TITLE:
The US Money Explosion of 2020, Monetarism and Inflation: Plagued by History?
AUTHORS:
Richard C. K. Burdekin
KEYWORDS:
Monetary Policy, Coronavirus, Inflation, Monetarism, Spanish Flu, Plague
JOURNAL NAME:
Modern Economy,
Vol.11 No.11,
November
24,
2020
ABSTRACT: Although the Federal Reserve’s quantitative easing
of early 2020 was comparable in scale to 2008-2009, the implications for the
growth of money in circulation and future inflationary pressures appear quite
different. Absent the unprecedented surge in bank excess reserve ratios seen in
2008 and after, massive monetary base increases imply the possibility of a much
larger, and potentially worrisome, increase in the money in circulation. Rising
inflation expectations are implied by such phenomena as the surging demand for
Treasury Inflation Protected Securities and record highs for gold prices during
the summer of 2020. These trends lend some support to market participants
evincing concern that the surging money growth is, in fact, a precursor to
future inflation. Historical perspective on the 2020 situation is provided by
data from the time of the 1918-1919 Spanish flu and available documentation of
inflation following medieval and Roman-era pandemics. Indications of extra
upward pressure on prices arising from pent-up spending after the epidemic has
passed include the surge in bank loans in the aftermath of the 1918-1919
Spanish Flu pandemic.