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The money supply has exploded, but the velocity of money and the money multiplier are at multi-decade lows. As soon as the economy begins to pick up, velocity and fractional reserve lending (multiplier) will return to normal. That will be highly inflationary.


One plausible alternative scenario is a llloooonnnngggg Japan-like deflationary recession with zombie banks that don't lend and a government that can maintain ZIRP despite debt-to-GDP ratio > 100%.

But as soon as the GDP begins to expand and banks begin to lend inflation will explode. As Milton Friedman said, inflation is always due to the money supply. But the money supply has to be in consumer hands to cause consumer inflation. Currently, that's not happening. Real disposable income hasn't increased since 2010.

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