M2 Money supply growing at 28.4%

[bizaro86]

Think of it like this

 

You magically get the Fed’s money printing press (well computer these days) and print yourself 10tn real dollars, i.e. there is no dispute that they are real valid can be spent etc.

 

Does that cause inflation? No, not as usually defined. It will only drive up the price level if

A - you start spending them on stuff (and ideally faster than stuff can be supplied) or

B - People think you are going to spend them and start raising / paying higher prices in anticipation.

 

Same thing here, just putting newly created money into fed reserves for the banks doesn’t create inflation as long as people don’t adjust their expectations or the money actually does go start cycling in the economy. What does that mean? The banks would have to convert those reserves into loans to customers, who then spend the money. So far it seems they only have loaned to financial investors and thus financial assets have inflated... and the public has not (yet?) begun to believe that prices might rise.

 

(There’s a technical point in the above in that you can argue that the creation of these new dollars alone makes all existing dollars worth less in terms of real goods ... a bit like it used to be when the dollar was pegged to gold - then it was more obvious as the quantity of money was (nearly) fixed. ... it just seems that people generally don’t think about it as an exchange of two things anymore and so have not adjusted their price expectations).

 

What Wabuffo and Hunt are also saying, I think, is that if the fed liabilities become legal tender, the. All bets are off, because at the moment the money being printed basically just turns extant debt from one form (government treasuries) into another (fed deposits). That shortens the maturity and should push banks to seek higher yields on these assets.

 

That makes sense - thanks!

 

Does increasing bank reserves increase the banks capacity to lend? I suppose they would be limited by the amount of risk weighted assets their equity can support. In that case the Fed taking treasuries in exchange for fed deposits probably isn't inflationary, but the Fed taking junk bonds might be, as more equity would be required to support $1 in junk than $1 in fed deposits, meaning excess equity is available to support new loans.

 

If that's true, then is the limit on money supply in the real economy bank equity?

[DooDiligence]

Seems to me that money supply would be a reaction to inflation.

 

Tight labor, plus supplies of desirable products not meeting demand = higher prices.

More money is needed to support the increased value cost of everything.

 

There's no problem with supplies of most commoditized inputs,

and no shortage of labor and the ability to shop for both, worldwide.

 

ATM, there does seem to be a shortage of finished goods in many categories (example: WalMart shelves), but that's more a result of business shut downs or limits in their operations due to the pandemic.

 

I'm not very well versed on Fed / Treasury operations & it all seems a bit odd but I get that its purpose is to ensure clearance of payments in our system. So as long as there are no liquidity problems?

[wabuffo]

<bizaro86>

I'd like to invert this with a question (selfishly to aid my own understanding). What would cause inflation? We know inflation is possible because it has happened in the past.

 

<mattee2264>

Yeah I think large budget deficits accompanied by a recovery of private sector spending could do the trick with higher commodity prices and supply constraints adding some fuel to the fire.

 

I'm glad these accounting ledger views are helping folks visualize what's really happening with these different government payment flows.  So with that I want to show the three basic payment flows that we've been talking about:

1) The Federal Reserve buying a US Treasury bond in its open market purchases.  (it is not technically allowed to buy it directly from the US Treasury)

2) The US Treasury spends.  (because the US Treasury runs a perpetual deficit - it must spend more than it takes in via taxes.  But I could also focus on a tax payment too - flows would just reverse)

3) The US Treasury issuing a bond to the private sector.

 

Here's the key takeaway:  Only deficit spending (scenario #2) from the US Treasury actually creates new money (i.e., new net financial assets) for the private sector.  The other two flows leave the private sector with exactly the same net financial assets as it had before, it just changes the form of that financial asset composition. 

 

Ok - so if you've read this far.  Let's go through all the payment flows.  I'm going to expand the accounting ledger beyond the Fed and a bank (JP Morgan Chase) to add the US Treasury and an Individual/Business Account (which is a proxy for the private sector).  I'm consolidating the govt sector by combining the US Treasury and the Fed on one side (in blue) and the private sector (bank + individual/business) on the other side in green.  The key to focus on is the effect on the net financial assets of the Individual/Business sector.  Focus on which of these three flows increases the net financial assets - highlighted in yellow.

 

First up - the one payment flow we've already covered.  The Fed buys a Treasury Bond.  In this case, I've made a change.  I've had the US Treasury Bond originate from an Individual/Business through a Bank to the Fed.  Before we just had the Bank dealing with the Fed directly.  [click on drawing for full screen viewing]

I'm not going to go over this one because we've been over it.  Notice though that this payment flow does not increase individual/business net assets.

