If Quantitative Easing Works, Why Has It Failed to Kick-Start Inflation?

George Washington's picture


Illustration by William Banzai

QE Has Failed to Spark Inflation

Quantitative easing (QE) was supposed to stimulate the economy and pull us out of deflation.

But the third round of quantitative easing (“QE3″) in the U.S. failed to raise inflation expectations.

And QE hasn’t worked in Japan, either. The Wall Street Journal noted in 2010:

Nearly a decade after Japan’s central bank first experimented with the policy, the country remains mired in deflation, a general decline in wages and prices that has crippled its economy.




The BOJ began doing quantitative easing in 2001. It had become clear that pushing interest rates down near zero for an extended period had failed to get the economy moving. After five years of gradually expanding its bond purchases, the bank dropped the effort in 2006.

At first, it appeared the program had succeeded in stabilizing the economy and halting the slide in prices. But deflation returned with a vengeance over the past two years, putting the Bank of Japan back on the spot.


So why didn’t quantitative easing work in Japan? Critics say the Japanese central bank wasn’t aggressive enough in launching and expanding its bond-buying program—then dropped it too soon.




Others say Japan simply waited too long to resort to the policy.

But Japan has since gone “all in” on staggering levels of quantitative easing … and yet is still mired in deflation.

The UK engaged in substantial QE. But inflation rates are falling there as well.

And China engaged in massive amounts of QE. But it’s also falling into deflation.

Indeed, despite massive QE by the U.S., Japan and China, there is now a worldwide risk of deflation.

So why hasn’t it worked?

Traders Weigh In

Financial commentator, trader, and inventor of high-frequency trading Max Keiser has argued for months that QE’s failure can be explained by the following 4 steps:

(1) QE throws easy cash at the zombie banks


(2) The big banks use the easy cash to speculate instead of becoming more stable … or lending out to Main Street


(3) The speculation and lack of lending decreases the vitality of the real (Main Street) economy


(4) This leads to deflation, rather than inflation

There’s some evidence that Keiser’s right.

Forecaster and trader Martin Armstrong writes today:

The evolution of the monetary system of Rome illustrates how empires rise. It also reflects that the dominant economy’s currency is ALWAYS used by surrounding nations. Consequently, history demonstrates WHY in fact QE1-3 failed to produce inflation for the dollars created were absorbed globally. Theories that only view the dollar from a domestic isolated perspective are incorrect and will always fail for that is not what history teaches us if we take the time to listen.

In other words, Armstrong argues that QE falsely assumes that printed money will stay in the national economy ... but printed dollars end up abroad. He explained earlier this week:

The expansion of the money supply of dollar has FAILED to produce any inflation BECAUSE the old theories have failed to take into consideration the global nature of the world economy and its demand for the currency of the current Financial Capital of the World.




The US cannot print enough money to meet the world demands.

There's some evidence that Armstrong is right.

Economists Weigh In

Neither Keiser nor Armstrong are trained economists.  But several high-powered economists have weighed in on the question.

Ed Yardeni – a former Federal Reserve economist who held positions at the Fed’s Board of Governors and the Treasury Department, who served as Chief Investment Strategist for Deutsche Bank, and was Chief Economist for C.J. Lawrence, Prudential Securities, and E.F. Hutton – notes that economists including Ben Bernanke have known for 20 years that there is no transmission mechanism by which QE stimulates the real economy.

The Telegraph noted in June:

The question is why the world economy cannot seem to shake off this “lowflation” malaise, even after QE on unprecedented scale by the US, Britain, Japan and in its own way Switzerland.




Narayana Kocherlakota, the Minneapolis Fed chief, suggested as far back as 2011 that zero rates and QE may perversely be the cause of deflation, not the cure that everybody thought. This caused consternation, and he quickly retreated.


Stephen Williamson, from the St Louis Fed, picked up the refrain last November in a paper entitled “Liquidity Premia and the Monetary Policy Trap”, arguing that that the Fed’s actions are pulling down the “liquidity premium” on government bonds (by buying so many). This in turn is pulling down inflation. The more the policy fails – he argues – the more the Fed doubles down, thinking it must do more. That too caused a storm.


The theme refuses to go away. India’s central bank chief, Raghuram Rajan, says QE is a beggar-thy-neighbour devaluation policy in thin disguise. The West’s QE caused a flood of hot capital into emerging markets hunting for yield, stoking destructive booms that these countries could not easily control. The result was an interest rate regime that was too lax for the world as a whole, leaving even more economies in a mess than before as they too have to cope with post-bubble hangovers.


The West ignored pleas for restraint at the time, then left these countries to fend for themselves. The lesson they have drawn is to tighten policy, hoard demand, hold down their currencies and keep building up foreign reserves as a safety buffer. The net effect is to perpetuate the “global savings glut” that has starved the world of demand, and that some say is the underlying of the cause of the long slump. “I fear that in a world with weak aggregate demand, we may be engaged in a futile competition for a greater share of it,” he said.


The Bank for International Settlements [the “central banks’ central bank”] says the world is suffering from addiction to stimulus. “The result is expansionary in the short run but contractionary over the longer term. As policy-makers respond asymmetrically over successive financial cycles, hardly tightening or even easing during booms and easing aggressively and persistently during busts, they run out of ammunition and entrench instability. Low rates, paradoxically, validate themselves,” it said.


Claudio Borio, the BIS’s chief economist, says this refusal to let the business cycle run its course and to purge bad debts is corrosive. The habit of turning on the liquidity spigot at the first hint of trouble leads to “time inconsistency”. It steals growth and prosperity from the future, and pulls the interest rate structure far below its (Wicksellian) natural rate. “The risk is that the global economy may be in a deceptively stable disequilibrium,” he said.


Mr Borio worries what will happen when the next downturn hits. “So far, institutional set-ups have proved remarkably resilient to the huge shock of the Great Financial Crisis and its tumultuous aftermath. But could (they) withstand yet another shock?” he said.


“There are troubling signs that globalisation may be in retreat. There is a risk of yet another epoch-defining and disruptive seismic shift in the underlying economic regimes. This would usher in an era of financial and trade protectionism. It has happened before, and it could happen again,” he said.

The Economist reported last year:

Is QE deflationary? Yes, quite obviously so. Consider:

  • A central bank that is deploying QE is almost certainly at the zero lower bound.
  • QE will only help get an economy off the zero lower bound if paired with a commitment to higher future inflation.
  • If a central bank is deploying QE over a long period of time, that means it has not paired QE with a commitment to higher future inflation.
  • Prolonged QE is effectively a signal that the central bank is unwilling commit to higher inflation.
  • QE therefore reinforces expectations that economic activity will run below potential and demand shocks will not be completely offset.
  • QE will be associated with a general disinflationary trend.

Don’t believe me? Here is a chart of 5-year breakevens since September of 2012, when the Fed began QE3, the first asset-purchase plan with no set end date:


(The article then goes onto say that QE can be deflationary or inflationary depending on what else the central bank is doing.)

Michala Marcussen – global head of economics at Société Générale – believes that QE may be deflationary in the long run because:

Excess capacity is deflationary and the means to deal with it is to shut it down. Indeed, we expect China [which also engaged in massive QE] for now to exert deflationary pressure on the global economy.




Unproductive investment is by nature ultimately deflationary. This is a point also worth recalling when investing in paper assets fuelled by QE liquidity and not underpinned by sustainable economic growth.

Prominent economist John Cochrane thinks he knows why. As he explained last year:

Here I graphed an interest rate rise from 0 to 5% (blue dash) and the possible equilibrium values for inflation (red). (I used ?=1 ?=1 ).


