Applying the theory to the USA in the early 2020s

Tim Congdon ()

Chapter 7 in Money and Inflation at the Time of Covid, 2025, pp 193-208 from Edward Elgar Publishing

Abstract: The argument of the book so far has been that a broadly defined measure of money is the vital one in macroeconomic analysis, while broad money – which is dominated by bank deposits – reflects banks’ credit extension. Chapter 7 applies this understanding to the US economy in the early 2020s. Announcements in March and April 2020 implied credit extension by the banks, mostly to the US government, equivalent to over 30 per cent of M3 broad money in about two years and implying an annual rate of increase that might be over 15 per cent in one of these two years. Given that real national output had a trend annual growth rate of at most 3 per cent, the disparity between the growth rates of broad money and trend real output could be resolved only by a large increase in inflation.

Keywords: Money growth rule; Federal deficit; Medical emergency; Credit lines; Fed asset purchases; Double-digit inflation (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035328963
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