 

Next up - the US Treasury deficit spends.  Here the US Treasury issues $10m in CARES Act checks (for example).  The Treasury tells the Fed to issue a payment order and the Fed moves electronic deposits from the Treasury's reserve account to JPM's reserve account.  This creates both a reserve asset and a bank deposit liability for JPM.  But for the private sector - this is a new net financial asset.  Therefore US Treasury deficit spending creates "new money" for the private sector and increases the private sector's net asset values (in terms of the "government's money".

 

Finally - the US Treasury issues a bond.  Here the private sector buys a bond from the US Treasury. Notice again - that this is an asset swap.  The private sector does not see an increase in its net financial assets.  It's balance sheet stays the same as before buying the bond - it just changes the asset mix.

 

A long-winded way to answer the question is that the only thing that increases money, banking deposits, net financial assets in the hands of the private sector is US Treasury deficit spending.  Everyone worries about the Fed, the banks, lending - but all of the real action is here.  This is what one needs to pay attention to.  The Fed and the banks are just intermediaries that manage the payment flows through the payment systems.

 

I'll just add another comment.  File this under = advanced topics.  Compare Payment Flows 2 and 3.  Notice how the act of US Treasury Spending creates an equal in size reserve balance for JP Morgan?  Notice how after issuing a Treasury bond, the bond relieves JP Morgan of that large reserve balance even as it maintains the increase in net financial assets for the private sector? (ie, the bank deposit asset is changed into a Treasury bond asset for the Individual/Business sector).  This is why we say that Federal Government Debt issuance isn't really borrowing - its a reserve maintenance function.  This means that if not for the borrowing, US Treasury spending would create unwanted and large reserve balances in the US commercial banking sector.  This is why one can't think of a sovereign borrowing in its own currency as simply borrowing the way we think of it for individuals, businesses, local and state governments that don't create fiat currency.  Federal borrowing serves a different function than funding the government. 

 

I know this last point can be confusing.  It is made confusing by the rules that the Congress puts in place to make it look like the government must tax or borrow to fund spending:

- the US Treasury cannot run an overdraft at its general account at the Federal Reserve (i.e., no negative balance),

- the US Treasury cannot borrow beyond an absolute level (ie "the debt ceiling")

- the US Treasury must issue its bonds to the public (and not the Fed).

- the Fed must buy its Treasury bonds in the open market.

Its important to note that these are all political constraints, and not economic ones.  The only economic constraint is that the private sector must want and need the Federal government's money.  This need is not created by legal tender laws or contracts.  It is created by the tax obligations that the Federal government imposes on the private sector and then mandating that these tax obligations can only be extinguished by using the Federal government's money.

 

Hope this helps and I just haven't confused everyone with my ramblings.  I'm still learning this stuff myself.

 

wabuffo

[LearningMachine]

Thanks wabuffo for sharing your thoughts and the diagrams.

 

Are you saying that each bank has two types of accounts with the Federal Reserve: (1) that they cannot withdraw from because it is funded by asset sales to the Fed, and (2) that they can withdraw because they funded it voluntarily with customers' cash?

 

Here is an excerpt from a Bank of America earnings call, where they are saying that they have a choice on what to do with incoming cash from customer deposits to either (a) park incoming cash from customer deposits at 10 bps with the Fed Reserve or (b) buy securities.  Are you saying that if they pick (a), they cannot take that cash out to start funding riskier loans later?

 

We've added $284 billion in deposits since year-end. All of that has gone into cash earning 10 basis points. So as we assess the future of this pandemic, as we kind of assess how much of that is going to stick around and we get a little bit more confident on the -- on those two elements that can be deployed into securities or a portion of it, let's say, can be deployed into securities.

 

And that's -- there's a big difference even in these rates between what you can earn on a mortgage-backed security or a treasury bond and 10 basis points. So there's some opportunity there but it has to -- I think we're going to be thoughtful about it and it's one of those things I think you know when you see it. Source: https://seekingalpha.com/article/4358922-bank-of-america-corporation-bac-ceo-brian-moynihan-on-q2-2020-results-earnings-call?part=single

 

Federal reserve interest rate of 10 bps to banks on required and excess reserves: https://www.federalreserve.gov/monetarypolicy/reqresbalances.htm

 

[wabuffo]

Are you saying that each bank has two types of accounts with the Federal Reserve: (1) that they cannot withdraw from because it is funded by asset sales to the Fed, and (2) that they can withdraw because they funded it voluntarily with customers' cash?

