The Hockey Stick Rise In M1 Is A Monetary Statistical Mirage

There is a risk of "Literal Printing", but QE is not that risk.

Huge Monetary Risk

Earlier today I posted a Q&A what if on QE: What Would Happen to Inflation If the Fed Announced $40 Trillion a Month in QE?

My conclusion was not even a further quadrillion in M1 via QE would matter.

I just added a couple of paragraphs to the post that are themselves worthy of a monetary spotlight update.

Please recall my August 18, 2020 post Bond Bull Lacy Hunt Warns of a Huge Monetary Risk (emphasis mine).

LH: When the Fed initiated QE1, QE2 and QE3, folks said those policies were very inflationary. There is a liquidity effect of what the Fed is doing, and the liquidity effect can be very powerful over the short term. But ultimately the increase in the money supply did not follow through after the rounds of Fed purchases of government securities because the banks couldn’t utilize the reserves

LH: The great risk is that we become dissatisfied with the way things are, and either de jure or de facto, the Federal Reserve’s liabilities are made legal tender. The Federal Reserve as it’s constituted today can lend but it cannot spend. Now, they’ve done some things that are different from what the Federal Reserve Act said under the exigent circumstances clauses, but so far they’re lending.

LHThere are folks who want to make the Fed’s liabilities legal tender. Now, if that happens, then the inflation rate would take off. However, in very short order, everyone would be totally miserable because no one would want to hold money. You would trigger Gresham’s Law — people would only want to hold commodities they can consume and commodities that can be traded for others. 

Statistical Mirage

What would happen if M1

Please read the rest of the above interview because it's very pertinent to the discussion.

Note that the QE-related M1 deposits are not legal tender. They cannot be spent or lent. Thus, they are not really money in the first place.

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