ABSTRACT
The money supply has expanded in the last few years at a rate not seen since the Second World War. Even more extraordinary however is the shocking absence of corresponding economic boom. Whenever the money supply—High Power Money—is growing so much faster than real Gross Domestic Product (GDP) can grow, that stage is set for very rapid inflation. The first thing that leaps off the chart is the high variability of the growth rate of High Power Money. Raising taxes is deflationary because it forces the public either to scale back purchases or to dip into savings. The foreign public is frankly much more willing to hold into their dollars when the dollar is rising in value. Stagflation is the fate of any nation in times when its currency is falling in value faster than it can redress a structural trade deficit. The dollars that are now coming back into our economy have to ignite inflation.
