We’re All Inflation Hawks Now

The chart above tells this story. An extra $1 trillion has been created out of thin air. Nothing like this has ever happened in American history — not during WWII, not in the 1970s, and not in the aftermath of 9/11.

So why no Weimarian wheelbarrow stories? Because the money is stuck in the system. The Fed makes it and sends it to the banks. Meanwhile, the banks lend a little and keep the rest in their “vaults.” Why? They’re afraid to lend. And they’re afraid to lend because they still don’t know the rules.

Will a bank fail its next “stress test”? Will it be nationalized as a result, or dismantled in disgrace? Will there be perp walks for scapegoated bank CEOs? The bankers don’t know, and they don’t want to find out. So they’ve hoarded the money, watching their reserves and capital cushions rise far above official requirements. They’ve built a dam.

But what happens when the floodgates open? At some point the banks will have to release a river of liquidity. Consumers are demanding it, Congress is demanding it, and even President Obama is demanding it. (That last one may well be the clincher.)

via We’re All Inflation Hawks Now by Jerry Bowyer on National Review Online.

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