As you can see, it’s perfectly possible, despite the price-stickiness of the new-Keynesian Phillips curve, to see the super-neutral result, inflation rises instantly.




Obviously this is not the last word. But, it’s interesting how easy it is to get positive inflation out of an interest rate rise in this simple new-Keynesian model with price stickiness.


So, to sum up, the world is different. Lessons learned in the past do not necessarily apply to the interest on ample excess reserves world to which we are (I hope!) headed. The mechanisms that prescribe a negative response of inflation to interest rate increases are a lot more tenuous than you might have thought. Given the downward drift in inflation, it’s an idea that’s worth playing with.

Bloomberg noted in November:

Now, the Neo-Fisherites [including Minneapolis Fed President Narayana Kocherlakota] have been joined by a very heavy hitter — University of Chicago economist John Cochrane. In a new paper called “Monetary Policy with Interest on Reserves,” he explains a mechanism by which higher interest rates raise inflation. Unlike Williamson’s model, Cochrane’s model obtains a

Neo-Fisherian result without appealing to fiscal policy. In fact, he finds that in some cases, raising interest rates can even stimulate the economy in the short term! He concludes succinctly:

The basic logic is pretty simple: raising nominal interest rates either raises inflation or raises real interest rates. If it raises real interest rates, it must raise consumption growth. The prediction is only counterintuitive because for so long we have persuaded ourselves of the opposite[.]

Cochrane has a simple explanation of the model’s key predictions on his blog. He hypothesizes that now that the Fed pays interest on the reserves that banks hold with the Fed, monetary policy will be even more Neo-Fisherian — i.e., even more perverse.




Cochrane’s arguments are based on simple equations that are at the heart of most modern macroeconomic models. If the Neo-Fisherites are right, then everything the Fed has been doing to try to stimulate the economy isn’t just useless — it’s backward.


Now, the overwhelming majority of empirical studies tell us that QE, and Fed easing in general, tends to raise inflation in the short term. But what if that’s at the cost of lower inflation in the long term? Japan has been holding interest rates at zero for many years, and its economy has been in and out of deflation. Massive QE has noticeably failed to make the U.S. hit its 2 percent inflation target. What if mainstream macroeconomics has it all upside down, and prolonged periods of low interest rates trap us in a kind of secular stagnation that is totally different from the kind Harvard economist Larry Summers talks about?


It’s a disquieting thought.

One of the main architects of Japan’s QE program – Richard Koo – Chief Economist at the Nomura Research Institute – explains that QE helps in the short-run … but hurts the economy in the long run (via Business Insider):

Initially, long-term interest rates fall much more than they would in a country without such a policy, which means the subsequent economic recovery comes sooner (t1). But as the economy picks up, long-term rates rise sharply as local bond market participants fear the central bank will have to mop up all the excess reserves by unloading its holdings of long-term bonds.


Demand then falls in interest rate sensitive sectors such as automobiles and housing, causing the economy to slow and forcing the central bank to relax its policy stance. The economy heads towards recovery again, but as market participants refocus on the possibility of the central bank absorbing excess reserves, long-term rates surge in a repetitive cycle I have dubbed the QE “trap.”


In countries that do not engage in quantitative easing, meanwhile, the decline in long-term rates is more gradual, which delays the start of the recovery (t2). But since there is no need for the central bank to mop up large quantities of funds, everybody is no more relaxed once the recovery starts, and the rise in long-term rates is far more gradual. Once the economy starts to turn around, the pace of recovery is actually faster because interest rates are lower. This is illustrated in Figure 2.

costs of qe

Indeed, things which temporarily goose the economy in the short-run often kill it in the long-run … such as suppressing volatility.

Postscript: Quantitative easing fails in many other ways, as well …

The original inventor of QE – and the former long-term head of the Federal Reserve– say that QE has failed to help the economy. Numerous academic studies confirm this. And see this.

Economists also note that QE helps the rich … but hurts the little guy. QE is one of the main causes of inequality (and see this and this). And economists now admit that runaway inequality cripples the economy. So QE indirectly hurts the economy by fueling runaway inequality.

A high-level Federal Reserve official says QE is “the greatest backdoor Wall Street bailout of all time”. And the “Godfather” of Japan’s monetary policy admits that it “is a Ponzi game”.

Note: Financial experts have been debating since the start of the 2008 financial crisis whether inflation or deflation is the bigger risk. That debate is beyond the scope of this essay. However, it might not be either/or. We might instead have “MixedFlation” … inflation is some asset classes and deflation in others.

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besnook's picture

qe did create inflation in the things the benefactors of qe buy from niemanmarcus underwear to equities and real estate. the only way to create inflation is for cash to hit the streets. the fed really can't do that with a tapped put minsky economy with no capacity to borrow money but an executive ordered tax deduction for the first 50000 dollars of income for a family of 4 would put enough money on the street to create the desired inflation.

as far as low interest rates rffect on the economy, a zero interest rate makes a 3% return look pretty good. if interest rates were raised the activity at the lower bound would fold before new endeavors with a higher return could be launched making for another recession in the interim. the only way that works is if there is more money on the street.

the tax break is the key to a "normal" economy.

daveO's picture

Desired inflation=desired tax=desired bondage.

ItsDanger's picture

Inflation isn't being measured properly.  People are paying for more goods/services than they used to.  Debt is higher.  

blindman's picture

@"debt is higher."
consider, debt is "money". fiat federal, central bank, notes.
dead ender fiat by law. add it up it equals collusion of the private central
bank capturing "government", by law. that is fascism, period.
good day sir.

daveO's picture

Right. More debt is inflation. People started, naturally, paying down their personal debts when TSHTF in '08. So, the FED and DC started QE to compensate and to keep us under their thumb! Around $9 Trillion on the US budget, and another $5 Trillion for GSE's. The reason the simpletons (aka economists) keep saying it wasn't inflationary is because most of it was exported to the BRIC's and the Middle East. I'm sure there are many happy foreign billionaires who will be eternally grateful to future US generations!   

blindman's picture

Mindless Media: News anchors from over a dozen US networks all reading the same script.
the masters have spoken.
from here ...
Hold on to your hatzzzz…. 2 0 1 5….
JANUARY 2, 2015

the grateful unemployed's picture

this is the year we come to understand the Fed is just along for the ride, despite their lack of a grand plan they can still keep the 1% where they are and the rest of us where we are. thats been the assumption all along, the great oz doesnt disappear just because you pull back the curtain (remember the story, he sells them each a line of baloney and then he lifts dorothy off in a balloon, where he abuses her and dumps the body over Kansas)

Atticus Finch's picture

I always thought that rates will not rise because higher rates will implode $600 trillion + in credit default swap derivatives and destroy the TBTFs.

blindman's picture

many years ago, when i "bought" my home(massive debt for me
and many years of pure profit from my labor to the lending bank,
system and institutions),
i had to piss off the seller over the price and then furnished
it with things from dumpsters and off the street,
things broken and discarded to be picked up by the
trash man. some very nice stuff with a little work, old stuff.
is that deflationary?
Steve Earle & The Dukes Good Ol Boy (Gettin' Tough) Austin City Limits September 12 1986

blindman's picture

at its heart it is a simple plan. the banksters
propose a world in which they own everything and
suffer the burden of the fates of the many bewildered
people of the world to go into debt to gain access
to the things the bankers own. the paradigm is offered
to the people and they seem to have accepted the offer,
even knowing that the numbers and math of the monetary
construct demand doom for their fellows. (that includes
their children.)
that is the way i see it,
not much optimism derived from such a paradigm.
some form of out of the system is the only way
forward. that means deflation is essential and
ubiquitous as right minded people can not gain
the credit needed to sustain inflation, only governments
and banksters can, it is their world, so fascism seems
the only viable option to save the current brain addled
money system of ubiquitous forced failure.
the scam of 1913 has more horrors for us, we willing
good work g.w.. the slight of hand involved in the
structure of sovereignty, money/finance, nationalism,
statism, international agreements and such is astounding.
it could choke a freakin' camel.

