One of the simplest explanations for inflation is too much money chasing too few goods. As Milton Friedman put it, “inflation is always and everywhere a monetary phenomenon.”
With this being the case, the Federal Reserve’s recent decision to begin another round of quantitative easing makes zero sense, considering that inflation is still above the Federal Reserve’s annual target of 2 percent.
While the Fed’s rate cut received all the headlines, the real story is that the central bank is going to expand its balance sheet again by buying huge amounts of Treasury bills.
Specifically, the Fed announced it will launch “reserve management purchases” of about $40 billion per month “on an ongoing basis.” In other words, the Fed is going to aid and abet the federal government’s deficit spending by “printing” about 40 billion of new money on a monthly basis for the foreseeable future.
Laughably, the Federal Reserve defended the decision to pump more money into the economy on the grounds that its reserve balances had declined to “ample levels.”
Let’s take a look at the Federal Reserve’s balance sheet to put this into perspective and historical context. As I write, the Fed’s balance sheet stands at $6.5 trillion. While this is a reduction from the all-time high of $8.9 trillion in mid-2022, it still absolutely dwarfs the 2007 total of about $900 billion.
Think about that. Before the 2008 financial crisis, the Fed’s balance sheet was less than $1 trillion. Since, it has more than quintupled.
If the Fed’s ballooning balance sheet does not convince you that the persistent inflation of the past several years is not due to the Fed’s asset purchases, perhaps a look at the money supply, which is controlled by the Federal Reserve, can shed some light on the situation.
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According to the Federal Reserve, as of October 2025, the M2 money supply hovered around $22.3 trillion. For comparison, on the eve of the pandemic, it was about $15 trillion. Before the 2008 debacle, it was less than half that amount. In 1990, it was barely north of $3 trillion.
The M1 money supply, which measures mostly liquid money, has increased even more spectacularly over the past few years. Before the pandemic, it was less than $4 trillion. As of October 2025, it has increased to more than $19 trillion.
As the Federal Reserve has run the printing presses and flooded the economy with more dollars, the purchasing power of the dollar has plummeted. Today, it is at the lowest level ever.
Unsurprisingly, as the purchasing power of the dollar has decreased for decades, the velocity of the M2 money stock has also declined precipitously.
Coincidentally, or not, as the Fed has increased its balance sheet and the money supply, the consumer price index for all items has skyrocketed.
Persistent inflation, like we’ve experienced in the United States for the past several years, is not just an economic issue. It is a societal scourge that sets the stage for upheaval and much worse.
Although the United States is not in hyperinflation mode yet, history shows that out-of-control inflation sparked by irresponsible currency debasement can lead to very dark times.
After World War I, Germany was in massive debt. So, it printed untold amounts of German marks. Eventually, the mark became worthless, the German economy imploded, and a little-known, radical politician named Adolf Hitler used the inflationary crisis to his advantage.
Hitler used societal frustration and disenchantment to cement power. He touted national socialism as the cure for the ailing German economy.
During World War II, in 1942, when Britain was on the brink, Hitler authorized Operation Bernhard. The plan, which never came to full fruition after Nazi forces became bogged down in Russia, was for the Luftwaffe to drop counterfeit British currency all over Britain, which Hitler believed would bring the British economy to its knees.
Fortunately, Hitler’s plan to unleash widespread chaos by dropping bundles of forged British currency from the sky failed. However, it serves as a lesson that currency debasement is a potent weapon.
Unbelievably, the Federal Reserve is waging war on hard-working Americans because it apparently fails to grasp that more money printing, via quantitative easing or reserve asset purchases, is driving the stubborn inflation that is killing the American dream and could lead to the rise of socialism in the United States.
Chris Talgo (ctalgo@heartland.org) is editorial director at The Heartland Institute.
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