There Will Be (Hyper)Inflation

Commercial banks can be expected to put their excess reserves to use, because base-money balances do not yield any interest: banks need to generate income to be in a position to pay interest on their liabilities (demand, time and savings deposits, and debentures).

Extending loans is one option. However, in an economic environment of financially overstretched borrowers, banks might be hesitant to increase their loan exposure vis-à-vis households and firms. In fact, it might be increasingly difficult for banks to do so given that equity capital has become increasingly scarce and costly.

So commercial banks may wish to monetize government debt, as the latter does not require putting equity capital to use. The government then spends the additionally created money stock on politically expedient projects (unemployment benefits, infrastructure, defense, etc.), and the money stock in the hands of households and firms rises.

If, however, commercial banks decide to refrain from additional lending, and even call in loans falling due, the government may decide — as another drastic, but logically consequential step of interventionism — to nationalize the banking industry (or at least a great part of it). By doing so, it can make the banks increase the credit and money supply.

Alternatively, the central bank could print additional money, distributing it to households and firms as a transfer payment.

I can not recommend this article strong enough. It is a must read in today's monetary climate.