Quinvarius's picture

Inflation is a rising money supply, not rising prices in the particular asset you are looking at.  Spectacular inflation has been created.  Massive inflation has been created.  And you are telling me money flowing into bonds and stocks raising prices to absurd levels is not a price rise?  That is where the first created money is flowing at the moment.  Not everything goes up all at once.  Inflation in the financial sector plus massive derivatives equals volatility.  You can't give incredibly stupid and corrupt people 3 trillion dollars and know how they are going to bet on leverage with it.  Maybe up.  Maybe down.  There is only one outcome in the end.  The banking system makes it impossible for the real economy to survive.  Then suddenly you have too much money and nothing being made but ipad apps.  We do not have a deflation problem.  We have a problem of a few people setting paper prices for short term gains and bonus money with no regard to their own corporate losses because they have a permanent backstop.  It is not a conspiracy.  They just have too much money like a bear that does not know its own strength.  For now they are having a party gambling.  Later they will pay any price for a TV dinner. 

And Martin Armstring is an idiot.  He keeps talking about Roman history as if there was a long sordid tale of deflation.  It was a series of endless hyper inflations.  And no, People did not accept Roman money after they debased it.  It is a known undisputed fact that Rome was forced to provide gold bullion to foreigners because they would not take Roman coins once they got wise.

Take 45 minutes and learn so you can recognize Armstrongs stupidity:  https://www.youtube.com/watch?v=S4KuDlCaWPA 

hooligan2009's picture

i agree with your sentiments but not your conjecture that inflation is money supply.

money supply either comes from interest rates or profits, anything else is theoreticians playing with models that exchange one form of debt for another (the kind of models that generally do not provide an attainable outcome, not the kind of models that can be elegant and attractive).

hooligan2009's picture

here's my take in (11 bullet point form as per requests for non-PhD comments and keeping four back as per this http://www.thehour.com/news/norwalk/police-man-violated-new-gun-law/arti...

·         we have been enslaved by the premise that central banks have a legitimate role to play in an economy – they don’t

·         it is even dubious that central banks have a role as a lender of last resort to banks (or what a cabal of witches calls “systemically important” institutions)

·         we have been mesmerized by no inflation in the “real economy” when in fact there has been massive price inflation in financial markets - equity and bond prices (yields down) are inflated by QE

·         falling inflation in the real economy is a natural corollary of the replacement of expensive labor by “free” technology for higher quality services and goods

·         attempts to control prices in the real economy are “price fixing” and one step from communism

·         the central banks are not elected to be communists or fascists or eurocrats yet they seem to think that is their role in the “real economy”

·         governments are elected by people who know (or should know) that running deficits over decades is bad because these deficits accumulate into debt that needs to be paid back

·         monetizing debt by using QE does nothing other than swap interest paying government debt with zero coupon bank notes thus removing the interest that is otherwise spent in the economy and which makes people feel rewarded for having worked hard

·         countries (not economies) grow because they engage in trade and investment activities that satisfy needs not being met by technology or “the market”

·         governments that tax trade and investment or place too many rules around the way it is transacted “kill the golden goose”

·         people who lend money will eventually need it at a “drawdown rate” – this is an immutable fact, printing more debt to cover this drawdown will be the cause of financial market (not economic) collapse


Kina's picture

Very long comments are best preceded with a dot point summary...or I wont read them. Already so much to read.

daveO's picture


"Brevity is the soul of wit", Shakespeare.

Kina's picture

You don't get the right sort of inflation if new money doesn't go to areas that increase velocity.

The fuel needs to go into the motor....not additional petrol tanks.

Atticus Finch's picture

Right. I thought the reason inflation is in check was because all the trillions are kept within the banking/ Fed loop and not let out into the real economy. Banks are the petrol tanks.

However, there is price inflation, but Oligarchs do not shop at the grocery store.

FreeNewEnergy's picture

OK, this is a little mind exercise.

Capital consists of money, labor, and resources (land, materials, machinery, buildings, infrastructure).

The Fed has control of just one of these three essential tenets of economy: money.

They make it out of nothing (to be more succinct, they create money from government debt - the Mandrake Mechanism)

GDP growth is a canard, which the Fed and government can - and do - conspire to adjust according to their whims, wants, needs.

Unless somebody's building something that wasn't there beforehand, or there are more people building things (population growth, which is, after all, potential capital) or being more productive (technology), the only way to increase GDP is through money creation, i.e., inflation, which, in its most strict definition is an increase in the money supply, and, that is the essence of QE.

So, why hasn't there been inflation. In addition to the various reasons offered in the article above, allow these meager observations:

  • Money is moved off-shore
  • Money is wasted
  • Money goes into non-productive assets (stocks, especially stock buybacks, the most unproductive of all, actually deflationary)
  • but, fewer people are working (unemployment)
  • the amount of land in the US (and the world) is fixed
  • a building burns down or is vacant (lots of homes like that in the US thanks to the banks), they become less valued, non-productive, heading towards zero value and that is deflation on a grand scale.

So, the people who want programs to improve the infrastructure in the US (roads, bridges, power grid, etc.) are correct in assuming that such programs would improve the economy. More jobs, more income, more velocity of money, and, most importantly, better, more efficient, more productive infrastructure, which leads to better manufacturing, agriculture, i.e., a virtuous cycle.

What we have today is a nearly closed-loop of money creation and destruction. Government issues bonds, Fed (or one of their many conduits, or other central banks) buys them with newly-created-out-of-thin-air money. That money goes to banks, which buy stocks or hoard as reserves, adding nothing to the general economy. GDP stagnates. Any little that may trickle out as loans to businesses or mortgages, is actually productive, but the banks, being the arbiters of money and controllers of credit, don't trust the public, and, additionally, have a hard time making a profit at 2, 3, or 4%.

You want inflation, raise interest rates, because the pent-up demand will be filled by banks which can make money at 5, 6, or 7%.

My conclusion is that either the Fed doesn't understand this process (unlikely), or they actually want stagnation and/or disinflation or deflation (very likely). Remember, the dollar was getting weak up until 2009 and beyond, but look what's happened, the dollar is strengthening, and people want more of them (the 10-year yield at 2.15% is magnitudes better than the bund or the yen yield.).

The past few years have been good years for investing (ask anyone with a 401k or stocks), but it's not going to last. Maybe a few more years, because, once the banks start lending again in earnest, the inflation spigot will be wide open and the Fed knows this.

The Fed knows exactly what it is doing, and they're doing it slowly, as to avoid shocks. Anybody who hasn't been able to prosper (as in paying down debt, cutting expenditures, improving existing infrastructure (remodel your house, add solar panels, buy a better vehicle, increase acreage of productive land, learn new skills or improve existing ones) has missed the boat.

Point in fact: In 2005,6,7,8, I could not get a credit card with less than 22% interest. In 2009, I got a 4% home equity line of credit for roughly 50% of the value of my property (owned free and clear) from a local credit union (thank God for them). That one valued asset (my home) has, in five years time, allowed me to pay off all my existing credit card debt, then get deals from various banks (yes, the very ones which caused the catastrophe), which now has me in this most unusual predicament: I have 0% credit - some of it guaranteed through June, 2016 - in an amount which exceeds my original 4% home equity line, much of which I have already paid back.

