who could have ever predicted a 10% of gdp deficit, no growth a HUGE spike in money supply and 1.4% ten year tb??
Never in my wildest dreams did i believe this was possible, but no one should think hat this is sustainable.
Milton friedman always said, 24 months after the money supply spikes, we get inflation, but in some sense, none is on the horizon, or the ten year rate would not be 1.4%
“Milton friedman always said, 24 months after the money supply spikes, we get inflation, “
Don’t be fooled by an apparent increase in the money supply.
The money supply isn’t spiking when bank assets are collapsing. Bad debts are wiping out bank assets as fast as the Fed can shovel money back into the system by buying up troubled assets.
This Fed action is precisely what Friedman faulted Fed for failing to do in 1930. You’ll find that criticism in his Monetary History of the United States. In 1930 the Fed failed to act and bad debts wiped out a third of America’s banks taking with them a third of the money supply. Bernanke has been trying to avoid a repeat of this.
One other reason that inflation is missing is that the velocity of money is low.