Morgan Stanley Explains One Big Reason Why Central Planners Can't Generate Any Inflation

Tyler Durden's picture

As China continues to weaken the Yuan, it's important to note the impact that it has on the inflation expectations of other economies, namely the US, Japan, and Europe. As central planners aggressively try to boost inflation, and in the meantime have created a stunning $11.7 trillion in negative yielding debt, China could be hindering that effort quite a bit.

As Morgan Stanley points out, CNY has weakened over the last year or so versus the Euro, Yen, and Dollar and is helping to explain the continued undershoot of inflation in Japan and Europe - and we would add in the US.

From MS

The RMB decline has materialized mainly against the EUR and even more so against the JPY. This may explain the continued undershoot of inflation in Europe and Japan.

MS goes on to note that the overcapacity in Asia (something we have discussed often) and a weaker currency will continue to lead to lower export prices, and thus dampen future inflation expectations, which can be seen in the US 5y5y inflation expectations. MS also observes that developed market inflation behavior is led by movements in Chinese prices, and the rally in global bonds will continue to push the USD higher, putting further downward pressure on prices.

Moderate US growth together with overcapacity in Asia and a weaker RMB will likely result in lower export prices from Asia. Market-based US inflation expectations are now lower than April, supported by Michigan survey data, all despite commodity prices being generally higher. Post Brexit our rates strategy team remains long duration, which is further supported by this lacklustre inflation environment. Inflation expectations might be held back by falling import prices from economies that run spare capacity. Exhibit 23 shows that the recent DM inflation behaviour was actually led by the movements in Chinese prices. The rally in global bonds, particularly in the US, may actually push USD higher as foreign investors look for places with a relatively high yield.

MS concludes by saying that deflationary pressures are likely to remain in place as overcapacity persists.

Important for the outcome is the evaluation of global deflationary pressures, which may be primarily fed from Asia. Yes, China’s PPI has improved from -5.9%Y to -2.9%Y, but RMB has declined over the past couple of quarters at an annualized rate of 11%, suggesting that import price deliveries from China are currently falling by 5%. Importantly, deflationary pressures are likely to remain in place as overcapacity persists. Take for instance the steel sector, where production capacity has increased by 35 million tons as China progressed through its recent mini-cycle.

Within the G10, Australia, New Zealand and Japan are most likely to see the most import pressure to the downside.

* * *

In summary, while Kyle Bass has the ultimate long-term endgame pegged, in the short-term, China will continue to systematically export deflation around the world, and continue to be a significant thorn in the side of central planners everywhere who are trying desperately to generate any type of meaningful inflation and salvage whatever is left  of their credibility.

Source: Morgan Stanley

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skinwalker's picture

My grandfather, born 1919, railed his whole life about inflation.

His last words to me, on his deathbed, struggling to get enough air to push the words out, was to beware of inflation.

santafe's picture
santafe (not verified) skinwalker Jul 2, 2016 9:09 PM

Central planners can't generate inflation? Really? They're the culprit.

erkme73's picture

Spammed by the second post.  Hovering over refresh.  Get that message out, obscured as it may be.  You go Santafe.  

All Risk No Reward's picture

Inflation is an relative increase of money and credit over available goods and services.

Since a privately controlled debt-money system is the rule of the day, inflation is generated by the issuing of credit. Yes, money is created through the issuance of interest bearing debt and that debt must be paid back, interest and all.

In Wiemar and Zimbabwe, they created inflation by issuing debt-free money. America does NOT do that. The Debt-Money Monopolists issue exponentially growing credit in order to create inflation.

Why is it difficult to create inflation (increase debt)?

Debt saturation is nigh.

Prepare now.

JRobby's picture

Well put.

They believed that inflation could be created indefinitely when the math says otherwise.

PhD in ECON? (Laugh Track Deafening!!!)

new game's picture

the goddamn cocksuckers..(thats all).

Stuck on Zero's picture

Central planners cannot create inflation because the centrally planned economic statics departments have decreed that inflation is zero. It's one department working against the other.

All Risk No Reward's picture

"Pretend inferiority" is a Sun Tzu Art of War tactic.

They are laughing that we buy into their con artistry.