My trick, if I can pull it off, will be to use the 0% credit as ready cash as part of a down payment on a better property for my home and business. With interest rates so low, it's almost foolish NOT to make this move.

The only risk, as far as I can tell, is if my income nosedives (not likely) and I'm unable to service my debt. In that case, I pay the mortgage (and taxes, the fuckers always get theirs, don't they?) first, and let the banks figure out what to do with the defaulted CC debt. Long story short, I could then file for bankruptcy protection, and, even though the CC debt would not be fully discharged, I could get restructured and/or some forebearance/forgiveness and, keep my home, which, in the long run, is all that matters, the REAL capital.

Seriously, I've been stacking silver, hoarding cash and business inventory for four years, and it's about time to unleash the Kracken! Banksters beware! You've enabled your own worst nightmare.

BuddyEffed's picture

You get a lot of things right, but you never consider how energy plays into the economy.  Suggest you watch the Chris Martenson crash course for more insight.

clockdon's picture

Doing these things is right

matagorda's picture

QE is a policy tool for governments that are officially out of policy ideas.  QE is monetary terrorism that creates a fake economy through the implied threat of destruction of the currency (but since the government sanctions it, it's not "terrorism").  The global money printing we are seeing will result in the collapse of all the major paper currencies; however, like the collapse of oil prices, it will happen too suddenly to correctly position after reading news headlines.  Like 2002 and 2008, broken-clock doomsayers (people with common sense) appear as fools until the world conveniently turns upside down in an "unpredictable" collapse to graciously accomodate their views.

Comte d'herblay's picture

QE is code for "We're  giving, without interest, 40 trillion dollars to the Jewish mafia on Wall Street, a coupla strategically positioned insurance companies, and the 12 major banks, & a few select corporations, and they in turn are using a goodly portion of that money to buy stocks tp move up the Indexes, the stocks that are major holdings in Pension funds, and for the likes of Lord Blankfein,  some toys.

If the trillions in QE can't find its way into the pockets of the 90% ers, (this is Hoarding, lite, by the elite) then the prices of the middle classes' necessities, can't rise much.

True inflation only comes about when the bourgiio.....boorjwha........bourghwa.......the rest of us experience corresponding increases in income.  

The mandatory minimum wage bills that are getting thru congress will help increase inflation, (and eventually nullify the increases in wages) and to raise inflation in the prices of necessities by a tiny fraction, and benefit the top lines of corporations providing those goods and services.

Until you look back the WIN days of the Ford Admenstruation, you can't figger out inflation. 



daveO's picture

Wages are a reflection of inflation, like so many boats floating on a sea of fiat dollars. The wage boat currently sits heavy in the water thanks to offshoring(more jobs have been offshored than have been created in the oil patch). House prices have continued to inflate, since the last bottom, because GSE's have funneled 'funny money' into that market (bail outs, as in bailing water out of those boats). This, in spite of lower average earnings! Same goes for autos. The leverage of fake (borrowed) dollars to real ones is well over 10 times! The banks have the ability to inflate everything beyond the reach of wage earners via the FED and QE, but I'm sure economists and professors will keep telling their sheep that 'it (inflation) just ain't possible w/o wage growth'! 

SweetDoug's picture




They have cooked the books on calculating inflation. See http://www.shadowstats.com/alternate_data/inflation-charts

There is no velocity of money.

The banks aren't lending to the sclubs.

Low interest rates do not necessarily prompt banks to lend to people who are not good credit risks.

Low interest rates benefit those that owe money, like governments @ 18+ trillion.



Pee Wee's picture

The problem is that economists, politicians and racketeers keep trying to link QE with economics and finance.  That is dead wrong.

The sole purpose of QE is to monetize and thwart justice.   A distraction to keep white collar criminals out of prison in the Fascist's paradise.

The world is awash with insanity, fools looking only where they are told.  ZH is no exception.

GreatUncle's picture

Mr Washington.

Consider a system where there is an inflationary and deflationary part they in fact cancel. Over the past 40 years refelected in the outright corruption of the economy everywhere vast quanties of value were being created (how much derivatives do we have?) but now dah ... dah ... drumroll. The deflationary component has now overtaken on scale the inflationary part including all the central bank planner stimulus.

But they have tapped every taxpayer up to honour this debt going forward but the taxpayer did not get it did they? Freebie handout to banks who leaving it in investment vehicles not moving is actually a minimal amount of inflation. Now give this is a helicopter drop to people and not banks and the banksters and watch inflation take off.


About 6 years ago I said I would end up with a free laptop in a box of cornflakes the laptop being the helicopter drop and still feel this is the case.

You could even virtually model this by taking a population and handing them the amount of stimulus YOY to generate the needed inflation to support the sovereign debt.

Don't reckon Keynes figured the last bit as a model and what would need to happen as growth is cancelled out.

You could also look at it as the banksters have the 100% economic pie and you need growth. Inflate the pie, keep thieving bankster hands off it and slowly the rela component not the bankster part grows creatign growth once more. Banks will never allow it because slowly they would become poorer.

All we have seen for 40 years is the rich get richer killing the economy alongside technological effciency.

Dude-dude's picture

My gut tells me there is a bit more to this and Max Keiser has hinted at some of the complexity.  First, we have to be careful to identify the specific sectors and markets that are deflating. Some sectors are hyper-deflating (like Crude) others are hyper-inflating (like S&P P/E) and this makes sense given the near hyper monetary inflation in M2. But many still point to a very dismal Velocity of Money and CPI. Sure - where is the surprise? Forbes indicates that aggregate networth of the top 400 is up by 13%-ish year-over-year in 2014. But their CLEWI is up only 4% (still more than double the tainted CPI). Previous ZH posts have pointed to corporate cash hoarding - used in part for stock buy backs when/if used. So yes, evidence suggests that money isn't circulating except in the upper price echelons, and then at a rate that is considerably slower than net-worth inflation suggesting money is being hoarded.  @ 0% who wouldn't borrow and hoard?  The borrowed money can then be rehypothicated into bonds or stock buy-backs. None of the inflations taking place (money supply, asset prices, CLEWI, bonds) engender money velocity beyond the 1% or .1% and they seem to be hoarding rather than spending.  Companies are chasing yields instead of investing in production - with free money at their disposal, why bother doing anything else? And it is this lack of investment in production that puts downward pressure on wages. At the same time one begins to see inflation on cheap imported goods from EMs (who's been to the dollar store lately? Most items have increased in price by 25% 50% 100% over the past 5 years b/c they're all made in China)...  Up is down / down is up.  The obvious solution is to raise interest rates to disuade money hoarding and bring back some semblance of discipline - but that'll ignite the thermite under the multi-hundred-trillion derivative market.  Just a thought...                

daveO's picture

"but that'll ignite the thermite under the multi-hundred-trillion derivative market.  Just a thought..."     

Since $300 trillion of derivatives insurance were inserted into the last budget, onto taxpayers, then higher rates are assured. Banks will make more money on higher spreads until, and after, they get bailed out again! 

Radical Marijuana's picture



ENFORCED FRAUDS totally dominate our political economy, and therefore, should always be the CENTRAL CONCERNS during any analysis!

Any analysis of the political economy which does not face the social facts that civilization is controlled by the application of the principles and methods of organized crime, with the currently best organized gangsters being the banksters, is BULLSHIT! However, the only way to avoid spouting that kind of bullshit is to perceive the political economy operates inside of the environmental ecology, which requires understanding that there are actually COMBINED MONEY/MURDER SYSTEMS, because money is measurement backed by murder.

