Bloated monetary base "is an incendiary pyre that will ignite as soon as U.S. money velocity returns to normal," Fed critics say

British bankers are taking new interest in the history of inflationary periods in Germany and other nations, says U.K. Telegraph financial writer Ambrose Evans-Pritchard.

"As they prepare for holiday reading in Tuscany, City [of London] bankers are buying up rare copies of an obscure book on the mechanics of Weimar inflation published in 1974. ...

"The crucial passage comes in Chapter 17 entitled 'Velocity.' Each big inflation - whether the early 1920s in Germany, or the Korean and Vietnam wars in the U.S. - starts with a passive expansion of the quantity money. This sits inert for a surprisingly long time. Asset prices may go up, but latent price inflation is disguised. The effect is much like lighter fuel on a camp fire before the match is struck. ...

"Some might smile at the Bank of England 'surprise' at the recent the jump in Brtiish inflation. Across the Atlantic, Fed critics say the rise in the U.S. monetary base from $871 billion to $2,024 billion in just two years is an incendiary pyre that will ignite as soon as U.S. money velocity returns to normal. ...

"There is a clear temptation for the West to extricate itself from the errors of the Greenspan asset bubble, the Brown credit bubble, and the EMU sovereign bubble by stealth default through inflation. But that is a danger for later years. First we have the deflation shock of [our] lives. Then - and only then - will central banks go too far and risk losing control over their printing experiment as velocity takes off. One problem at a time please."

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