All eyes are turned on Greece. And for the life of me I cannot understand why. Greece is a tiny country and its debt, even if all of it goes unpaid, is not large compared with the size of the global economy.

The graph below, showing Corrected Money Supply from 2001 to March 2012 for the US, paints quite a different picture. It shows that US monetary expansion is at unprecedented levels, which can be explained only if US financial institutions have piled money into financial assets and pushed up their prices to unsustainable levels. The prices of these assets, since they are at unsustainable levels, have got to crash. J.P. Morgan's reported losses of $2 billion are only the tip of the iceberg. The coming crash will follow the same trajectory as the Great Depression, Japans's Lost Decade and the Great Recession. First prices will collapse in one or more financial asset markets. This will be followed by the collapse of some financial institutions and then by the economy. Of course it could happen that US financial institutions have created derivatives based on Greek or other financial assets, whose combined size is tens or hundreds of times bigger than the size of the underlying assets.

I hope that at least then the foolishness of judging the health of the economy by inflation will become apparent, although I have very dim hopes that this will happen.

Explanations of the above graph can be found in The General Theory of Money, my ebook which is available on Kindle.