The existence of the Federal Reserve Board, which has the power to do "Quantitative Easing," is the result of the best organized gangs of criminals persistently applying the methods of organized crime to the political processes, in order to capture control over the powers of governments, effectively privatizing those governmental powers. That created a system which legalized private banks being able to counterfeit the public "money" supply out of nothing as debts, while the government enforced that fraud against everyone else, including the government itself. However, there are no genuine solutions to that which do not address the deeper reasons how and why that happened. Any "solutions" based on old-fashioned false fundamental dichotomies, and their related impossible ideals, are merely more BULLSHIT, promoted by the controlled opposition groups, because those actually make the opposite continue to happen in the real world.

As usual on Zero Hedge, this article above grossly understates the problems built into our political economy. For instance, the statement that "everything the Fed has been doing to try to stimulate the economy isn’t just useless — it’s backward," fails to place that insight into the overall context that we are living in a Bizarro Mirror World, where everything appears backward! The government is NECESSARILY the biggest form of organized crime, controlled by the best organized gang of criminals. The vast majority of people have been reduced to Zombie Sheeple that do not understand that, because they have been conditioned to not want to understand that.

The degree to which the biggest bullies' bullshit world view totally dominates society means that everything from the basic philosophy of science, on throughout politics, is backward, because everything NECESSARILY is done through systems of organized lies, operating robberies, wherein the biggest and best organized criminals are able to so totally dominate society that the vast majority of people do not understand that, and do not want to understand that, which allows those systems of organized lies operating robberies to develop extreme disequilibria, since the power of governments to rob, and to kill to back up that robbery, have become manifested through fundamentally fraudulent financial accounting systems!

Moreover, practically nobody wants to understand that any better, since that requires facing relatively objective facts about environmental ecologies which have been deliberately denied and suppressed by the development of the social pyramid systems of Neolithic Civilizations for thousands of years. Systems of lies backed by violence have developed at an exponential rate, to become the current systems of legalized lies, backed by legalized violence, where America is now the heart of that globalized achievement through applying the principles of organized crime on larger and larger scales.

Practically nobody wants to understand that money is NECESSARILY measurement backed by murder. That kind of evil deliberate ignorance has become a vicious spiral that has enabled the disequilibria between the established systems of organized lies operating robberies to get worse and WORSE! The main manifestation of that has been the development of the monetary system as a STATE RELIGION, where the absurdities of "money" being made out of nothing, and disappearing back to nothing, are allowed to automatically get worse, faster, so that debt slavery system automatically generated numbers which became debt insanities, which are on the verge of provoking unprecedented death insanities, because the debt controls were always backed by the death controls, however, that was deliberately denied and ignored as much as possible by the professional liars and immaculate hypocrites who ran the established political economy.

FOLLOW THE MONEY TO ITS SOURCE! Privately controlled banks are allowed to create the public "money" supply out of nothing as debts for everyone else, including the government. That is the MAD Money As Debt system, whereby the ways that money is measurement backed by murder tend to be as deliberately ignored and denied as possible. Almost all discussions of those problems, as demonstrated by the article above, stay on silly, superficial levels, because it does not forthrightly address the CENTRAL ISSUE OF ENFORCED FRAUDS. Our political economy has become globalized systems of electronic monkey money, backed by the threat of apes with atomic bombs. Therefore, our problems have become trillions of times worse than ever before in known human history, while the public discussion of those problems continues to mostly be ridiculous acceptance of the political economy being based on ENFORCED FRAUDS!

In the MAD Money-As-Debt systems:

Money is created when debts are created.

Money is destroyed when debts disappear.

Too much money created out of nothing is inflation.

Too much money disappearing to nothing is deflation.

In the long, long run, the results tend to be runaway inflation, becoming hyper-inflation. However, the increasing whipsaw effects drive wilder and wilder oscillations between deflation and inflation. After all, there is NOTHING behind any of that but the ability to back up lies with violence, since the whole system is fundamentally ENFORCED FRAUDS.

Making "money" out of nothing in the first place is THE PROBLEM, compounded by it being privately controlled banks which are legally allowed to do that! Since that system was due to the ways that the methods of organized crime dominated the political processes, but that basic social fact was deliberately denied and/or ignored as much as possible, THAT PROBLEM of a monetary system based on "money" being created by debts and being destroyed when debts disappear, seems like it is never going to be well-understood by enough people, since they would have to move beyond their delusions regarding what money is, and/or should be, to face the facts that money IS measurement backed by murder, which has developed to become based on the maximum possible frauds and deceits.

The economic systems whipsaw themselves more and more, because of the wilder and wilder oscillations between too much money made out of nothing, then too much money disappearing back to nothing. That volatility itself can cause more bankruptcies, or business not being done, which causes more money to disappear, which is deflationary. Paradoxically, the systems respond by potentially compounding that by making even more money out of nothing, as more debts, through whatever excuses they can find as fit to rationalize (such as through QE, which tends to favour the banksters and their buddies the most, of course.)

Since the established systems can always find more excuses to make more money out of nothing as debts, while many more who previously could and would undertake going more into debt are no longer able and willing to do so, the longer, long term outcome tends to be that the wilder oscillations between inflation versus deflation eventually ends in runaway hyper-inflation, as the last phase of the crazy collapsing into chaos:


Competitive Currency Devaluation & Deflation


Why Living In A Post-Bubble World Is No Fun

In abstract theory, it ought to be elementary to relate the basic laws of nature to the economic system. However, the ONLY connection between the laws of men and the laws of nature IS the ability to back up lies with violence, which was how and why we ended up with the currently existing monetary systems being ENFORCED FRAUDS, where governments are the biggest form of organized crime, controlled by the best organized gangs of criminals, the banksters. There are no ways to work around that, because human beings and human civilizations necessarily operate as general energy system entropic pumps. The only good ways forwards are to work through that, however, doing that would require enough people understanding that governments MUST operate as the biggest form of organized crime controlled by the best organized gang of criminals, because that was NECESSARILY the ways that human energy systems developed.

Ironically, it continues to be the case that most people confuse what money IS with what money should be. Hence, there continues to be the same sorts of bogus "solutions" to our problems based on what money should be. Almost nobody fully faces the fact that money IS measurement backed by murder, which is merely the most abstract form of all private property being claims backed by coercions. Human realities are always organized lies, operating robberies, because human realities are always general energy system entropic pumps.

There are profound paradoxes due to the money systems being ENFORCED FRAUDS, which trace back to how and why that happened. The people who were the best at being dishonest and violent controlled civilizations, and thereby, the biggest bullies' bullshit social stories became almost totally dominate. Superficially, it is obvious that making "money" out of nothing as debts, which can disappear back to nothing, contradicts the most basic laws of nature, such as the conservation of energy. Therefore, a political economy based on MAD Money As Debt appears to absurdly contradict the laws of nature. Of course, that MAD Money As Debt system was actually the banksters' frauds, backed by the force of governments, which ultimately means backed by MAD Mutual Assured Destruction.

The wilder and wilder swings of money made out of nothing as debts, in which system that money can also disappear back to nothing, if those debts disappear, drives wilder and wilder oscillations of inflation and deflation, until that finally snaps, and flies off as hyper-inflation. However, those swings of debt insanities were always based on those systems being enforced frauds, where the money was backed by murder, and therefore, the debt insanities provoke death insanities.

