Looking at the Monetary Base chart here it would seem that inflation should be off the chart - Why is inflation under 2% as the fed claims? Yes, I know they under-report inflation, but from the post 2008 4X expansion in the monetary base we see here it seems logical that double digit inflation would result. What is the true impact of this expansion of the money supply?
Ahem..... How fortunate that I saw this thread, I will explain ALL to you, and you'll soon feel grateful. Inflation is LOW because your mum is the one who goes shopping and not you, and she being a woman (most women are not business savvy) she only notices rise in prices and doesn't notice lower net weight in packaging and more air in packaging etc. INFLATION IS 11-12 % "IS" as in, have you been to the store lately. But don't worry, I am probably wrong and one of the FED apologists will chime in with mathematical correction on how things really are
The large expansion of the money supply alone may not result in high inflation. A fast expansion of the economy combined with increasing of interest rates generally accompany high inflation. I have yet to see any signs the economy is entering a period of a rapid expansion, rather only Obambo telling us there is a slow expansion occurring. With the 4.4 trillion dollar expansion in the fed's balance, I think the US could experience double digit inflation if the economy takes off but that could take years. The CD interest rate peaked at about 20% back in the 1980's and we also had double digit inflation. I hope we do not see those ruinous conditions again.
UCantEatBonds: I think you are correct. My mum hasn't done shopping for me for forty years so I see first hand exactly what prices are. Actually, we see this kind of inflation in many places. My favorite example is home appliances. Maytag now builds appliances to last about ten years whereas they used to build them to last thirty. They cost 3x more although the price on the box is unchanged. Having said that, I still don't see the kind of across-the-board inflation that one would expect given the dramatic increase in the money supply indicated by the above chart. If you look at food commodity prices they are higher than 2008 but not fourfold (exceptions are meat and dairy). Oil is trading about the same now as it was in 2008 but if you consider that one dollar is worth 1/4 of what it was in 2008, than oil is 1/4 the 2008 price??? That makes no sense.
Wheaties, I'll help you out here. Monetary base= cash deposits + reserves Reserves = required reserves + excess reserves Here is a chart of excess reserves. Does it look similar to the chart you posted? http://research.stlouisfed.org/fred2/series/EXCSRESNS The Fed began paying banks interest to hold excess reserves which means that while the monetary base is expanding like you showed, not all that money is actually in circulation. And of that money that is in circulation, most of it is in stocks, real estate, art, collectibles, land, etc. Hence why those items listed are at or near record highs.
Maverick, you seriously believe we are going to believe anything the FED is saying? Central/commercial banks and their Ponzi scheme, err.... I mean their fractional reserve system, are the ones creating all that financial mess we are in today (inflation for example) , end of story.
There is nothing to believe or not believe. The data explains the current market environment to a T. Nobody is debating this data, the debate is over the interpretation of the data. Every bank in America reports their reserves. We know how much they are holding and we know that money is not in circulation and we know that is the reason why a loaf of bread is not $100. We also know individuals are using "their" savings to buy assets hence why those assets are trading at record highs. This is all supply and demand analysis and pretty straightforward. Where the argument is, what will happen if the banks were to aggressively start lending out all their reserves and therefore put this money into circulation? Obviously the Fed would try to create an environment where that money has some competition by raising rates. Also, lenders would want to be compensated for the perceived notion that inflation will pick up so they will demand a higher interest rates for their loans. The question is, and nobody knows the answer to this, would rates be able to compete and where is that equilibrium? Since the market is not being valued properly right now, it's very difficult to try to ascertain what the fair value of rates will be when we enter that environment. That uncertainty is where the rub lies.
Umm, I said "banks". Banks report their excess reserves. This is NOT the same thing as the Fed's balance sheet. Why do I get the feeling this dialogue is not going to go anywhere. LOL.