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Precious Metals
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General Market Commentary
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General Precious Metals
Trump and the Coming of Helicopter Money
Trump and the Coming of Helicopter Money
One of the great mysteries of the past eight years is why there has not been more consumer price inflation despite the fact that the Federal Reserve has printed over $3 trillion in new money.
Many economists hypothesizes that such money printing must prove inflationary, and many consumers assumed the same. The answer is that money printing by itself is not inflationary — it has to be combined with velocity (that’s the turnover, or rapid use, of money) in order to produce inflation.
Most of the money printed by the Fed was simply deposited with the Fed by the big banks in the form of excess reserves. That money was never borrowed or spent. Therefore, it never had the kind of velocity needed to produce price increases.
Another answer is that inflation occurred not in consumer prices but in asset and commodity prices. Bubbles in stocks, real estate and some commodities over the past eight years are a kind of “inflation” all by themselves.
Yet we may have reached a turning point where consumer price inflation is kicking in.
This is dangerous because it feeds on itself. Once inflation starts, individuals expect more. They start to change their behavior by borrowing and accelerating purchases. As expectations switch from deflation to inflation, it is difficult to switch them back again.
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