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16 10 reason recent increases in the money supply have not been too inflationary is that the velocity of money-- how fast it turns over relative to GDP--has fallen to historically low levels. If the velocity of money were to quickly normalize, inflation would accelerate, and would be very difficult to contain without pushing up long- term interest rates substantially. Inflationary expectations could become unanchored. Cost-push inflation could gain traction. That said, the immediate danger of rapidly accelerating inflation is low, but it is increasing. Recent rapid growth in lending to highly leveraged businesses is another risk to economic expansion. Corporate leverage is at historic highs. The ratio of non-financial corporate debt to GDP is 50 percent. The default risk is difficult to gauge, partially because a significant share of leveraged loans is held by the "shadow banking" sector, which includes small funds and finance companies. Defaults there could spill over into the formal finance sector and create a financial crisis. As long as long-term interest rates remain low, leveraged lending to businesses is very unlikely to trigger a recession. An unexpectedly large increase in interest rates, however, could trigger a recession. A related risk is the size of the junk corporate bond market. In addition to domestic risks, high levels of sovereign debt and trade tensions are two major geopolitical risks capable of triggering another. In 2022, the risk of a sovereign debt crisis will increase as central banks in developed economies begin to normalize monetary policies. Even if economic conditions do not justify tighter domestic monetary policies, these central banks must respond to tighter monetary policies. If not, developing countries will risk currency collapses and/or higher inflation. In developing countries, debts denominated in dollars or euros would become very difficult to service. A sovereign debt crisis that begins in developing economies could quickly spread to other financial markets and take down the U.S. economy. In regard to the trade war, we assume that the higher tariffs enacted in 2018-19 will remain in place and will be an economic headwind, but not trigger a U.S. recession. A major escalation of the trade war, however, could be fatal to the U.S. economic expansion. In all, there is a relatively low 20 percent risk that a U.S. recession begins before the end of 2022. Fortunately, downside risks (20 percent) are roughly balanced by upside risks (20 percent) that may make the economy to perform better than expected. Upside risks include: (1) Covid-19 becomes less virulent and/or vaccines become more effective; (2) consumers spend more of their savings than expected; (3) the labor force grows faster than expected due to the re-entry of older persons and caregivers who left the labor force during the pandemic; (4) the population and the labor force grow faster than expected due to higher immigration (e.g., refugees from Afghanistan); and (5) more federal economic stimulus is agreed upon than expected.