Beware the monetary and fiscal misunderstandings that proliferate these days. The Calafia Beach Pundit (Scott Grannis
) notes that the huge increases in the M2 supply
that we saw in the late 2000s and early 2010s were not inflationary because the Fed was essentially converting notes and bonds into cash equivalents, which in turn was necessary to avoid a shortage of money. When the Fed adds money to match an increase in money demand, it is not inflationary; inflation only happens when the supply of money exceeds the demand for it.
Mr. Grannis now believes that we are in the early stages of a monetary policy mistake that the Fed is committing. Last year the Fed boosted M2 by over $4 trillion in response to the unprecedented, catastrophic and extremely costly shutdown of the US economy. He says, “that was fine then, but it’s not fine now.”