 

No there is only one account at the Fed - a reserve account.  Banks also hold a tiny amount of cash outside the Federal Reserve.  They also have vault cash (actual hard currency).

 

Let's look at the data as at Weds Dec. 23, 2020 as an example.  We'll look at this from both sides of the mirror:

- first from the Federal Reserve's balance sheet (Federal Reserve H.4.1 report), and then

- from the collective balance sheet of all US commercial banks (Federal Reserve H.8 report)  [as always - click on the image to expand it for full-screen viewing]

 

First - let's go to the Federal Reserve's balance sheet (the liability side):

 

Bank reserves are a liability of the Fed.  From this snapshot taken on Weds. Dec. 23, 2020 - total bank reserves for the entire US commercial banking sector on deposit at the Fed were $3.177 trillion.

 

Now let's go to the mirror image of this liability and look at the collective balance sheet of the US commercial banking sector's asset side that matches this Fed liability.  We can find this in the Federal Reserve's H.8 report

We can see here that total cash assets across the entire banking sector were $3.240 trillion.  Why the difference?  Because on the bank balance sheet all cash is consolidated from an accounting perspective and doesn't distinguish between what is at the Fed and what is held by banks themselves or in their vaults.

 

Thus $3.240 - $3.177 trillion = $63 billion held by banks outside of the Fed reserve accounts.  As expected banks on their own want to hold very little cash.  Thus 98% of what banks classify as cash on their GAAP balance sheets actually is frozen at the Fed.  The $3.177 trillion is there simply because of actions by the Fed (and US Treasury).

 

Here is an excerpt from a Bank of America earnings call, where they are saying that they have a choice on what to do with incoming cash from customer deposits to either (a) park incoming cash from customer deposits at 10 bps with the Fed Reserve or (b) buy securities.  Are you saying that if they pick (a), they cannot take that cash out to start funding riskier loans later?

 

Ok - I can see where this gets confusing and BofA is not helping with their description of what's happening here.  First of all customer deposits are not an asset of BofA - they are a liability (unlike reserve balances which are an asset for BofA).  So you can't mix the two, right?

 

Second - ask yourself where does the growth in total US commercial banking deposits come from?  You might say "saving" or people or businesses "depositing their money" - but actually these transactions move deposits around from bank to bank but don't actually increase total deposits for the entire banking sector. If you get paid by your employer - your deposits at the bank go up but deposits at your employer go down by an equal amount (and total deposits for the entire banking sector don't change).  Its only when you pay taxes to the IRS or get a stimulus check from the US Treasury do total deposit balances for the entire banking sector change.

 

Go back to this payment flow (US Treasury deficit spending) and think about what was happening in 2020.

 

The lion share of net, new bank deposits are created out of the blue from US Treasury spending.  And as we can see from the flowchart (substitute BofA for JPM visually here), this spending creates BOTH A RESERVE ASSET for BofA and a BANK DEPOSIT.  So when BofA is saying they've added billions in new deposits since year-end, most of those are via US Treasury spending (though some could be a net increase from transfers of deposits from other banks).  But most of that deposit increase was accompanied by a reserve account increase too.  BofA didn't "deposit cash at the Fed, the US Treasury did" and it stays locked there.  In addition, to the extent that BofA saw a net increase in transfers of deposits from other banks, those deposits, too, were accompanied on the asset side of BofA's balance sheet with a reserve transfer from those other banks. Again those reserves can't leave the Fed's payment and reserve account systems, they can only circulate between reserve accounts as payments/transfers get cleared.

 

If you are interested you can pull BofA's regulatory Call reports at the FFIEC and there you will see a breakdown of BofA's cash assets between what's actually held at the Fed in reserve accounts.

 

Hope this helps.

 

wabuffo

[LearningMachine]

Again those reserves can't leave the Fed's payment and reserve account systems, they can only circulate between reserve accounts as payments/transfers get cleared.

 

Thanks wabuffo, looks like you are saying that think of the Fed Reserve as the county Recorder's Office, which keeps a record of who owns each property.  Any transfers of property that happen in the economy just translate into a recording of what moved, the grantor and grantee. 

 

Similarly, the Federal Reserve keeps a record of which bank owns the cash.  Any money transfers that happen in the economy just translate into a recording at the Federal Reserve that it moved from Bank A's account to Bank B's account.

