The Impending Dollar Inflation
news coming from Stan Druckenmiller via Student Investment Fund Annual Meeting Keynote & also Steve Hanke via OMFIF
Money supply growth is feeding into economy and Powell’s position is wrong. Wednesday’s headline inflation figure of 4.2% shocked many. The average real GDP growth from 2010 to 2020 was 1.8% per year, the average growth in total money supply (M4) was 6.5% and the average change in the velocity of money was minus 2.5%. Using these values and the Fed’s inflation target, the golden growth rate for M4 is 6.3%.
The average growth rate of M4, which has been 6.5%, slightly overruns the golden growth rate of 6.3%. This has resulted in realized inflation of 1.7%, slightly below target. That the realized inflation rate is, however, a bit below the Fed’s target is not surprising when you recognize that prior to the explosion in the money supply in 2020, the average rate of growth of broad money was very modest from 2010-19. It averaged only 4%, rather than the 2010–20 average of 6.5%.
In response to the Covid-19 pandemic, the growth rate of M4 skyrocketed. By the end of 2020, it was growing at 28.9%, the highest year‐end rate since 1943. Today, it is still surging at 24%. That dramatically exceeds the golden growth rate, a growth rate that would be consistent with the Fed’s inflation target.
Armed with those numbers and the monetarist model for national income determination, it is obvious that April’s year‐over‐year consumer price index inflation rate of 4.2% is simply a harbinger of more to come.
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