Mind on Money: renewed attention to inflation | F. Marc Ruiz: Your mind on money


My professional opinion is that the Federal Reserve has been able to aggressively expand the money supply in the economy not only because of the disinflationary forces of the 2008-2009 financial crisis, but also because of the trend to globalization, which tends to reduce the workforce. and production costs, as well as some demographic trends in Western countries, as the baby boom generation spent less as they got older until retirement, and the huge millennial generation had not yet entered its period. maximum income. These three trends put together gave the Fed a lot of leeway to create and integrate new currency into the economy without causing an overall increase in prices, i.e. inflation.

Then came COVID, which in many ways looked like a combination of both a natural disaster and a public policy crisis. On the natural disaster side, the COVID crisis has been swift, deep and temporary, much like a hurricane or an earthquake. On the public policy side, governments have forcibly reduced economic activity to control the virus, in effect creating political calamity, similar to a major war or a lasting shutdown of the government budget.

The Fed, having learned the lessons of the 2008-2009 period and the lack of inflation over the past decade, felt comfortable pumping an unprecedented amount of new money into the economy by through banks and markets, and the federal government, also having learned from its perceived policy failures of 2008-2009, have also jumped on the bandwagon, providing direct payments to businesses, utility agencies and households. Put simply, a lot of money distributed in a lot of ways to a lot of people.


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