Looking at the chart of M2 as a percent of GDP below, the spontaneous questions is..
- How can this NOT lead to inflation?
Furthermore, this chart does not include the latest $1.9 trillion that just started going out. When included, the ratio jumps to 98%, though because of accounting and time delay factors the number is more likely closer to 95% (I have already factored in a higher GDP for 2021).
Why isn't this keeping Fed and Treasury officials up at night? Well... I think it actually does, never mind what they say in public, because there are only three possible outcomes:
- The economy explodes upwards in unprecedented fashion and brings the ratio back to around 70%. But for this to happen nominal GDP would need to climb to $31 trillion, 40% higher from today's $22 trillion level. Mind you, that's to bring the ratio back just to 70%, which was already high by historical standards.
- There is an asset/debt collapse leading to mass bankruptcies, slashing debt and money supply (money=debt).
- Inflation jumps to levels unseen in decades.
Outcomes (1) and (3) are related since a spike in inflation would lead to higher interest rates, further expanding M2. Unless, of course, the Fed keeps interest rates artificially low - which is exactly where we are right now...
Pick your poison...