A week or so ago I posted Two quality posts worth reading, regarding inflation and why the headless chooks of hyperinflation hype are, well, headless chooks.
Here is another great article,
Hyperinflation: Is it Coming?
Early on I thought the concern over the huge spike in bank reserves was limited to Peter Schiff and his crew. While they are passionate they aren’t really that big a part of the conversation.
However, I have heard more and more economists and policy folks worry out loud about the tons of cash on bank balance sheets and whether it could spark hyperinflation.
I believe those folks are unaware that the conduct of monetary policy changed in October 2008. The Fed moved away from a straight forward “minimum reserve system” to a new a “floor system”
The article then explains the differences in monetary policy conduct, pre Oct ’08, and now, post Oct. ’08. Very educational.
The article concludes:
Now yes, there are a lot of questions about the interest on reserves program and whether it cuts off an important channel of monetary policy. I don’t think so. Scott Sumner would disagree.
However, there is no particular reason to expect that “any day now” money will come flooding out of banks and create hyperinflation.
The system was redesigned to make banks keep a larger fraction of the money inside the vault.