Similar to last week’s post, we’ll be asking if increases in the money supply lead to higher interest rates?
Let’s look at the money supply and 10-year interest rates in the five largest economies. First up: the US.
The Eurozone:
China:
Japan:
The UK:
The verdict: increases in the money supply do not necessarily lead to higher interest rates. In fact, the above data from the five largest economies during a period of unprecedented expansion in the monetary base shows zero evidence that increases in the money supply drives rates higher. Apologies to the self-described bond vigilantes and Tea Partiers for the cognitive dissonance.
