Inflation: What You See and What You Don’t See

Mises Daily by Thorsten Polleit | Posted on 6/30/2009 12:00:00 AM
[An MP3 audio version of this article, read by Floy Lilley, is available as a free download.

In an attempt to fight the international credit market turmoil and its effects on economic activity and overall prices, the US Federal Reserve (Fed) keeps increasing the supply of base money — which is cash in circulation and commercial banks’ money balances held with the Fed.
From August 2008 to May 2009, the monetary base in the United States more than doubled. The bulk of the expansion reflects an unprecedented rise in banks’ excess reserves — that is, banks’ base money which is available for additional credit and money creation.