52 THE BiG DROP
tions or a change in behavior. That can happen very quickly,
and that’s why inflation is so dangerous. It might not show up
at all, and then, suddenly, it will come very quickly because
it’s very difficult to change the behavior. But, once you do,
it’s very difficult to change it back again. That’s why inflation
runs out of control.■ Four Trillion Dollars and Counting
Over the past five years the Federal Reserve has ballooned its
balance sheet above four trillion dollars. People say, “Well,
that’s got to cause inflation.” But it doesn’t automatically mean
inflation.
What it means is that you could have inflation. The po-
tential is there. Certainly, if the Fed hadn’t printed that much
money, the potential for inflation would be much lower.
But the money by itself is not enough. You need money
plus the change of behavior. You need something that’s going
to catalyze people’s behavior. Think of the money supply as
a big pile of dry wood or maybe a big drum of gasoline. The
behavior is the match — it’s the thing you throw in that lights
the fire — or, in this case, the hyperinflation.
We should absolutely be concerned about the money. The
problem is that because there has been no inflation thus far,
the Fed is going to keep printing.
We haven’t seen that much inflation yet. That’s a fact. Paul
Krugman sees that and says, “See. I told you. You can print all
the money you want and you don’t get inflation. So go print
some more.”
My answer is: That’s not quite correct. You can print all
the money you want and we haven’t had inflation. But that’s
only because the behavior hasn’t changed. Again, once the
behavior does change, two things happen. First, the inflation
can come very quickly, much more quickly than people expect.