Incoming monetary news remains strong, supporting the expectation here of a V-shaped global economic recovery accompanied by buoyant markets and an inflationary pick-up in 2021-22.

Sceptics argue that monetary growth has been weakly correlated with inflation in recent decades while velocity is in secular decline.

With respect to the former, monetary growth shapes the medium-term inflation path not short-term movements. The trend decline in broad money growth in the 1980s / 1990s and subsequent stability laid the foundation for sustained low inflation in the 2000s. The current monetary upsurge is unrivalled since the 1970s. Statistical results based on the period of relative monetary stability are unlikely to be reliable.

Regarding the velocity decline, this reflects the diversion of money into asset markets, as explained by the “quantity theory of wealth”. Economic pessimists expecting the velocity downtrend to accelerate fail to recognise that this would imply an asset price boom.

Most countries have now released April monetary data (the UK is late, as usual). Six-month growth rates of “global” (i.e. G7 plus E7) real narrow and broad money are estimated to have risen further to 9.6% and 8.1% respectively (not annualised), surpassing highs reached before the post-GFC economic rebound – see first chart.

The global money measures extend back to the 1990s. The second chart shows G7-only nominal money growth data over a much longer period. Annual broad money growth of 13.6% in April was the strongest since 1976 while narrow money growth of 16.1% marked a post-WW2 high.

The monetary upsurge has been led by the US but growth has also sky-rocketed in Australia, Canada, Sweden, Brazil, Russia and Korea with smaller but still significant increases elsewhere – third and fourth charts.

Weekly data suggest that US annual broad money (M2+) growth will reach 25% in May. On the conservative assumption that the money stock remains static from May, growth in 2020 would average 19%, exceeding a prior peacetime peak of 17.5% in 1881 during the Gilded Age economic boom – fifth chart.

The consensus forecast of weak nominal GDP prospects would imply an unprecedented rupture of the money / nominal GDP growth relationship shown in the chart.