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virus inflation

Classic economics indicates that if you expand the monetary base, inflation soon follows.

Expanding the monetary base is the technical term for “printing money”. The Fed does this in many ways, such as buying bonds.

Another classic understanding of monetary base expansion is deficit spending by the government through a massive COVID relief package.

Therefore, there is a classic argument for significantly higher inflation going forward.

On the other hand, after the 2008 financial crunch during which there was also significant monetary base expansion, inflation didn’t follow.

What exactly happened isn’t settled (economic) science.

As recently as late last year we were talking about how central banks can’t account for around a quarter of the monetary base. Presumably, it’s under people’s mattresses.

The upshot of the financial crisis was a turn towards saving. And this is a pattern we’re seeing again this time around.

The Fed Banking on High...

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