Richard Koo, Nomura Research chief economist also known as “Mr. Balance Sheet Recession” for popularizing the term a few years back, explains why it won’t be so easy for central banks to unwind their massive money printing efforts that began after the financial crisis.
He notes excess reserves in the U.S. banking system are sufficient to increase the money supply by 19 times and that this could lead to a 1900 percent inflation rate.
He makes a good point that central banks that have implemented QE will want to appear to be out in front of potential inflation threats, hence the reason why the Federal Reserve appears to have become a bit more hawkish lately despite little evidence of higher inflation.
For some reason, there are lots of stories in the financial news this morning about inflation, for example these selections from this morning’s links post a short time ago:
