Watch out for too much money15 Jun 2020 17:32
— and the return of boom and bust cycles...
Money is growing at record rates in peace time the US, at least by modern standards.
The quantity of money in the US (as measured by M3) rose by 7.5 per cent in April 2020. With further strong money growth in May, the annual rate of growth of money has shot up to a shocking 25.5 per cent.
America is not unique. Similar trends can be observed in other leading economies, although on nothing like the same scale.
And yet, despite these disturbing figures, US Federal Reserve chair Jerome Powell stated last week that the asset purchases programmes (i.e. quantitative easing) will continue “at least” at the current rate for the time being, and that the Fed Funds rate would remain at the current historically low level until 2022.
On top of this, the Fed has previously stated its willingness to support the federal government and buy its debt. Indeed, it has already started to do it in recent weeks. With the US federal government deficit expected to reach a record level in peace time (estimated around 15 per cent of GDP by the end of 2020), this means that the monetisation of the deficit by the Fed will create yet more money in the economy in the next few months.
It is very worrying that the Fed is paying no attention to the effects of such monetary financing of the deficit on inflation in the medium term, and seems to be totally disregarding the powerful message which the current extraordinary rate of growth of money in the US is sending out .
The rest of the world should be very concerned about the effects of the Fed’s policies over the next two to three years. In sharp contrast to the response during the global financial crisis of 2008, not only have both treasuries and central banks coordinated unprecedented economic stimulus policies to address the current crisis, but bank regulators have also significantly eased bank capital requirements.
https://www.cityam.com/watch-out-for-too-much-money-and-the-return-of-boom-and-bust-cycles/?utm_source=dlvr.it&utm_medium=twitter
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