Until this past October the growth in the supply of the monetary base (i.e. M0) in the U.S. over the previous 48 years had averaged 6% year-over-year (YoY) and had seldom exceeded 10% although it did grow to 15.8% YoY during the pre-Y2K period. Indeed, during the first half of 2008 it was actually trending lower averaging 1.2% growth before all hell broke loose.

In October, however, as a result of a number of major fiscal developments, the Fed took it upon itself to solve the major problems with the economy by expanding the M0. To say they didn't act in half measure is putting it mildly - very mildly!

As Adam Hamilton reports in a recent article, and his chart below depicts, the Fed increased the M0 by 25% (36.7% YoY) in October to more than twice the level seen in the previous five decades; by a further 27% in November (73% YoY) and another 15% in December to 98.9% thereby doubling the U.S. monetary base in just 4 months. Such action was unprecedented and put the country into unchartered inflation territory. But it didn't stop there. In January the Fed increased the YoY monetary base to 106%, increased in yet again in February, and again in March, and again in April (the May numbers are not yet available) to an unbelievable YoY of 111.0%. That's right. 111% when the norm over the previous 48 years had been just 6%! Surely this monumental increase in America's M0 will have a majoraffect on real prices.

The monetary base numbers are shown in red above and their YoY growth rates in blue.

As consumer spending recovers and bids on now-depleted inventories rebound prices will also rise for pure supply and demand reasons says Hamilton maintaining that "we're probably facing a perfect storm of inflation." I couldn't agree more! As inflation becomes more obvious to the masses inflationary expectations will soar and investors will seek assets that thrive in inflationary times i.e. commodities in general and gold and silver in particular and their stocks and associated warrants.