I was asked: Whatever Happened to Inflation after all this Money-Printing?

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Share on RedditPrint this pageEmail this to someone

So where’s my free lunch?

I was asked once again why all this central-bank “money-printing” along with global zero-interest-rate or even negative-interest-rate policies haven’t caused a big bout of inflation, considering how currencies are getting watered down.

It’s a crucial question that baffled many minds for a while, but now, as this thing has been dragging out for seven years, bouncing from one major central bank to the next, without end in sight, the answer is becoming clearer.

This chart by NBF Economics and Strategy shows the growing pile of assets, expressed in dollars, that the “four big central banks” – Fed, ECB, Bank of Japan, and Bank of England – have heaped on their balance sheets: nearly $11 trillion. This does not include what China is doing. The forecasts for 2016 and 2017 assume that the Fed and the Bank of England will stay away from QE, that the BoJ will add annually ¥80 trillion (with a T) to its pile and the ECB €60 billion, with exchange rates unchanged:

Big-Four-Central-Bank-Balance-sheet-2007-2017

Consumer Price Inflation v. Asset Price Inflation

So this global binge of QE has caused inflation, a lot of it, but not consumer price inflation. It has caused rampant asset price inflation, with stocks, bonds, real estate, classic cars, art… all skyrocketing over the years.

Just about the only major asset class that didn’t experience gains is the commodities sector. There, prices have collapsed. And we’ll get to that in a moment.



So why has QE caused rampant asset price inflation but little consumer price inflation? Because the money never went to consumers – in form of wages. They would have spent most of it, thus driving up demand that could have created some inflationary pressures in consumer prices. But they never got this money.

OK, there has been confiscatory inflation in parts of the consumer price spectrum, for example in healthcare and college expenses. This chart by Advisor Perspectives shows that since 1991, college tuition and fees have soared 338% and medical care 167%. Increases have accelerated since 2001, through heck or high water…

US-inflation-medical-college-1991-2015

So folks with kids in college and chronic medical problems have been getting whacked by inflation. But that form of inflation has been going on for many years and has been caused by factors other than current monetary policies.

So why has QE not caused a big bout of consumer price inflation? Because the money has been channeled to big financial and corporate entities, and they plowed it into financial and other assets (including share buybacks and other forms of “financial engineering”), thus pushing up asset prices.

As asset prices jumped, people holding these assets got richer and invested their gains, thus propagating the asset price booms. These already wealthy people didn’t need to spend their gains (what Bernanke called the “wealth effect”) because they already were spending all they wanted to spend. So the asset price boom had little impact on consumption and thus didn’t create inflationary pressures from consumers (however, some luxury items like yachts did see a spurt of activity).

Wage Deflation

QE and ZIRP put a priority on capital rather than labor. So inflation-adjusted wages for the lower 80% of households have declined, a trend that started after the real-wage peak in 2000, and accelerated with the Financial Crisis. Since 80% of households have less spending power, and a good part of them much less spending power, consumers can’t spend as much unless they borrow more, and this too keeps a lid on consumer demand and inflationary pressures.

This chart by Advisor Perspectives shows that chez the top 5% of households (dotted black line) and the top 20% (blue line), things don’t look too bad in terms of inflation-adjusted mean income. The 1% is mercifully not shown separately. But what has happened at the lower 80% of households (circled in red) is wage deflation:

US-household-income-by-quintile+top-5-percent

The Fed keeps a hawk’s eye on wages, especially in the lower 80% of the workers. Its goal is to provide cheap labor to corporate America. And when wage inflation ticks up, the Fed can get quite radical about rate increases.

But because cheap labor makes for bad consumers, the Fed is trying to make cheap debt available to them, turning them into debt slaves, problem solved, for the moment.

So this is one lesson we learned: QE channeled to financial and corporate entities causes asset price inflation, not consumer price inflation. And it tends to exacerbate wage deflation at the lower 80% of households.

One of the exceptions is rent. When residential property prices soar, rents tend to follow. And rents have increased sharply in many cities. But unlike stocks, people have to live in these units, and when rents move beyond their reach, all kinds of things happen, including property price crashes.

Malinvestment, Gluts, and Deflation

QE and zero-interest-rate policies (ZIRP) cause something else: an insidious “search for yield” when investors try to earn a discernible yield in an artificial zero-yield environment, which pushes even conservative investors way out on the risk curve as they search for minuscule and diminishing traces of yield. Their efforts compress yields on risk assets further. And so we end up with utter absurdities, such as risky junk bonds yielding less than 5% in 2014. Now investors are getting wiped out with this things.

This activity floods entire and very risky sectors with huge amounts of money for way too long. The result is “malinvestment” in unproductive assets and activities or in too-crowded sectors, which causes overproduction and gluts, such as in ocean container shipping, US oil & gas, mining & metals, other commodities, even ghost cities in China…

Gluts cause prices to collapse, as we now see. And when prices collapse, the capital that went into these sectors gets destroyed. Malinvestment is a terrible thing.

This collapse of energy and other commodity prices, including agricultural commodities, is filtering into consumer prices and pushes down consumer price inflation. In this manner, over the years, QE and ZIRP create deflationary pressures!

