Forget Inflation

To paraphrase Winston Churchill, never have so many billions of dollars been pumped out by so many governments and central banks. But fears of inflation, shared by Germany and other countries, are simply not well founded.

MUNICH – To paraphrase Winston Churchill, never have so many billions of dollars been pumped out by so many governments and central banks. The United States government is pumping $789 billion into its economy, Europe $255 billion, and China $587 billion. The US Federal Reserve increased its stock of base money in 2008 by 97%, the European Central Bank by 37%. The Federal funds rate in the US is practically zero, and the European Central Bank’s main refinancing rate, already at an all-time low of 2%, will likely fall further in the coming months.

The Fed has given ordinary banks direct access to its credit facilities, and the ECB no longer rations the supply of base money, instead providing as much liquidity as banks demand. Since last October, Western countries’ rescue packages for banks have reached about $4.3 trillion.

Many now fear that these huge infusions of cash will make inflation inevitable. In Germany, which suffered from hyper-inflation in 1923, there is widespread fear that people will again lose their savings and need to start from scratch. Other countries share this concern, if to a lesser extent.

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