ya I also follow that & my power bill.

Dan Ferris: The WSJ article under that headline makes the usual novice error of equating upward movements in the price of goods with inflation. Whether or not the prices of goods reflect the existence of inflation is a separate issue from whether there's inflation.

Read more:

http://www.thedailycrux....ent/4832/Dan_Ferris/eml

http://online.wsj.com/ar...26articleTabs%3Darticle

http://online.wsj.com/ar...26articleTabs%3Dcomments

The United States’ M3 money supply reportedly is plunging at an accelerating pace similar to that in 1929 to 1933, despite near-zero interest rates.

The M3 data — which include a broad range of bank accounts and are tracked by British and European experts for danger signs about the U.S. economy — began shrinking a year ago, London’s Daily Telegraph reported. That race has since picked up speed.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6 percent, the report said. The assets of institutional money market funds fell at a 37 percent rate, the sharpest drop ever.

"It’s frightening," Professor Tim Congdon, from International Monetary Research, told the newspaper.

"The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

Read more:

http://www.moneynews.com...ing/2010/05/27/id/360292

A history lesson may make the subject of Kenya’s money supply more interesting. In 1966 Kenya’s money supply was only 1.8 billion. By 1996, the money supply was 267.8 billion. So in 30 years the money supply grew by 266 billion. In the fiscal year from June 2009 to 2010 the money supply rose 26%, which is the highest rate of growth since 1992-4. This means that the money supply last year alone grew by 250 billion, a feat that once took over 30 year to accomplish. This also suggests that the future will be bigger than the present and this is somehow sustainable (the fallacy of modern economics).

The growth in the 3 money aggregates:- M1, M2 & M3 was 12%, 17% and 15% respectively by November 2009 (CBK usually sets a 15% target annual growth for M3). Roughly defined M1 measures currency in circulation plus demand deposits; M2 - money supplied by the Central Bank, Commercial Banks and NBFIs; M3 includes 1&2 and foreign currency deposits by residents. By December 2009 the policy loosened with liquidity sloshing around the Mart from the KenGen bond, reserve money jacked up aided by the CBR cut. By June 2010 growth in the three aggregates was 28%, 27% and 26%.

Despite the growth in M1 money stock there’s been no rising prices with CBK not expecting any threats from demand pull inflation. Could the reasons be the oil prices, food prices, improvement of the real economy, infrastructure spending resulting in higher productivity or are banks simply making money from M1 in ways that do not cause demand driven inflation. This money growth has enabled our govt to retain huge deficit spending and the only way this can be sustainable in terms of debt maturity is by CBK borrowing from the long end of the curve.

Analysts have said that highly liquid banks have been chasing the falling rates on short term govt paper but now that rates are climbing what might that mean in terms of the growth of future money stock. The CBK lowered the CBR to promote private sector lending and interesting only after the referendum passed has the value of currency outside banks gone up. On a consumer level a glance at Barclays’ H2 loan book suggested that household lending hadn’t recovered then.

So are consumers demanding more currency signaling a recovery in retail lending and will this create inflation in the future?

Interesting article on effects of US monetary policy. Are the scenarios in the article below being reflected in markets global, at least within the Kenya context. Are the Kenyan banks reacting the same way to policies being implemented by the CBK? An excerpt from the article.

As I've repeatedly stated, deflation is the arch nemesis of the financial sector and the Fed will do whatever it takes to avert it. Moreover, in order to address pension deficits, you need a rise in bond yields (lowers present value of future liabilities) and a rise in asset prices. In other words, you need a lot more days like Friday where stocks took off and bond yields backed up.

The Fed's policy has been geared towards the big banks and their big hedge fund clients. Reflate and inflate is the official policy. By borrowing at zero and investing in higher yielding Treasuries, banks lock in the spread, making instant profits which they then use to trade risk assets all around the world.

Is this policy succeeding? Yes and no. It's helping banks shore up their balance sheets and some elite hedge funds who thrive on volatility, but doing little to help the real economy which remains weak at this stage of the cycle.

Read more:

http://www.zerohedge.com...veryone+drops+to+zero%29

@hisah. I heard that Tyler (the founder) was actually involved in some illegal trades, so i guess he's got nothing to lose. But i agree with you, he has one of the best blogs ive seen. Debt monetization is going on all over the place including Kenya, though we're doing it a little differently. It's seems the only flexible way to finance a wide spending deficit. But apparently inflation is not a monetary phenomenon in Kenya