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John Hussman: Monetary Policy in 3-D

April 25, 2011
In this week’s market commentary, John Hussman illustrated the relationship between T-Bill yield, monetary base per unit of GDP, and change in monetary base per unit of GDP that occurred between 6-month periods.


His point as he repeated this week is that in order to achieve even a slightendogenousincrease in interest rates, the Fed will have to reduce the monetary base sharply. Alternatively, in order to offset the inflationary pressure from a slight exogenousincrease in interest rates, the Fed would be forced to respond with a sharp tightening in its balance sheet.

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