But the Fed’s efforts to get households to borrow more to make up for lower real wages have led to, let’s say, mixed results. And look what happened to per-capita mortgage debt. Read…  Which State Has the Most Per-Capita Household Debt? Despite What You Think, it’s Not California



Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Share on RedditPrint this pageEmail this to someone

  91 comments for “I was asked: Whatever Happened to Inflation after all this Money-Printing?

  1. Cae
    Dec 27, 2015 at 1:38 am

    Cheap/easy money goes where it’s directed and thus inflates those prices. Student loans prop up tuition rates as do low Mortgage rates prop up real estate prices, etc…
    Asset inflation is strongly fueled by the availability of easy money. Healthcare and education are not assets, but the govt intervention of easy money has fueled their price increases.

  2. Frank
    Dec 27, 2015 at 2:26 am

    I live in the SF bay Area. This is not true here. There is Inflation (and shrinkflation with food) in EVERYTHING and has been since the crash. The exception is gas prices recently although when Obama took office in Jan 09 oil was similar price as today yet reg gas was $1.75/gal, today its $2.55/gal. That’s cumulative 45% inflation, the gov says the CPI is 10.2% for the same period! Add cable TV, internet, cellphones, BART, ferries, bridge tolls, restaurants, entertainment, water, PG&E, garbage, groceries, insurance (just to name a few) to your list that are far outpacing the stated CPI.

    When you add housing (or rent), healthcare and college costs one needs a minimum 6-8% annual raise for inflation just to keep up. This is reality, not CPI lies from the gov. All people that are not rich feel this strain every day. It is the cause for the growing number of poor in our society and shrinking of the middle class.

    This is the story that needs to be told, not that there is no consumer price inflation.

    • CrazyCooter
      Dec 27, 2015 at 4:16 am

      Move.

      Regards,

      Cooter

      • Petunia
        Dec 27, 2015 at 10:22 am

        It’s the same story in Florida where the cost of living is suppose to be cheaper. Retired people are really suffering here and this is where they came to cut their living costs.

        • a guy from Ukraine
          Dec 30, 2015 at 2:53 am

          You should visit Ukraine to get an idea of what REAL inflation is all about. We used to have moderate wages that could keep up with the price inflation until the US-orchestrated coup with the puppet rulers imposed by the US had the country turned upside down last year. Now our currency had been deflated 3-fold crushing all the way down from 8 to 25 UAH per dollar and all prices rising accordingly in the span of one year only. My monthly salary went down from an equivalent of USD 800 which is quite a good amount here to USD 300. To get an idea of our prices, suffice it say the average gas price is USD 3 per gallon here is rising with the newely baked taxes. Retired people (and even many on the working class) are starving and many commit suicides not being able to pay for housing expenses. Will you hear this sort of information from your CNN talking head?

      • Mary
        Dec 28, 2015 at 9:49 am

        So, stop whining and just relocate?

        Easiest thing in the world. From Mexico to Syria, folks are heeding your advice.

        • pennie woodfall
          Dec 31, 2015 at 6:24 am

          Mary, what an ignorant remark.
          Worse coming from a ‘sister.’…
          so called….

        • Dec 31, 2015 at 9:11 am

          I think you missed Mary’s irony (at least that’s how I read it).

    • Max
      Dec 27, 2015 at 5:16 am

      The homeless do well in SF though, at least the weather is nice.

    • Cae
      Dec 27, 2015 at 11:01 am

      I live in the SF Bay Area as well and the success of Apple, GoogLe, et al and the advent of VC money has been a major factor in price increases. But keep in mind that CA has about 1$/gal gas tax, Bart and the ferry , the bridges, etc… are govt monopolies, and local services charge what the paying market will allow. There’s a lot of money washing around the area right now.
      I live part of the year in New Mexico and I can tell you it is far cheaper in every aspect except where the govt has a monopoly.

      • economicminor
        Dec 27, 2015 at 12:32 pm

        The ONLY time when Free Enterprise is better than a government monopoly is when there is competition. In the above matters you mention, I guarantee you that it would be much more expensive if private corporations with NO competition took over.. Just look at what is happening with certain medicines.. a corporation buys out a drug and raises the price.. You don’t think that would happen if a totally private enterprise took over the local bridges and Bart? Not to mention what would water cost? You are kidding yourself it you think it is all because of government… The people who work on those public infrastructures have to live at the extreme prices that the top money corporations have imposed upon SF and the Bay.

        • Cae
          Dec 27, 2015 at 4:44 pm

          My point is that these are monopolies and deciding which poison is better , public or private, is a foolish arguement. They’re all bad. The fact that my tax dollars are used to support these entities is also annoying. The only saving grace is that I can choose to not use them. To some degree. Leaving the state works very well, too.

        • economicminor
          Dec 28, 2015 at 1:15 am

          Cae, I guess you want to live where there is no publicly funded infrastructure.. you might try India. Lots of garbage and sewage in the streets there.. Your argument is specious.

        • Dec 29, 2015 at 3:07 pm

          Good luck getting the government to stop the big corporations preying on people. In our fascist environment, the distinction between big corporation and government disappears. Most government regulation has the effect of driving the smaller competitors out of business.