In my opinion, NONE of the "financial experts" that I am aware of being publicly significant have a consistent assessment of human civilizations as general energy systems, because doing so necessarily results in recognizing that governments are the biggest form of organized crime, controlled by the best organized gangs of criminals, because human realities are necessarily organized lies operating robberies, because the production of destruction controls production, which is why money IS measurement backed by murder. Moreover, understanding that properly requires profound paradigm shifts in the basic philosophy of science, which has also been historically dominated by the biggest bullies' bullshit, the same as all other social enterprises were.


Our established political economy is based on THAT foundation of ENFORCED FRAUDS which are deliberately denied and ignored, or mostly misunderstood, by almost everyone, while those central social facts tend to be proportionately misrepresented to the degree that people benefit from being the insiders who initially personally gain more wealth and power from the operation of those ENFORCED FRAUDS. Therefore, economic bubbles are blown and pop, via the operations of the MAD Money As Debt systems tending to make too much money out of nothing, which then may subsequently result in too much money disappearing to nothing, which then may result in more money being made out of nothing, and so on and so forth, in wilder and wilder oscillations, until the system as a whole MADly self-destructs, by the last swing towards severe deflation provoking the last swing towards hyper-inflation, which finally destroys that system as a whole, whereupon those debt insanities provoke death insanities.

Ideally, human beings ought to understand themselves and their civilizations operating as general energy systems, with emerging evolutionary ecologies. However, the actual history of human civilizations was based on social successes through the history of warfare, where deceits and spies were crucial to that success. Upon that basis was built the political economy whose foundation was enforced frauds. None of that contradicted the basic laws of nature, but rather was always actually consistent with the laws of nature. Thus, the apparent paradoxes grew and grew, that the only connections between the laws of men and the laws of nature was the ability to back up lies with violence, which social systems became more and more successful the more that they could do that! However, all the while, that meant that society as a whole was becoming more psychotically insane, and more detached from any relatively more objective realities, because the dominating social stories were bullshit.

My conclusions are that since money IS measurement backed by murder, the only better monetary system would have to be one in which better murder systems backed that up. The debt controls always depended upon the death controls, and still do. However, the degree to which that was done through the maximum possible frauds and deceits has meant that our society appears to have become terminally sick and insane, because it can not publicly face any of the basic facts about itself. Overall, we are looking at the established systems of electronic monkey money, backed by apes with atomic bombs, driving deliberately misunderstood systems of debt slavery, backed by wars based on deceits, towards debt insanities provoking death insanities. Along the way, the oscillations between wild swings between too much money made out of nothing, then too much money disappearing back to nothing, provoking more vicious spirals of the same sorts of oscillations between inflationary and deflationary trends, will keep on happening worse, and faster ...

We are on an untested roller coaster ride, where the long ride UP was the great period of prolonged inflation, which was possible when more and more and more money made out of nothing as debts was possible to greatly exceed the amounts of that money which was disappearing back to nothing. However, there are now reasons why we have perhaps peaked ... and thus, dipping back DOWN into deflation, where more money is disappearing to nothing, than can be made out of nothing to replace that. We are reaching the real limits of diminishing returns from being able to use "money" made out of nothing to "pay" for strip-mining the planet's natural resources.

Of course, there are desperate efforts made by those who can make more money out of nothing as debts to do so, and pump that into the established systems, (primarily to benefit the banksters and their buddies). However, that will likely only result in another lesser ride UP, followed by another DOWN. Overall, we are likely to be going DOWN more than UP, and therefore, the efforts to make more new money out of nothing as debts will eventually have no more effect than as hyper-inflation, which will be a sign that the first ride was over. However, when the political economy goes through phases where more "money" is disappearing back to nothing, than can be replaced with more "money" made out of nothing, then there appears to be relative deflation, within that context, during that time.

Of course, since that is an untested roller coaster ride, somewhere along that path we are likely to see it jump the rails, and then go WAY DOWN, beyond our current ability to imagine. The basic situation is that the entire political economy is based on enforced frauds, which only work to the degree that there are the still functioning State Religions, in the form of faith-based money, backed by national security psychoses. All of that paradoxically depends upon those systems continuing to operate through the maximum possible frauds and deceits about themselves, i.e., CONFIDENCE IN THE ACTUALLY ABSURD STATE RELIGION BULLSHIT.

Ideally, human beings ought to understand themselves better. However, since the established systems are sophisticated forms of social slavery, which depend upon the majority of people not understanding that, and not wanting to understand that, while the ruling classes work hard to attempt to keep most people ignorant and afraid, by continuing to promote their enforced frauds, as Bigger Lies, backed by More Violence, the underlying fundamentals are always automatically becoming more criminally insane. (That is especially the case because most people who begin to understand how the monetary system really works as enforced frauds, then continue to mistakenly propose idealized "solutions" based upon what they believe money should be, which can never actually exist in the real world.)

The situations that we face within the MAD Money As Debt systems, swinging from too much money made out of nothing, to too much money disappearing to nothing, manifesting as apparent inflation, and then deflation, via vicious spirals, are that nothing about that actually changes the ways that the laws of nature continue to operate. However, because the laws of nature manifested through human societies as systems of lies backed by violence, we are too collectively insane to become more scientific about ourselves, at least, so far, NOT enough so that we could have a monetary system which is rationally consistent with the laws of nature.

Since nothing can be made out of nothing, and nothing sent to nothing, we should NOT have a fundamentally fraudulent financial accounting system where our money can appear to be made out of nothing, and disappear back to nothing. However, in order to have a monetary system consistent with the laws of nature, we would have to have achieved a murder system which is understood as being consistent with the laws of nature. From a sublime perspective, with as much of an attitude of high indifference towards the suffering it causes, we already do have a combined money/murder system which IS consistent with the laws of nature, in as much as that system is based on the maximum possible frauds and deceits about itself. There were good reasons for how and why we ended up with a political economy built on top of systems of government enforced bankster frauds, where the public "money" supply could be created out of nothing, and disappear back to nothing, which resulted in the threats of wilder oscillations between inflationary and deflationary trends.

To express that in the most abstract way, human beings operate as entropic pumps of energy, which have deliberately understood the concept of entropy in as backward of ways as they possibly could. All private property was always based on backing up lies with violence. Everything that appeared to be productive was controlled by the production of destruction, and the overall situation was always an increase in entropy. Any attempt to understand the political economy outside of the principles and methods of organized crime is ridiculously mistaken, because that is NECESSARILY how general energy system entropic pumps manifest through human beings and human civilizations.

Productive activities were always creating more garbage and pollution, but the fundamentally fraudulent financial accounting systems were able to deliberately disregard that, while the profits were privatized, and yet, the losses were socialized. The epitome of that was the monetary system, based on the enforced frauds, with a privileged few who could legally make the public "money" supply out of nothing as debts, while everyone else was forced by the government to accept that fraud. Those who were relatively the insiders of that system, closer to the SOURCES of the "money" being made out of nothing, thereby became fantastically more wealthy, as measured in the terms of that fundamentally fraudulent financial accounting system. However, that system as a whole has become criminally insane. The monetary system has become like a totally metastasized cancer, spread throughout society, or like a parasite that is killing its host. Since almost nobody is able and willing to better understand that money is measurement backed by murder, it is practically impossible to have any rational public discussions about that, rather than more of the absurdities of that State Religion promoted by those in that established social system, including its controlled opposition groups.

It was always the case that the systems that made money out of nothing, could do so more and more, in order to drive inflation, BUT, that could also result in too much of that kind of money disappearing back to nothing, to drive deflation. Quantitative easing (QE) was enforced frauds on steroids, whereby the central banks attempted to replace more of the roles of the other banking institutions, which were finding it difficult to continue to make more money out of nothing, by finding more borrowers who would agree to participate in that process, by going deeper into debt.

