late wrote:"But nothing like that has happened in the U.S., even during periods when monetary aggregates like M2 have increased dramatically. Anyone claiming that big increases in M2 presage surging inflation was wrong again and again since the 1980s. I mean really, really wrong" Krugman
See my post above for more.
"Spikes in inflation aren’t a new thing. There was huge inflation during World War I; there were bursts of inflation during World War II, after the war when price controls were lifted, and again during the Korean War. However, all of these inflation surges were brief. It wasn’t until the 1970s that we got an extended period of high inflation.
Why do I suspect that this time will be different? Mainly because the pandemic had weird economic effects, sharply depressing some activities while boosting others. And this probably means that we’re going to have a weird recovery too, with huge surges in things like travel, plus an unusual set of bottlenecks, like the global container shortage, resulting from the pandemic hangover.
This doesn’t mean that we should discount inflation risks entirely. It does mean that we’ll need to kick the tires on whatever inflation readings we get, and try, as objectively as possible, to figure out whether or not they’re actually reason for concern."
MMT is correct in the sense that the US can't bankrupt itself and can create money on demand. Historically inflation has been controlled by raising interest rates which might not be an option this time given there is an awful lot of businesses and people relying on low interest rates just to survive. In 2008 the money was already in the market given it was created by toxic loans and QE merely transferred the liability, you have just dumped 2tn into the market which you have never done before and we are currently seeing inflation rising. Why are you comparing times of yesteryear when they aren't the same? Today is very much like the 70s than anything post it, yet you mention the 80s onwards. Why? Because the 70s had double digit inflation and that upsets your narrative.