They never thought it could go on forever, they just told us it could believing us to be gullible (correctly regarding the masses).

Krugman isn't stupid... HE'S PAID TO DECEIVE...

Krugman to Lietaer: "Never touch the money system!"

"Didn't they (MIT economics professors) tell you, never touch the money system!"
~Paul Krugman

"You are killing yourself academically if you touch the money system."
~Paul Krugman


Inequality: Why are the rich getting richer?

Debt Is Not a Choice

How To Be a Crook

Renaissance 2.0

Debunking Money

Stop laughing and really dig deep into the depths of the deception and the evil.

JRobby's picture

If the down voters did not like that link, they will hate these:

How the Ashkenazi Jews conquered the West

Jews and History: Lies Galore

Have a BLAST!!! HAPPY INDEPENDENCE DAY!!!!! (Laugh Track Deafening as dead debt slaves are bulldozed into a massive pit dug out of chemically fouled earth)

I voted for myself to make it even. Go out to your "Independence Day Celebration" and hug a Jew Banker. Don't miss any loan payments slaves

erkme73's picture

I can't speak for others, but it's not the articles to which I object.  It's his incessant need to obscure it, posting it EVERYWHERE.  I'd have no issues is he did as you do.  Paste them in clear text so people aren't tricked into an unrelated article.

Billy the Poet's picture

His last words to me, on his deathbed, struggling to get enough air to push the words out, was to beware of inflation.

William Finn's picture

Not, "thanks for being a good son" or "take care of your family". That guy must have REALLY hated inflation.

JRobby's picture

Hysterics from a couple of Billy & Willy

Day 3 of your 4 day drunk, are you at about what? a steady 1.8 to 2.2? Time to jump behind the wheel and go get some more!

Escrava Isaura's picture

Morgan Stanley Explains One Big Reason Why Central Planners Can't Generate Any Inflation


Because they never did it. That’s not the central bankers function.


Central bankers exist to rescue the 20% from failed capitalism. The rest 80% are not the choosers because they’re the losers.


roddy6667's picture

Americans who are less than upper middle class are sliding backwards financially. They are at a 1967 level of disposable income now.  The uuper middle class and the rich are doing absolutely fabulous!

This is a formula for civil unrest, so the old standby of Bread And Circuses has been wildly boosted. Americans are watching TV, sports (same as TV, no participation allowed), movies, video games, and their phones with glazed over eyes.

It's sooooo easy to control them!! Like shooting puppies in a bucket.

CJgipper's picture

The only people doing well are those that have access to the 0% loans.  Everyone else is getting creamed.

max2205's picture

I guess Chinese will buy moar houses and golf courses 

maskone909's picture

Can morgan stanley recommend any good guillotine blades?

Jtrillian's picture

That simply is not true. 

There has been plenty of inflation where the "stimulus" has gone.  It has gone into the markets themselves and specifically to the 1%.  It has made the wealth gap worse than ever.  Mike Maloney has shown time and again how the expansion of the money supply correlates almost directly to the markets "false recovery".

If it had been invested in jobs and restoring the middle class I guarantee you there would be inflation in other areas of the economy.  The problem is that the 1% only only consume so much so you don't see it anywhere but in their respective portfolios. 

Because of the fiscal policy to reward the corrupt and ultra-rich, we are on the verge of massive STAGFLATION (although they refuse to call it that and prefer the term "stagnation").  Prices will increase as a result of supply shortages due to businesses failing.  We will see it first in the retail and energy sectors.  But it will carry over into virtually every economic sector.  Credit markets will dry up again and millions will lose their jobs.  This time around governments will either have to default or quadruple down once again on massive debt (assuming that the people don't revolt in the process).  We're at 19+ trillion in US national debt today.  I imagine 100 trillion easily in the next eight years in order to keep the train from derailing. 

It's funny that when all the money went to the 1% they called it "stimulus".  If it goes to the working class, they call it "helicopter money".  It doesn't matter though.  Debasing the money supply always causes inflation... even if you don't see it.  Do you really think that printing more money doesn't dilute it in the process?

What we have witnessed over the last 10 years is the worst fiscal policy from the central banks in the history of mankind.  It has yet to play out.  Like heroin, it can feel good at first and even give one the perception that everything is awesome.  But eventually it takes more and MOAR until the user quits or dies.  QE has been heroin for the economy. 

