Screenshot via Bloomberg TV

Gary Shilling

 

The U.S. government shutdown and debt ceiling have brought uncertainty to the economy that is putting pressure on the Federal Reserve to further delaying the tapering, or gradual reduction, of its stimulative quantitative easing policy.

 

Economists and traders are struggling to figure out exactly when that taper may begin.

But economist Gary Shilling thinks that quibbling about the taper is small potatoes compared the much larger forces in the American monetary system.

Business Insider recently asked Shilling for what he considered to be the most important chart in the world.

And he sent us an eye-popper.

“Everybody is worrying about the Fed tapering, but this only concerns an initial small reduction in the $85 billion per month in securities and Fed purchases, most of it going into excess reserves," he told us. "These surplus reserves, the difference between required reserves and total, now total a gigantic $2.2 trillion and growing.

"When the economy resumes normal growth after the Age of Deleveraging is over, these excess reserves will spawn huge loans and money expansion, propelling the economy past full employment and into serious inflation. So the Fed's major job is to get rid of these excess reserves by selling securities. Tapering — i.e., adding more to this hoard — is just the start.”

 

shilling inflation

Business Insider / Gary Shilling