(Click here to see image: http://s.wsj.net/public/resources/images/ED-AJ638A_laffe_NS_20090609175213.gif)

This shows an explosion in America’s monetary base on an unprecedented level. According to Laffer, a former economic advisor to President Reagan and supply-side economist:

The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10. It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless…

To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5%…

This is bad news for America’s earners and savers. And good news for America’s debtors. That’s because inflation at this level would reduce the value of Americans’ savings and investments at the same time as it would reduce the value of the debt owed by America’s spenders and borrowers.

In a nutshell, this is why we believe that inflation will sooner or later win the day in the epic battle currently being fought between the forces of deflation (credit deleveraging, debt deflation, supply overhangs, higher personal savings rates, reduced consumer spending, etc) and the forces of inflation (record government spending and borrowing, Bush’s and Obama’s ‘stimulus’ programs, the Fed’s money printing, etc).

Inflation is simply the path of least resistance for Team Obama: it puts off America’s economic problems to a later date and favors spenders and debtors over earners and savers.

Without hesitating, the federal government has responded to the 2% drop annual drop in US GDP with a 100% increase in monetary base (the total quantity of currency in circulation outside of banks plus the currency held by banks or deposited with the Fed). As Porter put it last fall in DailyWealth:

The coming great inflation will destroy America’s economic leadership. It will lead – eventually – to the return of settling international obligations in gold instead of paper dollars. And this will happen much faster than anyone expects.

By the time Obama leaves office, you will not be able to exchange dollars for any sound currency in the world without permission from the US government. The price of gold will be well over $2,500 per ounce.

The big question for investors right now, says Porter, is: “How long will it be until this ocean of paper causes a severe decline in the dollar and a massive run-up in gold?” This from today’s DailyWealth:

We can’t know for certain. Nobody has seen anything like this, ever. But I believe it will take at least two years before the inflation that’s been put into the system starts to roil the real economy. (Of course, it might not take that long… oil prices have already nearly doubled from their lows.)

As I’ve said before, I’m not happy to be the one to tell you all of this. I hope I’m dead wrong. But, while I don’t believe we’re in immediate danger of inflation, it’s paramount you own some gold to protect yourself from what today’s chart shows.

The ‘big’ news yesterday was the Fed’s policy decision announcement. Of course, it wasn’t big news at all. The Fed’s June pep talk on the economy was the pretty much the same as its April one. Here’s what Peter Boockvar, equity strategist with Millar Tabak & Co, had to say about the news non-event (hat tip, The Big Picture):

The FOMC began with talk on the economy that was very similar to the April one. “The pace of economic contraction is slowing.” It followed with the caveats of constrained household spending due to job losses, lower housing wealth and tight credit and also referenced businesses cutting back on fixed investment and staffing and they believe the economy will be weak for a time. The main change came in the 2nd part when they mentioned the rise in commodity prices BUT they continue to hang their hat on the ‘output gap’ in giving them comfort that “inflation will remain subdued for some time.” The final part was identical to the April comments in saying the fed funds will be at an exceptionally low level for an extended period and maintaining their current QE plan. Traders were looking to see how the Fed was going to respond to the game of chicken with the bond market and the Fed somewhat turned their head and bonds are lower in response. Fed members can say they are not conducting the monetization of US debt as they couch it in helping the markets but it’s just semantics.