All that's happened with all this QE is the stealth wealth theft by rewarding the same banks who caused the financial collapse with more money via debasement - making what everyone else has worth less.  They have effectively taken ownership of all assets in the market by buying everything up (bonds, mortgages, equities).  This will usher in the age of the corporate fascist state with the Central Bankers and their owners at the top, followed by the big banks, the deep state, corrupt politicians, major corporations (including the mainstream media), the military industrial complex, and finally the military/police.  Everyone else will be peasants.  If democracy exists at all it will be an illusion with the sole intention of keeping the peasants from revolting. 

Surely this will cause significant social unrest and uprisings all over the globe.  It's already happening.  They will try to turn us against ourselves with "divide and conquer" tactics using the corporate controlled mainstream media.  They will soon outlaw free speech and call anyone who questions their government an extremist or terrorist.  There are many examples of how this is happening already. 

If all of this sounds like crazy talk then here, take this cookie.  I promise that as soon as you're done eating it you'll feel right as rain.

Those who are awake appear insane to those who are still asleep.  I wish there was a way to wake people up before it is too late but many people DO NOT want to see the truth because they are too stubborn to change their pre-existing beliefs (a.k.a. Cognitive Dissonance). 

Our only hope is to take back our respective nations from these sociopaths and restore the voice to the people before all is lost. 

I fear that may never happen.  I hope I'm wrong.


ACES FULL's picture

Thoughful analysis,thank you. In some ways I feel that people are waking up but a couple of recent encounters leave me with a sinking feeling that very few really"get it" especially among younger people. Maybe it is more prudent to use your foresight into the future to position your family and yourself in the best possible circumstances to survive and maybe even thrive in the future that seems destined for us. Kind of like getting caught in a rip tide,let's its natural motion bring you back to safety instead of flailing around{trying to warn everyone,especially the ones would dont want to hear it}and drowning yourself. Personally,I am very conflicted inside over should I continue to try to make a difference for everyone or just my immediate interests only. I'm constantly trying to fine tune that balance. As for our own personal success I think it's imperative that we remain diversified and agile so that we can respond quickly to the many challenges coming.

roddy6667's picture

I haven't met one American under 30 who understands how things  work. That's why I don't preach to them. It's the old saying, 'If I have to explain it to you, you won't understand".

Shibboleth's picture

I always say: when I don't understand it, it's not because of me.

drstrangelove73's picture

How about "I don't understand it,shame on me..."?
Might be a more productive attitude...

All Risk No Reward's picture

BTW, Neo was not the one. Seriously. Youtube that phrase and it is proven to be true!

Money is NOT printed. It is lent into existence. This doesn't permanently debase the currency, although it will temporarily appear to do so. And by "temporary," I mean several decades or more, depending on how the system is run.

In the end, using credit to "inflate" is equivalent to creating excess claims on limited underlying assets.

Those excess claims WILL BE EXTINGUISHED, which is deflation BY DEFINITION.

And it makes common sense, too. The Banksters run this show and they will want to trade their trillions in cash and debt paper for real assets FOR PENNIES ON THE DOLLAR. After that, they might hyperinflate to balance their books, but the newly asset stripped masses won't have much to protect by that time.

GreatUncle's picture

Even if the value does not enter the economy directly by its existence the total value of everything changes.

The real economy shrinking in relative terms in the end it stagnates debt overload crushes it in relative terms.

So how do you reverse and expand the real economy?

Winston Churchill's picture

It was always their money.They just us play with it for awhile.
Now they want it back.All of it.Between NIRP and asset buying they will.
Get back to work serfs.

new game's picture

if, fucking- one big if, the rate of usery was set by the market..(keeping it short).

Son of Loki's picture

Proliferation Of Retail Bankruptcies Will Create Havoc For Upcoming Mall Refinancing

Much has been recently written about the proliferation of retail bankruptcy filings for such chains as Aeropostale, Sports Authority, Fairway Foods, Radio Shack and others.  There has also been substantial prognostication that the recent bankruptcy filings in the retail sector are just the tip of the preverbal iceberg of what is yet to come. What has not been fully considered is the domino effect of these cases on the mall landlords, the landlords’ lenders and other retailers in the mall.

