02 March, 2009

The booming money supply

At the moment, money is being hoarded (especially by the banks).  That's a natural response, at the level of the individual and the firm, to a financial crisis of confidence.  But what happens if and when people begin to spend again?  Take a look at an indicator of the growth in the money supply:


Note the unprecedented spike in 2008 (which will continue through 2009).  Either there will be a lot of new, real, wealth to match the expansion of the money supply (which I consider unlikely), or we could see an inflation the likes of which we've never seen before.

I hope I'm wrong about this.  Where's my mistake?

St. Louis Fed: Series: AMBNS, St. Louis Adjusted Monetary Base

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