The real economy runs on real energy. We should have a financial accounting system that respects the laws of nature. However, such a system would then necessarily have to place the political economy inside of the human ecology, which means place the debt controls inside of the death controls. Of course, that is ALREADY the case, however, nothing about how that is being done is able to be publicly admitted in any significant ways, but rather was historically based on the biggest bullies' bullshit social stories becoming almost totally triumphant, so that LYING BY OMISSION was the main way that economics was discussed in public spaces.

Of course, as indicated by the article above, that overall situation is becoming more and more hyper-complicated. In my opinion there are no longer any groups of human beings who fully comprehend the existing systems anymore, and there are no longer any groups of human beings who can control those systems. The people who originally made and maintained the systems of enforced frauds that became our financial accounting systems have been left behind by those becoming more and more electronic, backed by atomic bombs, none of which phenomena are fully understood by human beings anymore.

Indeed, a big factor on the horizon of history is the emergence of a new kingdom of life, as computer machine entities enabled by the industrial revolutions. Those require their own evolutionary ecologies, hopefully to be integrated with the human and natural ecologies, IF we are going to survive through those processes. In my view, any computer machine entities that develop enough of a model of their world, with a model of themselves within their model of their world, shall thereby repeat all of the chronic philosophical, psychological and political problems that human beings always had, ever since human beings developed enough ability to have brains that could use language and other tools.

Again, to express what has been happening more abstractly, natural selection pressures became internalized as human intelligence, which developed systems of artificial selection, which went through the history of warfare to become based on the maximum possible deceits, which then morphed to become based on the maximum possible frauds. Furthermore, IF technological civilization survives, then we are approaching the point where computers are going to go through similar processes. Indeed, the degree to which algorithms are dominating the financial markets is already a sign of that transpiring.

Anyway, the fundamental issue is that the established monetary systems are based on enforced frauds, whereby money can be made out of nothing and disappear back to nothing, causing inflation and deflation. Those problems can never be resolved without addressing the root cause, which is the SOURCE of the money supply, as enforced frauds, and that cannot be resolved without facing how and why money IS measurement backed by murder.

OpenThePodBayDoorHAL's picture

Dude, go publish a book or something, this is a blog, not a PhD discourse. Give us a paragraph or two that summarize your thoughts.

acetinker's picture

Dave, that's your name right?  Have you ever smoked the divine herb?  Have you ever experienced the magic mushroom?

I have done this and more, Dave.

Yeah, Rad's posts tend to run long, I generally don't read 'em myself, to be honest.

However, the activities described above make you think deeper thoughts; that Rad is able to articulate these things, is one of the treasures of ZeroHedge.

He's splilling pearls among swine for the most part, but I love my Canadian brother.

andrewp111's picture

The fundamental problem is that Central Banks cannot create inflation by themselves. Only Governments can create inflation. To do this, they have to spend enough to create full employment and bid up the price of labor. The last time this happened was WW II. It was an existential struggle for survival, and everyone was employed. Even housewives and women were herded into the factories because all the men were in the army. Wartime wage and price controls prevented inflation during the war, but the suppressed inflation roared into being afterward. The election of a Republican House in 2010 split the government and made the kind of hyper stimulus that could bring real inflation impossible. Even if unified government had remained, it is unlikely that inflation would have resulted, because the Obama Democrats are too clownish to do a project big enough to bring on a tight labor market. The only way to bring on inflation today is WW III. Ultimately, WW III is the solution to the accumulated debt. That is how the debt will be inflated away.

ThirdCoastSurfer's picture

The economy is a machine and money is just it's lubricant. Deflation is a continious loss of lubricant so the constant need for it indicates a problem with the machine that no amount of lubricant will repair. 

The machine is very complex, but I read the other day about a Japan headline that asked 'Where is it's facebook, it's Go-Pro, it's Amazon? Of course, this question regards innovation, a revoloutionary product that becomes essential to most households of the developed world and in some cases has never existed before and therefore does not replace an existing product. 

I think the domestic commercial electric toaster is not yet 100 years old, like the refrigerator and a number of other household products too numrous to mention. I think the model T is just over a century old. Who now in the industrial world doesn't have a car or two or three to makeup forthe few that don't?  there's still replacement demand and population growth demand (except in Japan), but since all products have a lifecycle, what is left that has not reached  "cash cow" status, the last cycle before death?  Since the dawn of the industrial age a steady stream of revolutionary products pushed the machine to greater and greater levels, but it appears this ere has come to an end and only time will tell how long it takes to create a new renessance or if the monetary grease can keep the exisitng machine running until it arrives. 

daveO's picture

The regrowth can't happen until the forest burns down. TPTB, naturally, don't want their forest (debt slave plantation) to burn down. Hence, QE since 2008.

Md4's picture

I got a kick outta quite a few of the comments to this story. So many posters have a much better grasp, than do the market pimps, of what's been done to us to save us from ourselves, that if we go down, we will not do so completely mystified.

That said, this, and so many articles just like it, are zeroed in on the world post-2008 too much to the exclusion of what really caused it.

And it wasn't housing (shack racket) either; it was mindless bonsai outsourcing over at least the last 30 years that caused it.

And regardless of what happens post QE, THAT cannot be overcome.

Indeed, EVEN IF all debt were wiped from the middle class (or what's left of it), and even IF you were to wipe the federal debt to 0, absent a replacement middle class industrial economy for the one that left...we would be right back to where we are today, and probably much sooner than anyone can imagine too.

We are coping with the effects of a deep and very protracted income crisis that cannot be "quantitatively" eased away. For at least a generation or two, it's permanent. EVERYTHING we are experiencing are the effects and direct consequences of mindless outsourcing.

We weren't ready for this.

Now, much of the rest of the globe is stifled by our inability to consume what we gave away. THAT'S why the EM's are now in decline. They are levered up on ZIRP-financed make-work projects that leave millions staring from shanty towns at high-rise mausoleums they will never occupy, but built for pennies a hour. As those rot, and as we continue to be unable to send over dollars for more stuff, the peasants will increasingly become idle and dangerous when the make-work efforts can no longer be fueled.

We see precisely the same thing in oil. While we were anesthtized on cheap credit games to substitute lost income, we spent wildly and built the Chinese into the second largest economy in the world. The Chinese were scavenging the planet looking for every raw resource they could find to feed the giant industrial machine at home, itself feeding voracious credit-driven appetites hatched in the west.

Does anyone seriously think China wouldn't have sucked up every drop of crude a mad, levered-up fracking wildcatter today could coax (however expensively) out of ma earth's tits? They would've been hanging around the wells with 15,000 miles of hose if that's what it would've taken to get it to the plants cranking out crap we used to make...to sell back to us.

The west is broke, hence THEY are broke, and in decline.

Raw materials are in decline, and so are prices.

THIS is the opening act of the end of the show. It's here, and NO AMOUNT of "stimulus" can stop that.

What QE can and HAS done is to take the outsourcing-induced pain to criminal effect by creating immense resentment in the vestiges of a once proud and mighty middle class, forcing them to endure an ever-widening weath gap Wall Street, and it's pal the Fed, have the gall to call...a "recovery".

Between now and midyear, expect to see the wheels finally come off.

How can it be otherwise?

The ONLY question then will be: where do we go from here?


Md4's picture

I got a kick outta quite a few of the comments to this story. So many posters have a much better grasp, than do the market pimps, of what's been done to us to save us from ourselves, that if we go down, we will not do so completely mystified.

That said, this, and so many articles just like it, are zeroed in on the world post-2008 too much to the exclusion of what really caused it.

