As we indicated in Part 1, since the pre-crisis peak in Q4 2007, the Fed’s balance sheet has grown 16X faster than national income (GDP) mainly in pursuit of the will-o-wisp of 2.00% inflation.
So where did all the inflation implied by the yawning gap between soaring Fed credit and meandering GDP expansion actually go?
Let us repeat: It went into the most fantastic stock bubble in human history, and a resulting distortion in the distribution of national wealth that is not only unconscionable, but, more crucially, is threatening to unleash redistribute-the-wealth political forces like at no time since FDR raged against the “economic royalists” during the 1936 campaign.
Of course, that reference also bespeaks of a double irony. The economic royalists didn’t cause the Great Depression as FDR claimed, nor did a stingy Fed trigger a deflationary collapse as Milton Friedman and his worst acolyte, Ben Bernanke, falsely held.
Yet it is the diabolical work of the delusional anti-deflationists who man the nation’s monetary politburo today which threatens to bring back an anti-royalist campaign that would make even FDR envious.