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0 pointschrisco2555y ago0 comments

If you're talking about the U.S. that's mainly due to our reserve currency status and nothing else. And the money printing has driven certain sectors higher even in the face of low / stagnant growth. Stocks, real estate, etc being some of them.

But you gotta understand that we export a great deal of our inflation. One day those dollars will come home to roost, but until then, Germany's balance sheet looks a hell of a lot better than the U.S.'s. going into this recession. Our deficit is already $3 trillion this year and climbing rapidly, with debt levels reaching their highest in relative terms since World War 2. And we haven't even scratched the surface of this deep recession yet.

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eru5y ago

The American Dollar was the world's reserve currency in the 1970s as well. They still managed high inflation.

The subdued American inflation despite QE has a more technical and contingent explanation: the Fed started paying Interest on Excess Reserves (IOER) in 2008. Ie they reward banks for keeping the money they are printing out of the economy.

Most of the time since then, the interest on short term US government bonds hasn't been much higher than the interest on excess reserves. So there hadn't been much aggregate economic impact when the Fed bought government bonds with new money.

The banks slightly preferred excess reserves over government bonds, because they regulators preferred them.

The QE was 'sterilized' by IOER.

chrisco255OP5y ago

We decoupled from the gold standard in 1971, so there was quite a bit of digestion that had to occur with the switch to fiat. I agree the Fed has acted to keep a lot of money out of the economy but our M1 money supply is still only just over $4 trillion. However, if you look at dollar denominated debt in the world it is probably more than $100 trillion...so ironically there's more demand for dollars than there ever has been (as those debts must be paid in dollars), which has caused deflationary pressure on the USD.

RobertoG5y ago

That sounds like a very ad hoc explanation, what about Japan then?

chrisco255OP5y ago

Supply and demand applies to money and velocity of money matters. The velocity of money in Japan has declined along with the aging population. This is a problem we face in the U.S. as well. So you can't just look at M1 money supply in isolation to determine if market will show inflation or deflation in prices.

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0 pointschrisco2555y ago0 comments

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eru5y ago

The American Dollar was the world's reserve currency in the 1970s as well. They still managed high inflation.

The banks slightly preferred excess reserves over government bonds, because they regulators preferred them.

The QE was 'sterilized' by IOER.

chrisco255OP5y ago

RobertoG5y ago

That sounds like a very ad hoc explanation, what about Japan then?

chrisco255OP5y ago

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