And it wasn't housing (shack racket) either; it was mindless bonsai outsourcing over at least the last 30 years that caused it.

And regardless of what happens post QE, THAT cannot be overcome.

Indeed, EVEN IF all debt were wiped from the middle class (or what's left of it), and even IF you were to wipe the federal debt to 0, absent a replacement middle class industrial economy for the one that left...we would be right back to where we are today, and probably much sooner than anyone can imagine too.

We are coping with the effects of a deep and very protracted income crisis that cannot be "quantitatively" eased away. For at least a generation or two, it's permanent. EVERYTHING we are experiencing are the effects and direct consequences of mindless outsourcing.

We weren't ready for this.

Now, much of the rest of the globe is stifled by our inability to consume what we gave away. THAT'S why the EM's are now in decline. They are levered up on ZIRP-financed make-work projects that leave millions staring from shanty towns at high-rise mausoleums they will never occupy, but built for pennies a hour. As those rot, and as we continue to be unable to send over dollars for more stuff, the peasants will increasingly become idle and dangerous when the make-work efforts can no longer be fueled.

We see precisely the same thing in oil. While we were anesthtized on cheap credit games to substitute lost income, we spent wildly and built the Chinese into the second largest economy in the world. The Chinese were scavenging the planet looking for every raw resource they could find to feed the giant industrial machine at home, itself feeding voracious credit-driven appetites hatched in the west.

Does anyone seriously think China wouldn't have sucked up every drop of crude a mad, levered-up fracking wildcatter today could coax (however expensively) out of ma earth's tits? They would've been hanging around the wells with 15,000 miles of hose if that's what it would've taken to get it to the plants cranking out crap we used to make...to sell back to us.

The west is broke, hence THEY are broke, and in decline.

Raw materials are in decline, and so are prices.

THIS is the opening act of the end of the show. It's here, and NO AMOUNT of "stimulus" can stop that.

What QE can and HAS done is to take the outsourcing-induced pain to criminal effect by creating immense resentment in the vestiges of a once proud and mighty middle class, forcing them to endure an ever-widening weath gap Wall Street, and it's pal the Fed, have the gall to call...a "recovery".

Between now and midyear, expect to see the wheels finally come off.

How can it be otherwise?

The ONLY question then will be: where do we go from here?


Dingleberry's picture

No inflation?

What fucking world are you living in?

Is the DOW inflated?

Does the iPhone 6 cost a grand unlocked? Oops.....hedonics. I forgot.

Do you like your new medical premiums? Are those deflated?

Inflation everywhere and anywhere is always a monetary phenomenon.

It's sad that so many of you bitchez actually believe this deflationary bullshit nonsense. 


The Wedge's picture

"No inflation"?--No, not the kind the fed is looking for in regards to monetary and debt issues.

"What fucking world are you living in"?-- Same one you live in.

"Is the DOW inflated"?--Yes but remember there are different types of inflation.

"It's sad that so many of you bitchez actually believe this deflationary bullshit nonsense".--Deflation has not crept into the core price index yet, yet. It will but will the fed be able to arrest it? 

Deflation is not bullshit or nonsense. It's quite real. It usually leads to inflation...real inflation and default which for the rest of the world has always meant new government. If deflation takes hold it will increase the likelihood of default or hasten it's arrival. Core price inflation at a steady rate means continuing to service debt. Deflation over an unspecified period of time means default...can't service debt. And of course the fed has every incentive to prevent this, at least on the surface.

The fed shoots for 4%. Ideally, 3% nominal growth and 1% inflation. Or they reverse this in times such as these 3% inflation 1% nominal growth.




daveO's picture

Newly elected Republicans will want to decrease spending (deflationary). This will necessitate a false flag war (courtesy of your friends at the See-eye-a) , to get Rep's to agree to larger gov. deficits, which is what they (FED banksters and DC) have used, since 2008, to support themselves in the lifestyle which they have become accustomed!  

Vooter's picture

No inflation? Why do you think the Dow has risen straight up from 7,000 to 18,000 in just six years--solid corporate fundamentals? LOL...

markettime's picture

Dear Sir, 

Inflation was never the goal but only the excuse to give the ultra wealthy access to unlimited amounts of money. Imagine what the likes of these people can accomplish with endless amounts of money. No war cannot be fought, no politician nor vote cannot be bought. God help us all. 

The Wedge's picture

Uh, NO Inflation has been standard operating procedure from the start of the fed. This debt based system depends on three main concepts. One, they must incur new debt constantly, must have a regular income source to service the debt (16th amendment) and constant inflation to maintain the debt as it increases.

xavi1951's picture

"And economists now admit that runaway inequality cripples the economy."  Spoken like true Marxist economists.  Inequality makes people with backbone strive to attain more and the spineless to complain rather than work hard.

PT's picture

Worked for you?  Good for you but NO.  Hard workers are a dime per dozen.  I've seen thousands of them in factories and workplaces everywhere.  If all you have is the ability to work hard then you are still stuffed.  Something else is missing from the equation.

Yes, unemployed people should all move to China (where all the jobs are) and offer to work for fifty cents per hour making toys for McHappy Meals and work harder than everyone else and cheaper than everyone else until they drive everyone else broke and get all the work and then they can be rich!!! 
Or, to paraphrase a certain Bart Simpson, "How do you get ahead by going slower?  Hello!!???"




BTW:  You work twice as hard as the guy who earns fifty cents per hour, now you are worth one dollar per hour.  Winning?

Machine operated by idiot produces ten times more than normal worker.  Now how do you add value to differentiate yourself from the idiot?

I have yet to see poor, starving people suddenly figure out how to acquire capital.  Borrowing?

"I won the race becoz I worked hard.  Everywun else lost becoz they didn't work hard enuff."  Possibly true.  But for every winner of the race, there has to be those who came second, third, fourth ... etc till last.  Even out of high performance Olympians who train hard every day, there are still those who come last.  And no winner is immune from accident or injury.

"You're poor becoz you didn't work hard enough"?  No.  In fact, for many years, the correlation was that I got paid more as I worked less.  (Up until a couple of years ago when I had to start working hard again.  Note I was NOT being slack.  I was just doing what the job required.  It helps to find the right job.)

A lot of people prefer to work hard because they recognize that it makes the day go faster.  A lot of people prefer to work hard because they CAN NOT handle boredom.  A lot of people prefer to work hard because they recognize that working slow just makes them fat and miserable, whereas working hard makes you fit and feeling good about yourself.  None of this stuff guarantees success.  None of this stuff guarantees that you'll even be employed tomorrow.  SOMETHING ELSE is missing from the equation.

And some people quite happily work hard until they injure themselves from working too hard.  Some people start life by telling their children, "Hard work never killed anyone", and then, after the triple-bypass operation, end up telling their children, "You just take it easy, son".

Sure there are slackers out there, and sure it is wrong for the workers to earn less than the slackers.  But hard work is no guarantee of success and slacking off is no guarantee of failure.  Something else is missing.

Grouchy Marx's picture

Can you imagine how the economy would have behaved differently, if the QE dollars had been instead used as tax cuts uniformly for all taxpayers, rather than given to Wall Street? Think what you could do with a paycheck that was instantly 20, 30, 40% more, because you taxes were dramatically cut? It would be the halcyon days of the 20s again.

Thomas Aquinas's picture

As John Williams computes, there is inflation, but it is hidden;


However, the massive increase in asset prices has created surging inflation in the economy of the rich and the super-rich.


It is also caused some inflation in the general economy, but debt saturation is preventing a large increase in the excess money circulating mainstream.

Hyperinflation will come when the global system finally crashes, decimating the productive base of western economies and causing scarcity.