When major institutions are suggesting that the Fed and other central banks have printed so much money that it can never be reversed, you know you have a problem. We have constantly been hearing about a recovery. But what exactly has been done? Central banks are still trying to stimulate even though in all previous instances, central banks would wait for conditions to worsen to begin supporting the markets. This time, they never even stopped. The problem is that you cannot fix anything with central bank activity. It has been documented in 100% of cases that their actions only make matters worse. Good luck.
What you have to understand is that the CB has a dual mandate. Low and controlled inflation Full employment Also, support the financial system and maintain stability in reference rates (funding rates). From the gov and fed's standpoint there is no problem. They are doing very well. Financing rates are low globally. Global competition is forcing rates lower due to things like competitive devaluation and debt overhang. Debt overhang from previous stress in the financial system is relieved through QE and CB policy initiatives. Raising rates puts pressure on over indebted actors in the modern financial system. If you want to support real GDP then there is no benefit*** (most are over indebted or carry substantial debt). ***This is the political opinion part of this, and where people disagree. According to neo classical economic theories, raising rates is only necessary to cool inflation and/or disincentivize malinvestment. This is one of the reasons that the US is so strong (and getting stronger). The consumer can absorb massive amounts of debt, replacing huge amounts of spending with debt service payments. This is supporting unprecedented expansion in debt markets due to the success of central bank policy initiatives. (only constrained by the dual mandate). It's kind of funny. Over indebtedness is causing debt deflationary pressure (limits inflation), and since the utilization and increase in debt is grows nominal GDP, it translates to gains in real GDP. It's making ZIRP the thing that grows the economy. Financialization has strengthened American competitiveness re GDP growth. The side affect is a 'no turning back' type of situation where the debt can't ever really be unwound. Basically you have to "grow your way out" of this situation. There are winners and losers in this, but it is kind inevitable given the developed nations advantages in the global economy.
I don't have time right now to discuss in depth, but there are 2 important factors you have not mentioned... 1) The Fed (US Central Bank) can only create money. The Fed can not create debt. Debt is created by Congress. A sub-topic within is the collapse of Bretton Woods. Since 1971, US treasury debt is allowed to be used as collateral for more borrowing, thereby, debt is used as money, and that money is interest bearing, thereby creating more money! A simple example is funding a brokerage account with T-bills. This "feature" shows the fed's creation of money is only one source of inflation. Debt is created by Congress. 2) Interest rates affect only NEW (govt) debt. Original interest rates on EXISTING (govt) debt is not affected, only sale price of existing (govt)debt is affected, and is only pertinent if/when a holder was to sell or transfer rather than hold until maturity. Additionally, in the non-domestic market, currency valuation is as important, perhaps even more-so than the interest rate itself.
Can't have hyperinflation if the created money never enters the real economy, and instead just plows into stock and bond markets, which it has been since way back in the 1980s.
The poster has failed to recognize that it is the amount of money in circulation and readily available to purchase goods and services as tempered by demand in relation to productivity that normally exerts the primary influence on inflation. In the short run, it is not the total amount of money that matters, but rather whose hands the money resides in. It is demand for credit that is the main determinator of "the money supply," and as demand for credit is only very weakly affected by small changes in interest rates, the money supply -- the part that matters-- is a factor largely out of the control of central banks -- unless at interest rate extremes, of course. I would take issue with the statement that, " It has been documented in 100% of cases that [Central Bank Activity] only make matters worse." I am not interested in supporting or rejecting current U.S. Central bank policy. Rather I am cautioning against the invoking of a too-simple, conventional wisdom. Though there is no technical limit on how much money a government can issue, there are limitations on productivity and demand for goods and services and real assets. There are also factors limiting the demand for bonds, which absorb money by acting as a a temporary storage vessel. And one imagines that there must be an ultimate limit to the servicing of bonds via interest paid. Let us keep in mind that the U.S. does not have to borrow to spend, and in Modern Central Banking, bonds serve an entirely different purpose than the raising government revenue.
The poster has failed to recognize that it is the amount of money in circulation and readily available to purchase goods and services as tempered by demand in relation to productivity that normally exerts the primary influence on inflation. In the short run, it is not the total amount of money that matters, but rather whose hands the money resides in. It is demand related credit that is the main determinator of "the money supply," and that is only weakly influenced by interest rates. It is a factor largely out of the control of central banks. I would take issue with the statement that, " It has been documented in 100% of cases that [Central Bank Activity] only make matters worse." I am not interested in supporting or rejecting current U.S. Central bank policy. Rather I am cautioning against the invoking of too-simple, conventional wisdom. Though there is no technical limit on how much money a government can issue, there are limitations on productivity and demand for goods and services and real assets. There are also factors limiting the demand for bonds, which absorb money from circulation by acting as a a temporary storage vessel. And one imagines that there must be an ultimate limit to the servicing of bond interest and the demand for bonds. Let us keep in mind that the U.S. does not have to borrow to spend, and in Modern Central Banking, bonds serve a different purpose than the raising government revenue.
Since 2009 all we have had is a massive expansion of debt - when this mega bubble bursts, it's going to be something spectacular! I will go long on every rally like I have been, but you can bet I am all about being an aggressive bear when the turn comes on this insanity at historical extremes.
All is good as long as we have China to import deflation from - oh wait a sec Dump says hold my beer.