Higher inflation is coming and it will hit bondholders

Financial Times/Jeremy Siegel

“However, there was a fundamental difference between what happened during the financial crisis and what is happening now. The money created by the Fed during the last financial crisis found its way into excess reserves in the banking system. Little of it was lent out to the private sector.”

USAGOLD note:  The thing that interested me about Siegel’s heads-up on inflation is identifying the bond market as its chief victim. He also explains why inflation did not develop during the money printing binge to address the 2008 crisis and why it could develop now. Siegel says this time around money printed, as the chart below shows, is finding its way into the money supply. Last year’s surge in the money supply “was the largest in 150 years.”

line chart showing the explosive growth in the money supply

Sources:  St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System

Repost from 1-19-2021

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