 

Do I understand you correctly?

[wabuffo]

Do I understand you correctly?

 

I think so.  Just remember you must always think in terms of debits and credits.  If there is a flow, you must think in terms of both assets and liabilities.  If there is a flow of deposits into a bank (a liability), there must also be a corresponding asset.  You have to ask yourself what is that asset (or it could be the addition of a liability and the reduction of another liability).

 

The reason why this is all confusing is because most people don't think this way.  So even economists make ridiculous statements sometimes on CNBC and elsewhere.

 

wabuffo

[Thrifty3000]

<bizaro86>

I'd like to invert this with a question (selfishly to aid my own understanding). What would cause inflation? We know inflation is possible because it has happened in the past.

 

<mattee2264>

Yeah I think large budget deficits accompanied by a recovery of private sector spending could do the trick with higher commodity prices and supply constraints adding some fuel to the fire.

 

I'm glad these accounting ledger views are helping folks visualize what's really happening with these different government payment flows.  So with that I want to show the three basic payment flows that we've been talking about:

1) The Federal Reserve buying a US Treasury bond in its open market purchases.  (it is not technically allowed to buy it directly from the US Treasury)

2) The US Treasury spends.  (because the US Treasury runs a perpetual deficit - it must spend more than it takes in via taxes.  But I could also focus on a tax payment too - flows would just reverse)

3) The US Treasury issuing a bond to the private sector.

 

Here's the key takeaway:  Only deficit spending (scenario #2) from the US Treasury actually creates new money (i.e., new net financial assets) for the private sector.  The other two flows leave the private sector with exactly the same net financial assets as it had before, it just changes the form of that financial asset composition. 

 

Ok - so if you've read this far.  Let's go through all the payment flows.  I'm going to expand the accounting ledger beyond the Fed and a bank (JP Morgan Chase) to add the US Treasury and an Individual/Business Account (which is a proxy for the private sector).  I'm consolidating the govt sector by combining the US Treasury and the Fed on one side (in blue) and the private sector (bank + individual/business) on the other side in green.  The key to focus on is the effect on the net financial assets of the Individual/Business sector.  Focus on which of these three flows increases the net financial assets - highlighted in yellow.

 

First up - the one payment flow we've already covered.  The Fed buys a Treasury Bond.  In this case, I've made a change.  I've had the US Treasury Bond originate from an Individual/Business through a Bank to the Fed.  Before we just had the Bank dealing with the Fed directly.  [click on drawing for full screen viewing]

I'm not going to go over this one because we've been over it.  Notice though that this payment flow does not increase individual/business net assets.

 

Next up - the US Treasury deficit spends.  Here the US Treasury issues $10m in CARES Act checks (for example).  The Treasury tells the Fed to issue a payment order and the Fed moves electronic deposits from the Treasury's reserve account to JPM's reserve account.  This creates both a reserve asset and a bank deposit liability for JPM.  But for the private sector - this is a new net financial asset.  Therefore US Treasury deficit spending creates "new money" for the private sector and increases the private sector's net asset values (in terms of the "government's money".

 

Finally - the US Treasury issues a bond.  Here the private sector buys a bond from the US Treasury. Notice again - that this is an asset swap.  The private sector does not see an increase in its net financial assets.  It's balance sheet stays the same as before buying the bond - it just changes the asset mix.

 

A long-winded way to answer the question is that the only thing that increases money, banking deposits, net financial assets in the hands of the private sector is US Treasury deficit spending.  Everyone worries about the Fed, the banks, lending - but all of the real action is here.  This is what one needs to pay attention to.  The Fed and the banks are just intermediaries that manage the payment flows through the payment systems.

 

I'll just add another comment.  File this under = advanced topics.  Compare Payment Flows 2 and 3.  Notice how the act of US Treasury Spending creates an equal in size reserve balance for JP Morgan?  Notice how after issuing a Treasury bond, the bond relieves JP Morgan of that large reserve balance even as it maintains the increase in net financial assets for the private sector? (ie, the bank deposit asset is changed into a Treasury bond asset for the Individual/Business sector).  This is why we say that Federal Government Debt issuance isn't really borrowing - its a reserve maintenance function.  This means that if not for the borrowing, US Treasury spending would create unwanted and large reserve balances in the US commercial banking sector.  This is why one can't think of a sovereign borrowing in its own currency as simply borrowing the way we think of it for individuals, businesses, local and state governments that don't create fiat currency.  Federal borrowing serves a different function than funding the government. 

