The US Money Explosion of 2020, Monetarism and Inflation: Plagued by History?

23 Pages Posted: 6 Nov 2020

See all articles by Richard C. K. Burdekin

Richard C. K. Burdekin

Claremont McKenna College - Robert Day School of Economics and Finance

Date Written: November 6, 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.

Keywords: monetary policy, coronavirus, inflation, monetarism, Spanish Flu, plague

JEL Classification: E65, N20, N23

Suggested Citation

Burdekin, Richard C. K., The US Money Explosion of 2020, Monetarism and Inflation: Plagued by History? (November 6, 2020). Modern Economy (forthcoming), Claremont McKenna College Robert Day School of Economics and Finance Research Paper No. 3726267, Available at SSRN: https://ssrn.com/abstract=3726267

Richard C. K. Burdekin (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth Street
Claremont, CA 91711
United States

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