The domino effect takes on many permutations.  History has shown that many others besides the mall owners and their lenders will be severely impacted if the renewed financing cannot be obtained, or it is so expensive with a significant interest rate hike that the mall cannot be operated efficiently.

This overall situation has the chance of cascading into a death spiral for many older malls and those serving small and rural communities.  The U.S. is already plagued with vacant and shuttered malls which have created problems for lenders and local taxing authorities.



poor fella's picture

The stimulus is also an extension of 'trickle-down' - and regardless if it has ever worked before, they have now tried TRILLIONS of dollars. If that doesn't work (for Main St. - because it DOES work for the .01%), it may be prudent to try a few quadrillion or even a quintiliion dollars more.

The Fed is a one trick pony - built to save the banks, which it can always do - at the expense of EVERYTHING ELSE.

xyzcracker's picture

I can't take any more inflation. Just stop it already.

Winston Churchill's picture

If you still have it after three hours, seek medical help.

el mago's picture
el mago (not verified) Jul 2, 2016 10:36 PM

Morgan Stanley, haha! When was the last time a zionist spoke the truth?

I care less what a bank says. I have no fiat. They can inflate it to the moon if they want to. I have my food, gold, and silver. The mob should unite and bypass this fraudulent zionist fiat currency. If we all agree to barter, or trade gold and silver between us, they can shove their paper where the sun don't shine.

The Duke of New York A No.1's picture

If the FED and Treasury would just start covering their (and their Agents) paper Gold & Silver shorts, they'd start getting some inflation.

teslaberry's picture

macro economics is just neuro-linguistic brainwashing. talk to a phd in economics. they will look at you as crazy if you speak truth about how the world works, because they are taught that the aggregate statistics produced by various bureacracies are god given facts on nature, as if they are the result of some sort of empirical scientific investigation. some of them buy into it like religion, the others just don't care about the truth and are offended by anything challenging their expertise dependent career jargon. very much like any other preisthood and it's special language. if you challenge the language it is seen as an attack on their very existence and so all rhetorical and non rhetorical stops will be used to defend the statistics. 


gdp is like the name of god. it is unassailable.

All Risk No Reward's picture

They are taught that debt doesn't matter. If they want a job, they better pretend that is true. Then there is Paul Krugman the Bankster propagandist that relishes in lying to the masses for his 30 Shekels of silver...

Krugman to Lietaer: "Never touch the money system!"

"You are killing yourself academically if you touch the money system."
~Paul Krugman

Here's how the debt-money monetary really works to systematically fork over ordinary human beings around the globe...

Inequality: Why are the rich getting richer?

Debt Is Not a Choice

How To Be a Crook

Renaissance 2.0

Debunking Money

itstippy's picture

"gdp is like the name of god. it is unassailable."

Precisely.  And GDP measures the amount of fiat activity, not the amount of true productivity.  For example:

A skilled electrician in my area earns about $50K per year.  This provides him with a good level of purchasing power because he lives in a low cost-of-living area.  He installs a certain amount of electrical wiring per year.  His counterpart in a major metropolitan area earns about $150K annually for installing the same amount of wiring.  His purchasing power is about the same because he lives in a high cost-of-living area.

Krugman et. al. insist that the second guy is three times as productive as the first.  These economists don't care how much wiring is actually installed, only how much fiat is moving around.  The second guy pays lots more in Federal Income Tax, municipal tax, etc. and is therefore much more valuable to the economy (in their minds).  

These idiots think that an Amish community that raises a barn over a weekend using lumber from their own trees and nails from their own forge have produced NOTHING, even though the barn will stand for a hundred years and house the livestock that produce meat & milk for generations.  Because those Amish didn't move any fiat around with their barn-raising, it wasn't "productive".

Son of Loki's picture

True. Also, a large portion of the GDP is "Government spending" but tell me what do gubmint employees actually produce? How much do they add to our society? Hiring a few hundred thousands losers to stand at airport check-ins to grope people is questionably productive?


An engineer produces.

A doctor produces.