 

I know this last point can be confusing.  It is made confusing by the rules that the Congress puts in place to make it look like the government must tax or borrow to fund spending:

- the US Treasury cannot run an overdraft at its general account at the Federal Reserve (i.e., no negative balance),

- the US Treasury cannot borrow beyond an absolute level (ie "the debt ceiling")

- the US Treasury must issue its bonds to the public (and not the Fed).

- the Fed must buy its Treasury bonds in the open market.

Its important to note that these are all political constraints, and not economic ones.  The only economic constraint is that the private sector must want and need the Federal government's money.  This need is not created by legal tender laws or contracts.  It is created by the tax obligations that the Federal government imposes on the private sector and then mandating that these tax obligations can only be extinguished by using the Federal government's money.

 

Hope this helps and I just haven't confused everyone with my ramblings.  I'm still learning this stuff myself.

 

wabuffo

 

wabuffo, thank you for a gracious, thoughtful, beautiful explanation.

 

I'd like to first mention that a young guy named Nathan Tankus gained a lot of notoriety over the last year posting blogs explaining complexities of the financial system using the same kind of visual, T table-based, explanations you use. His fan base exploded when Bloomberg featured his blog in a story. You might like his posts: https://nathantankus.substack.com/

 

Also, just to be sure I'm correctly synthesizing the Hunt/Hoisington position with your explanation above, is it fair to say scenario 2 cannot legally happen independent of a corresponding tax receipt or treasury issuance? In other words, the government cannot legally create new private sector assets without taxing the private sector or increasing public sector debt to pay for those assets?

 

Thus, making the Hunt/Hoisington case that deficit spending is near term inflationary (6 to 18 months) due to temporary supply constraints, but longer term deflationary, because the additional public sector debt decreases prospects for longer term private sector productivity/growth (as the private sector will be on the hook for servicing the additional debt). I believe this has been the ongoing rationale for Hoisington's position in long term treasuries - that the global, central bank-driven, debt explosion of recent years is long term deflationary.

 

However, I believe in a recent newsletter Hoisington warned if the US congress legalizes scenario 2 above without requiring corresponding taxation/debt - aka legalizes true money printing - that all bets are off. Sounded like if that happened Hoisington would unload their long positions overnight, while expecting devastating, Weimar Republic-style, economic consequences (hence, the reason true US government money printing has been illegal thus far).

[wabuffo]

Thanks about that sub-stack. I've heard of him, haven't read his stuff (its behind a paywall, I think) - but have seen some of his interviews and think he is brilliant. 

 

Also, just to be sure I'm correctly synthesizing the Hunt/Hoisington position with your explanation above, is it fair to say scenario 2 cannot legally happen independent of a corresponding tax receipt or treasury issuance? In other words, the government cannot legally create new private sector assets without taxing the private sector or increasing public sector debt to pay for those assets?

 

Yes - but its because of a political constraint - ie the US Treasury cannot run its general account at the Fed with an overdraft (ie - negative balance). 

 

wabuffo

[LearningMachine]

Do I understand you correctly?

 

I think so.  Just remember you must always think in terms of debits and credits.  If there is a flow, you must think in terms of both assets and liabilities.  If there is a flow of deposits into a bank (a liability), there must also be a corresponding asset.  You have to ask yourself what is that asset (or it could be the addition of a liability and the reduction of another liability).

 

The reason why this is all confusing is because most people don't think this way.  So even economists make ridiculous statements sometimes on CNBC and elsewhere.

 

wabuffo

 

Thanks wabuffo for being gracious with your time in helping everyone reach a deeper understanding on this.

 

To help understand deeper your perspective, I wanted to go further with the analogy of Fed Reserve as the Recorder's Office, which keeps a record of who owns each property. 

 

Imagine there is an island nation in the Pacific Ocean.  The currency of that nation is developed sqft.  Anything can be bought and sold using those sqft. 

 

Any transfers of property containing developed sqft are recorded by the nation's Recorder's Office. 

 

We make sure not to get confused about assets and liabilities, i.e. who is the grantor and who is the grantee in a given recording.

 

Treasuries in this nation are long term contracts for delivery of developed sqft in the future.

 

Similar to our Federal Reserve, the Recorder's Office expands its role to also buy long term contracts for delivery of developed sqft in the future in return for developed sqft now.

