Much has been said about how developed governments have been deficit spending as if they’re at war since 2007-2009. And you might expect the story to be similar on the monetary side. After all, the central bank balance sheet expansions that we’ve seen over the past few years look unprecedented. The reality may surprise you. We’ve charted the change in notes in circulation over WWI below and included a chart of central balance sheet expansions over the past 5 years. As you’ll see, it’s clear that wartime monetary easing was way in excess of what we’re seeing today. The central banks that have expanded their balance sheets the most recently are at worst comparable to neutral countries in WWI. See for yourself below. It could be much worse…

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If you measure the laxness of a central bank by the magnitude of its balance sheet expansion then there’s been a clear winner in recent years: the Bank of England (which has quadrupled its balance sheet since mid-2008). This leaves the UK at risk of a huge expansion in the broad money supply if the fractional reserve banking machine were to get going again. This, however, could be some time away and is not the only mechanism in play. Here we’ll look at central bank balance sheet expansions in relation to government accounts. By the end of this piece you’ll have a good understanding of how addicted various governments are to the printing press.

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In the 1930s and 1940s the default of a developed country sovereign was not uncommon. This is really difficult for us to grasp (we would have to be 80 years old to have experienced it). So just to remind you of how possible sovereign defaults are, here we present a list of (external currency) soveriegn bonds that defaulted during the 1930s:

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