Doubling Your Monetary Base and Surviving: Some International Experience

Interesting paper:

http://research.stlouisfed.org/publications/review/10/11/Anderson.pdf

CONCLUSION
During the past two decades, large increases—
and decreases—in central bank balance sheets
have become a viable monetary policy tool. His -
torically, doubling or tripling a country’s monetary
base was a recipe for certain higher inflation.
Often such increases occurred only as part of a
failed fiscal policy or, perhaps, as part of a policy
to defend the exchange rate. Both economic
models and central bank experience during the
past two decades suggest that such changes are
useful policy tools if the public understands the
increase is temporary and if the central bank has
some credibility with respect to desiring a low,
stable rate of inflation. We find little increased
inflation impact from such expansions.
For monetary policy, our study suggests several
findings:
(i) A large increase in a nation’s balance sheet
over a short time can be stimulative.
(ii) The reasons for the action should be communicated.
Inflation expectations do not
move if households and firms understand
the reason(s) for policy actions so long as
the central bank can credibly commit to
unwinding the expansion when appropriate.
(iii) The type of assets purchased matters less
than the balance-sheet expansion.
(iv) When the crisis has passed, the balance
sheet should be unwound promptly.

 

My own view is that the Fed is not only unwilling to unwind, but is committed to more and more QE. There will be no end to it!

If that's the case, then the US will almost certainly experience hyperinflation.

 

If you want to use that term -- "hyperinflation" -- it might be well to define it. What does it mean to you? If it means temporary double digit inflation in the low teens, i'd agree with you. If it means run-a-way inflation as Argentina and post WWI Germany experienced, I would not agree.

According to shadowstats.com current inflation (their SGS number)in the US is near 5% and reached about 9% in late 2008.

 

Reformatted from above:

CONCLUSION
During the past two decades, large increases — and decreases — in central bank balance sheets have become a viable monetary policy tool. Historically, doubling or tripling a country’s monetary base was a recipe for certain higher inflation. Often such increases occurred only as part of a failed fiscal policy or, perhaps, as part of a policy to defend the exchange rate. Both economic models and central bank experience during the past two decades suggest that such changes are useful policy tools if the public understands the increase is temporary and if the central bank has some credibility with respect to desiring a low, stable rate of inflation. We find little increased inflation impact from such expansions. For monetary policy, our study suggests several findings:

(i) A large increase in a nation’s balance sheet over a short time can be stimulative.
(ii) The reasons for the action should be communicated. Inflation expectations do not move if households and firms understand the reason(s) for policy actions so long as the central bank can credibly commit to unwinding the expansion when appropriate.
(iii) The type of assets purchased matters less than the balance-sheet expansion.
(iv) When the crisis has passed, the balance sheet should be unwound promptly.