 

However, nothing can leave the Recorder's Office, i.e. all recordings of developed sqft happen in the Recorder's office.

 

All developed sqft are locked into the Recorder's Office because you can only assign your developed sqft to someone else within the Recorder's Office.

 

Am I understanding you correctly so far?

 

 

[Cigarbutt]

Do I understand you correctly?

I think so.  Just remember you must always think in terms of debits and credits.  If there is a flow, you must think in terms of both assets and liabilities.  If there is a flow of deposits into a bank (a liability), there must also be a corresponding asset.  You have to ask yourself what is that asset (or it could be the addition of a liability and the reduction of another liability).

The reason why this is all confusing is because most people don't think this way.  So even economists make ridiculous statements sometimes on CNBC and elsewhere.

wabuffo

Thanks wabuffo for being gracious with your time in helping everyone reach a deeper understanding on this.

To help understand deeper your perspective, I wanted to go further with the analogy of Fed Reserve as the Recorder's Office, which keeps a record of who owns each property. 

...

Your idea of a closed-loop system is a good one especially for the loop related to the central bank's expanding balance sheet.

For the other loop (regular banks making loans and taking deposits), you have to think of it also as a closed loop (there is some hoarding and the international flows murk the issues) and you want to integrate a flow component (the velocity part). For the longest time, it was thought that money supply was strongly linked (or should be?) to underlying real economic activity and it seems this link has been breaking down (it is suggested by some that the elastic can be stretched much further, even to the MMT extent but that remains to be seen).

This is a fascinating topic with many layers and many perspectives but i wonder about the real value of the discussions although the interest may have nominal value under certain circumstances.

[LearningMachine]

Do I understand you correctly?

I think so.  Just remember you must always think in terms of debits and credits.  If there is a flow, you must think in terms of both assets and liabilities.  If there is a flow of deposits into a bank (a liability), there must also be a corresponding asset.  You have to ask yourself what is that asset (or it could be the addition of a liability and the reduction of another liability).

The reason why this is all confusing is because most people don't think this way.  So even economists make ridiculous statements sometimes on CNBC and elsewhere.

wabuffo

Thanks wabuffo for being gracious with your time in helping everyone reach a deeper understanding on this.

To help understand deeper your perspective, I wanted to go further with the analogy of Fed Reserve as the Recorder's Office, which keeps a record of who owns each property. 

...

Your idea of a closed-loop system is a good one especially for the loop related to the central bank's expanding balance sheet.

For the other loop (regular banks making loans and taking deposits), you have to think of it also as a closed loop (there is some hoarding and the international flows murk the issues) and you want to integrate a flow component (the velocity part). For the longest time, it was thought that money supply was strongly linked (or should be?) to underlying real economic activity and it seems this link has been breaking down (it is suggested by some that the elastic can be stretched much further, even to the MMT extent but that remains to be seen).

This is a fascinating topic with many layers and many perspectives but i wonder about the real value of the discussions although the interest may have nominal value under certain circumstances.

 

Thanks Cigarbutt, interest rate is the key reason why I'm interested in this topic.  I am of the opinion that a sudden inflation/interest rate tsunami will hit us and it will catch those who are unprepared by surprise just like it did in 1974.  If I can put a more accurate probability and time-range on that conviction, it will be very useful.

 

I've an insight to share based on my post above to wabuffo, but would like to see first if wabuffo or someone else can get to the same revelation without me having to say it as that will result in better collective understanding.

[Cigarbutt]

..., interest rate is the key reason why I'm interested in this topic.  I am of the opinion that a sudden inflation/interest rate tsunami will hit us and it will catch those who are unprepared by surprise just like it did in 1974.  If I can put a more accurate probability and time-range on that conviction, it will be very useful.

I've an insight to share based on my post above to wabuffo, but would like to see first if wabuffo or someone else can get to the same revelation without me having to say it as that will result in better collective understanding.

i'm basically clueless here but, historically, "sudden" inflation episodes have been preceded by years of inflationary build-up. And we're not in 1974 anymore.

If interested read what Mr. Bernanke described in 2003, the few paragraphs after "For illustration, I will emphasize the U.S. "Great Inflation," the experience of the late 1960s through the early 1980s."

https://www.federalreserve.gov/boarddocs/speeches/2003/20030203/default.htm

He then made some interesting observations about expectations and credibility.

 

And that's after some amount of monetary and fiscal stimulus for a virus where 99% of people survive.

[rkbabang]