Does M1 include dollars held offshore? If not, the value of M1 will be increased dramatically when offshore dollars are “repatriated” through the buy out of domestic assets by foreign investors. The resulting price inflation with the “repatriated” dollars being spent domestically will be severe.

If M1 accurately includes all offshore dollars, then the current inflation prospects are quite mild. A rather prolonged recession becomes more likely rather than stagflation, which has been envisioned by some recently. The bottom line in this case is a reduced standard of living for the American populace because increased demand in the rest of the world will produce continuing inflation in dollar terms (further dollar devaluation).

Either scenario can be mitigated in the long run if American political and economic will focuses on how to increase U.S. productivity. One means of dramatically increasing U.S. productivity would be in the area of implementation of non-polluting energy technology on a large scale. An ever increasing amount of our resources are literally “going up in smoke”. Reducing this waste (not to mention the global polution), could be the salvation of the American economy after the next 5-10 years. Yes, those 5-10 years will be somewhat austere. They will also be austere if there is no energy revolution. The difference is that with the energy technolgy revolution, great expansion of American prosperity is revived in future years. Not taking action extends the austerity and decline many years into the future.

There are many areas of American life that need good public policy decisions: health care, education, etc. Addressing any or all of these will be compromised if enrgy policy is ignored.

It could be that M2 is overtaking M1 which tracks liquid money.