May 25, 2021. The U.S. money supply has increased – boy, has it ever! Over the past year, the broad measure of the money supply, M2, grew by 24.6%. Significant inflation is sure to follow.
During the last surge of inflation, in 1978, M2 grew only half as fast – 12%. The next year, 1979, inflation reached 13.4%. Two years after that, the rate on the bellwether 10-year Treasury Bonds soared to 15%.
With the money supply growing twice as fast this time around, the consequences could be worse. Inflation could be higher than 13.4%, and the interest rate on 10-year Treasuries, currently 1.6%, could reach higher than 15%. This would be quite a shock, would it not?
Americans are loaded with buying power. The enormous amounts of stimulus money the government continues to pass out will unleash a torrent of spending.
It’s not as though Mr. Biden is beefing up production to match the growth of money and reduce the inflation potential. No, he’s trying to suppress production. He’s re-imposing some of the regulations that throttled industry during the Obama Administration (and were reversed by Donald Trump). Biden is trying to reduce the use of oil and gas and substitute solar and wind energy, which won’t make a dent in world temperature, but are less reliable, less efficient, and more expensive. He’s paying out so much welfare that some workers are better off not returning to work. He wants to raise tax rates, slowing the economy all the more. Way to go, Joe. You’re making things worse across the board.
If interest rates rise far enough and stay high long enough, the interest cost on the national debt would become such a burden that the federal government would have no alternative but to default on at least some of its debt. Treasury securities are owned throughout the economy by banks, insurance companies, financial companies, corporations, foreign governments, not to mention, individual Americans. Some of those billions of securities wouldn’t be paid.
Treasury securities are supposed to be riskless, right? Surprise, surprise!
