Today the most interesting view on money and credit growth comes from economist, Doug Noland of Prudent Bear who claims monetary expansion runs unabated. "With broad money supply (M3) expanding by $42 billion last week, it has now surged $210 billion during just the past 10 weeks….. This continues a monetary explosion that began during last year’s second half. Broad money supply has increased a staggering $713 billion since the end of June 2000 (42 weeks), an outrageous growth rate of 13%….. M2 money supply expanding at a 12.6% rate over the past three months…..

"It is my view that the Federal Reserve, by moving aggressively to sustain spending and financial market liquidity, is but perpetuating a momentous policy error and virtually ensuring financial dislocation in the future. Over the past few years, both the household and business sectors embarked on an historic borrowing and spending boom that created clearly unsustainable demand…..

"Amazingly, the Fed is quite open with its stated policy of stimulating greater borrowing and spending by the U.S. household sector that is already consuming at an unsustainable rate, with a significant negative savings rate fueling massive trade deficits. It is patently obvious that the precarious U.S. bubble economy is in desperate need of retrenchment, not its perpetuation. "

mr. Noland continues, "With current policy, the Fed is simply fighting a losing war with its extreme accommodation….. guaranteeing that already dangerous financial and economic distortions will only broaden….. And nowhere are dangerous monetary processes….. more apparent today than in the ever-expanding real estate bubble. Ignoring this bubble poses much greater systemic risk than the Fed’s disregard for the tech bubble….."

mr. Noland explains,"….. the Fed Chairman is now locked in what will be an increasingly desperate struggle to hold together one massive and increasingly fragile financial regime….. encompassing unprecedented leveraging by the likes of the government-sponsored enterprises, Wall Street firms, hedge funds and the ‘leveraged speculating community’….. "

mr. Noland instructs, "….. This has developed into an incredibly complex ‘managed liquidity’ monetary regime, based on a daisy chain of gross speculation, leverage, and a vast array of financial promises all wrapped in a quagmire of some very dubious premises and serious analytical flaws. Although such a system makes no common sense, its multitude of complexities and sophistication provide neat cover….. I have several times in the past compared this endeavor to John Law’s early 18th century experiment with managed paper ‘money’ that unleashed the fateful Mississippi Bubble in France…..

"Not unlike Law when his dysfunctional bubble began to falter, the Fed is clearly scared and increasingly desperate. They have every reason to be. Importantly, interest rates began to move sharply higher last week, especially in the vulnerable agency and mortgage-back area. Rising rates would be the kiss of death to an incredibly overleveraged system already buckling under the stress of a faltering equity bubble and enormous and mounting credit losses….. For the Greenspan Fed, it has come down to one simple (John Law-style) objective: at all costs, entice the speculative ‘Hot Money’ to remain in ‘The Game,’ while attempting to encourage enough additional financial sector leveraging to maintain general systemic liquidity….. The menace of illiquidity….. brings the harsh reality of faltering asset markets, collapsing leverage, unavoidable illiquidity, and a wrecking ball process of shattering confidence. The specter of illiquidity, as we have seen repeatedly, can be postponed through aggressive monetary management, but at the escalating cost associated with greater general credit excess, more dangerous financial system leveraging, and a bubble economy….."

mr. Noland tells us, "So, we are left today with the terrible reality that the Great Credit Bubble Monster has now firmly taken control of the entire process….. the unfolding crisis has at this point reached the critical stage where monetary policy has lost all flexibility….. Disregard any thought that the Fed is now focused on the economy. And please discard the notion that inflation risk any longer even enters into the picture. It clearly does not. Definitely rid yourself of any blind faith that the Fed is intent on protecting the long-term purchasing power of our currency. Indeed, monetary policy has now clearly embarked on a new, perilous path….."

mr. Noland asks, "where is the oversight today as this massive and unrelenting GSE/money market fund bubble creates a clear and present danger of financial catastrophe?" He continues, "This is clearly a process of reckless monetary inflation that has gone from being out of control to one that has now taken a decided turn for the worst."

mr. Noland explains, "In today’s parlous environment of acute financial instability, it is critical to recognize that this process of expanding leverage on top of leverage is so clearly a financial accident in the making….. Any significant move out of this complex pyramid of money market fund financial leveraging will lead to an abrupt systemic liquidity crisis….. This boundless availability of credit created by a seemingly insatiable appetite for securities from the leveraged speculating community….. provided the main source of fuel underpinning this aged boom….. a surge of liquidity from an enormous mortgage-refinancing boom has of late proved a critical factor in sustaining systemic liquidity (and consumer spending) in the face of collapsing technology shares and telecom debt."

He summarizes, "This is really an incredible set of interrelations, a truly historic edifice of financial credit and speculative excess….. And he concludes, "…..Viewing the current environment….. the enormous GSEs, money market funds and the ‘leveraged speculating community’ are quite dangerous indeed!’"