I have seen this chart as well and think that it is problematic, but there is more to it than just the chart.

There is a difference between monetary base and the money supply. the reason for the explosion in the monetary base is in large part to cover the havoc caused by Mark to Market accounting for banking securities and to cover the uncertainty premium that this Administration has caused (banking stress tests with public disclosures, etc.).

I would be much more worried if the money supply had grown a similar amount, but the money supply spiked early in the crisis (the right move by the FED) and have since come back down, again I think a correct move given some of the inflationary indicators out there.

Bob McTeer spends a good amount of time discussing this here:

http://taxesandbudget-blog.ncpa.org/the-feds-balance-sheet-and-excess-bank-reserves/

My feeling on this crisis is that it was a disguised Bank Run caused by the government created boom in housing prices and the subsequent bust. That alone was not enough to trigger the huge banking crisis, however – for instance, if a pool of mortgages fails at a 20% rate (a huge, huge rate) that does not mean that the MBS is now worth 20% of it’s original value… that mess was caused, I believe, by a combination of Mark-to-Market accounting and a Bank Run type behaviour as a result of this mess as described by Gary Gorton and Eric Falkenstein.

http://falkenblog.blogspot.com/2009/05/gary-gorton-explains-crisis.html

What’s the upshot of all this? Well, in my opinion it means we are likely in for a fairly quick recovery (which seems to be happening now) as businesses and consumers recover from the panic and as inventories draw down to normal levels – causing businesses to go back to work. However all of the “Fixes” for this problem, notably the stimulus package, have long term bad implications that will keep the recovery shallow and create difficult decisions for the future.