Electricians, carpenters, manufacturers, and too-many-to-count small businesses, etc produce. Yet these are the very people the gubmint has crushed the last decade or two.

Some of biggest gainers have been the Chinese who now have a huge fairly wealthy middle class due to USA Corporations and Gubmint-- mainly Congress and Obama--- handing them all our jobs and buying their exports. The Biggest losers are American middle class productive workers. Even the guest on NPR said that the other day. [PS: I'm sure he'll NEVER be invited back].

Interestingly he also said the top 1% in America and the welfare class have gained the most in America due to corporate bailouts and handouts and the bottom 10% due to big increase in free shit. [He didn't say "free shit" but I'm paraphrasing him.]

Interestingly Trump 's major platform is to create jobs as well as "bring them back."

Hillery's platform doesn't even mention jobs---she only mentions more money to ZATO, more welfare to "the oppressed", more illegals, higher taxes, more war and more H1B visas.

So it's no surprise Trump has strong support among the middle class and small businesses.

Cthonic's picture
GDP = C + I + G + (X - M)  ; so long as GDP is growing, G could equal (or exceed!) GDP as far as macroeconomists are concerned.
NoWayJose's picture

There is plenty of inflation if the Fed decides to step outside of its Shangri-La Headquarters and see how real people live.

poor fella's picture

Fed members actually live in Xanadu - and babies' blood will keep Greenspan alive for another 50 years.

LoveTruth's picture

Every fund manager who believes there is no inflation should be fired.

Friendly advice: Check out NUGT etf. (I've been holding my positions and adding since march)

The Real Tony's picture

That's the problem you can't even buy gold and silver stocks because of the gross overvaluation of everything on the stock markets. Gold stocks already have gold priced at 2,000 dollars and silver priced above 50 dollars an ounce but most of it is because stocks in general are the most overvalued in history. The smart money is of course in physical gold and physical silver. I wish those 3X gold etf's didn't erode so quickly so you could hold them longer than 6 months.

LoveTruth's picture

Why 3x etf erode? Mine have not. It more than double actually since March.

GreatUncle's picture

So hows all the free trade working out for you?

You can't have nations on the Keynes path that have different levels of value for the same thing trading under the banner of free trade. No matter what anybody says all central banks are now Keynesian and trying to manipulate fiat to make their economy add up.

They thought they could make free trade a reality and now they can't get growth = inflation.

Not surprised.

Dr. Bonzo's picture

CNY has weakened over the last year or so versus the Euro, Yen, and Dollar and is helping to explain the continued undershoot of inflation in Japan and Europe - and we would add in the US....

I think it's funny people call 10% annual inflation "no inflation."

Increasing the money supply 1700%? Not inflationary. Wages in China rising? Not inflationary. Home prices in Hong Kong have risen 300% over the last 6 years. Rents have risen correspondingly. Good news! Not inflationary. Cost of meat, milk, dairy, eggs.... motherfucking everything under the sun is up 30, 60, 120%.... more good news! Not inflationary.

I don't know what the FUCK on earth analysts keep cooking up this "there is no inflation" bullshit except at central bank coolaid parties, but the world in which I live and breath the price of fucking AIR is up. You dumb fucks don't want to actually pull yourself away from your computer screen and actually go measure the actual goddamned actual price of actual shit in the actual world, that's your motherfucking problem.

hooligan2009's picture

hahaha...typical econmoists view of something that is much simpler...

most countries are driven by consmption of goods

ever notice how when you buy something it goes down in value (eye roll)

fuelling consumption - fuels depeciatiin and hence deflation

mark one up for the three year olds!!!

it all depends on how you define inflation...d'uh

Woodrox's picture

another spin on Kyle Bass central banker quote that QE only works when your the only one doing it

hooligan2009's picture

ayone that thinks any single or group of central banks has any influence at all is seriously deluded-- he was looking for what to front run next

BouncingCat's picture

They all desperately want to spark significant inflation to reduce the real value of the massive debt.  Think a $15 minimum wage is about sharing, caring, and being fair to people (socialism)?  Not it's about trying to spark significant across the board pay increases to stimulate inflation.


They've failed at creating inflation, but succeeded beyond the wildest dreams is spending out the wazoo and leaving the bill for future generations.