This article is the third and final (for now) instalment on our series related to the exponential speed at which money is being printed, enabled, to a large extent, by the demise of the Bretton Woods system. The US abandoned Bretton Woods in 1971 when it could no longer balance its budget deficit, owing to rapidly rising military spending for the Vietnam War. We wrote about this a couple of weeks ago. The resulting transition to a pure fiat money-based system — one backed by no real asset but only trust — released governments and central banks from the strictures of a gold standard.
For more than a decade, central banks — particularly the US Federal Reserve and European Central Bank — have responded to major crises with the same playbook: the creation of more and more liquidity and near-zero, even negative, interest rates. This is evidenced by the huge, and continuous, rise in broad money — defined as the most inclusive amount of money circulating in the economy — as a percentage of GDP, after the 2007/08 global financial crisis and, again, since the Covid-19 outbreak (see Chart 1).
