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The reason why it is "controversial" is because people believe we did the same thing in 2010, and no inflation occurred. Very broadly this is true, M2 peaked a

The reason why it is "controversial" is because people believe we did the same thing in 2010, and no inflation occurred. Very broadly this is true, M2 peaked at 10% in 2008 and was 6% for most of the decade but the actual transmission of this into the real economy was impaired. So you have to actually understand how monetary policy is being transmitted. But what has just happened is evidence that this lesson wasn't learned because the view seemed to be that inflation is impossible...not that we need to look at transmission more carefully. M2 growth YoY is running at 25%, federal spending is clearly leaking into the money supply, on top of supply issues...it is going to be tricky to resolve fast (even if you don't consider the political pressure the Fed is clearly under, the willingness to trade inflation for lower unemployment...that is what this comes down to, can your politicians take the pain? It is very clear there is no capacity for pain in the US).

dustintrex 5y ago
In 2010, "quantitative easing" meant plowing a whole lot of money into various financial assets, which is a very different kettle of fish from giving people cash handouts.
- hogFeast 5y ago
  Yes, that is what I meant by the transmission (indeed, there was a huge difference between QE in 2010 and QE in 2014). There is also a huge difference in QE now, and 2010. Each time the structure changes and the impact on transmission changes (because the Fed had no idea how QE was supposed to work, and apparently still doesn't appear to know precisely). A key point is that QE in 2010 primarily worked through portfolio composition, not directly on money supply. Similarly, giving people cash handouts is not necessarily inflationary either (it happens all the time anyway, food stamps, unemployment benefits) because cash handouts don't necessarily increase the money supply. The issue is that transmission appears to have changed in a very subtle way (this isn't just occurring in the US either) where you have fiscal policy seeming to leak through to the money supply (something that a significant proportion of politicians think is impossible atm).

dustintrex 5y ago

In 2010, "quantitative easing" meant plowing a whole lot of money into various financial assets, which is a very different kettle of fish from giving people cash handouts.

hogFeast 5y ago
Yes, that is what I meant by the transmission (indeed, there was a huge difference between QE in 2010 and QE in 2014). There is also a huge difference in QE now, and 2010. Each time the structure changes and the impact on transmission changes (because the Fed had no idea how QE was supposed to work, and apparently still doesn't appear to know precisely). A key point is that QE in 2010 primarily worked through portfolio composition, not directly on money supply. Similarly, giving people cash handouts is not necessarily inflationary either (it happens all the time anyway, food stamps, unemployment benefits) because cash handouts don't necessarily increase the money supply. The issue is that transmission appears to have changed in a very subtle way (this isn't just occurring in the US either) where you have fiscal policy seeming to leak through to the money supply (something that a significant proportion of politicians think is impossible atm).