It’s no secret that as a response to the 2007-2008 financial crisis, central banks have been pumping money into the economy like crazy, yet there haven’t been any real inflation problems up until this point. In the United States for example, base money went up about 4 times, from 800-ish billion to 3.2 TRILLION.
However, this inflationary state of affairs was offset by the deflationary fact that after the crisis, people became less willing to borrow and banks less willing to lend. The collapse in money velocity and all that.
The end result is our current situation: a suffering “real” (Main Street) economy which is more under the threat of deflation than inflation on the one hand, whereas there has been an asset inflation phenomenon (real estate went back up, the stock market is at all time highs, domains are doing better and better etc.) on the other hand.
To phrase it differently: deflation on Main Street, inflation on Wall Street 🙂
Or, if you will, one might say that inflation has only occurred when it comes to the things people invest in and not stuff like food/services/etc. thus far.
At one point or another though, I do believe generalized inflation will become a concern.
For example, if base money has to go up 4 times again after the next crisis (so to 12 – 13 trillion dollars), I’m not sure the market will accept it like it did last time.
In other words, it all depends on when the market says that enough is enough.
The market being you and I and everyone else.
The value of money is represented by the trust people have in it. If that trust disappears, people will want to get rid of money and buy… well, anything that’s not money 🙂
Do you think this will eventually happen and if so, when and how do you expect things to unfold?
December 6th, 2015 at 2:18 pm
if not for inflation the balloon industry would be dead.
December 6th, 2015 at 2:54 pm
Printing money out of thin air has to come home eventually. Even a 1% rate increase on interest rates will put many in over their heads. Imagine using a credit card to pay off another credit card. And so on and so on and so on…..
Btc, food and bullets are the future. Fun times!!!! Wooo hooooo!!!!
December 6th, 2015 at 3:00 pm
All the money that has been created seems not to have made its way down to small businesses and consumers. No wonder the inflation targets from the central banks are not being met and deflation is ever a greater looming threat. Could we have hit the point where the sovereign debt levels are now so great that any form of deficit based stimulation is unable to produce growth that is self sustainable. Is the rise of the US Dollar and indicator not of US strength but weakness in most other currencies and especially the Euro.
Just my thoughts.
December 7th, 2015 at 7:32 am
Inflation is with us now. It shows in real estate, stock and asset prices.
— Money printing increases the national debt. If the fed funds rate went to 5% (a fairly low historical interest rate), the total interest on the debt would be greater than all taxes collected.
— Inflation is a number reported by a government agency and those agencies have used hedonic adjustments to show lower inflation. Your 23k car costs 40k now, but it has 2 airbags and antilock brakes now (options worth 20k) so technically it’s 3k cheaper. Only you can’t buy the 23k model anymore.
— Technology and lower quality ingredients have kept food inflation lower. That is causing higher health care costs (think pink slime, hormone infused meat and high fructose corn syrup instead of sugar, gmo grains/monsanto)
— Higher real estate costs lead to higher rents and ultimately increased wage inflation. Immigration, Skype and the movement of people are countering that wage inflation.
Inflation starts to show in the headlines when people stop accepting dollars and the real inflation number becomes impossible to adjust away. We’re not there yet.