Hyperinflation and the Fed

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The Fed has been pumping billions of dollars of reserves into the banking system over the past few years. This hasn’t created any inflationary pressure yet, but monetary hawks worry that it will if the Fed waits too long to unwind its balance sheet. “You cannot afford to get behind the curve on reining in this extraordinary amount of liquidity because that will create an enormous inflation down the road,” said Alan Greenspan a couple of years ago.

Karl Smith agrees that this is an issue that needs to be taken seriously. At the same time, it’s also an issue that Ben Bernanke has the tools to address. “The Fed has complete power to slow the expansion of lending and hence the emergence of hyper-inflation,” says Karl, “and it doesn’t have to remove its reserve injections to make it happen.”

Click the link for the full explanation. It’s a little long, but very friendly. Basically, the Fed’s authority to pay interest on reserves is the hero of the story. But the bottom line is simple: hyperinflation just isn’t something to worry about, no matter how many gold bugs tell you otherwise.

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THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

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