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Wednesday, June 29, 2011

Why Inflation May Explode When Business Revives

The Fed has stupendously expanded the monetary base.  When interest rates begin to rise and banks begin to lend to consumers and businesses, the monetary stock will balloon and consumer and producer prices will soar.

The alternative is the Fed’s draining trillions of dollars of excess reserves from the banking system, raising interest rates to such high levels that the economic recovery will be choked.

Read Robert Higgs’s explanation of the monetary base vs. the money stock.

See also Professor Higgs’s