Economic Analysis: And Then Came Rapid Inflation

By Author: Michael
Total Articles: 23
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Here’s how the story plays out…
After a 25-year to 30-year leveraging period, as the credit crisis developed in 2008, a period of great deleveraging was born. Banks, which were once all too happy to lend money to people, some of whom should have never qualified for a loan in the first place, put in tough rules for businesses and consumers who wanted to borrow money.
Consumers, after years of negative savings, started saving money. During the later part of the “leveraging” years, the personal savings rate in America was negative…consumers spent more than they made. Today, in a period of deleveraging, the personal savings rate in America is five percent—a high not seen in years. And, despite interest rates at historical lows, corporate America remains cautious on investing. Instead of investing in plant, equipment, R&D, and people, or borrowing money to expand their businesses, corporate America has decided to sock its money away. About two trillion dollars today is sitting in the bank accounts of corporate America—a record amount.
In its desperate effort to spur economic growth to avoid another ...
... Great Depression, the government poured billions if not trillions into the economy and the Federal Reserve significantly increased the money supply as they bought securities issued by the government. Today, we have record debt at the government level and likely the largest money supply in American history.
While I know the great majority of economists are concerned with deflation as they compare our economy today to the Japanese lost decade of the 1990s, I’m on the opposite side. I’m very concerned about inflation.
There are two big differences between Japan and the U.S. after their economic crashes. The difference leads me to believe that we will not follow the path of Japan. In fact, we will take a different path and face inflation, not deflation.
After the Japanese economy collapsed, Japan’s central bank failed to do the one thing necessary to kick-start its economy: increase the money supply. In the 12 months following April 1992, when Japan was officially recognized to be in a severe recession, the broad money supply in Japan did not change. And only 10 years after the recession started did Japan begin any type of central bank quantitative easing, known as QE.
The U.S. Federal Reserve did the opposite. Once we were recognized to be in a recession in December of 2007, the Fed flooded the system with money. The Fed cranked up the printing presses and significantly increased the broad money supply. The Fed has already gone through two sets of QE.
There is a tremendous, actually unprecedented, amount of liquidity in the U.S. economy thanks…
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