- The expansion of the monetary base by the Fed and other central banks can be potentially inflationary.
- The historical relationship between the monetary base and the total money and quasi money in a given economy is governed by the money multiplier. Given that the US monetary base has exploded in the past year, we’d quickly experience hyperinflation if the money multiplier reverted to its historical average.
- I’m just not yet convinced it will. In Japan, the central bank doubled the monetary base from 2001 to 2003, but overall bank assets and deposits hardly budged, leaving overall money supply growth at low levels. Inflation never materialized, and the Bank of Japan reduced the monetary base back to sustainable levels in 2006…