          Look at rental protection laws for example. It drives the small landlords out, who don’t have the resources to comply with minutiae and lawsuits. This restricts supply and drives the cost of renting up. The only kind of “protection” this is, is the fox protecting the chicken coop.

          People need to abandon the government religion. It helps those in government and their cronies, not the rest of us.

    • Vespa P200E
      Dec 27, 2015 at 5:02 pm

      I live in SF east bay suburb and concur with Frank.

      Granted Comcast, PG&E, Allied Waste, ATT/Tmobile, EBMUD (water and sewage) bills don;t account a whole lot but reality is that they have been creeping up. My home and auto insurance bill goes up every year often in double digit despite no accident or ticket for last 20 yrs.

      Restaurant are another matter with even the hole in the wall Mexican restaurant hiking bills thanks to OBozocare or something. I often take lunch to work as eating outside for takeout is $10.

      And add the housing components which forces more $$$ to be spent. Real estate broker friend told me that rent in 2 bdrm apt in so so hood in Dublin Cali went up $1k to $3.5k forcing the renter to buy.

      No wonder the fabled middle class are shirking taxed out as “poor” can get section 11 housing, food stamps/EBT cards, PObozophone, welfare, etc. while driving decent cars toting smartphones.

      • Mike G
        Dec 27, 2015 at 8:31 pm

        Yes, you really bolster the gravitas of your argument by using terms like “OBozocare” and “PObozophone”.

        • Vespa P200E
          Dec 28, 2015 at 1:42 pm

          So how’s that hope more like HOAX and change and so commuinist sounding “forward” working out for ya?

  3. guido
    Dec 27, 2015 at 3:05 am

    “One of the exceptions is rent. When residential property prices soar, rents tend to follow. And rents have increased sharply in many cities. But unlike stocks, people have to live in these units, and when rents move beyond their reach, all kinds of things happen, including property price crashes.”

    Tying in rents with property prices and a subsequent crash is a very simplistic thinking.

    I live in SF Bay Area.

    Property prices were going up even before the rents started taking off. The rents have started taking off only in the last 2 years. The property prices have been going crazy for a while now.

    IMO, the property prices here went up because of Facebook kind of IPOs along with the Chinese money.

    The rents have gone up because of start ups that are funded by Fed money. Almost everybody has a job now. The places to rent are few.

    The properties on the market have stopped moving as fast but the rents are still going up. The rents will come down even if these start ups don’t go belly up — this is due to a lot of rental apartments about to hit the market before the next school season starts.

    Thus, there are two factors at work. Asset prices and Chinese money laundering.

    The point is that conflating various factors at work only ruins an otherwise well written piece.

    • CrazyCooter
      Dec 27, 2015 at 4:35 am

      It is a false market. Or, at best, a very temporary one.

      San Francisco is to technology what Detroit was to auto manufacturing. Find any machinist in 1961 with a gig in Detroit that wasn’t “nothing but blue skies.” While time lines may vary, this is San Fran.

      Detroit USED to be the place to be. Find an old guy (gal) who lived there, did the clubs, the restaurants, you name it. They will wax fondly about how it used to be.

      And so used to be Rome.

      Computing technology, as I have commented in the past here, is a K-Wave that is very long in the tooth. InfoTech is in the commoditization phase and many tech company valuations are presuming that future growth looks amazingly like past growth – and it isn’t true.

      Deflation is coming to InfoTech, and industry whose leaders have no experience with dealing with declining anything. They are NOT prepared and will not lead well and it will not be pretty.

      In the technology space, no one does anything NEW. I am tired of hearing about new this, new that, and all the buzz words and corp speak like disruption and the like. All that has happened in the past, say, five years, is that stuff people do online “socially” has coalesced into a small number of franchises.

      That is it.

      The last “new” thing to really hit the market was the “world wide web” which went thought many iterations of underlying tech. This changed stuff.

      Doing it on FaceBook, or on your iPhone, doesn’t.

      For reasons I don’t want to get into, CPUs haven’t really advanced since the early aughts (they can’t get smaller/faster – they added more cores instead but that only works up to about 8 of the buggers). Drives, storage, bandwidth are all things you just buy units of from the best/cheapest source. It doesn’t matter any more.

      Folks in InfoTech who think they are entitled to their good paying middle class jobs that are about to be slowly squeezed by commodification. Just like the Detroit machinist.

      When I hit my 60s, San Fran is going to be a s**t hole, just like Detroit – which by the way used to be the WEALTHIEST city in the whole US.

      Tax base and employment – keep an eye on that.

      Regards,

      Cooter

      • interesting
        Dec 27, 2015 at 7:39 pm

        “CPUs haven’t really advanced since the early aughts”

        i haven’t had a fast computer since my old Pentium 33mhz, an old dos machine where i bought the most ram i could, created a ram disk and loaded everything in that virtual drive, the thing just blinked when i hit regen………my wages stopped growing around the same time, 1997

    • Dec 27, 2015 at 10:17 am

      Guido, rents and property prices are strongly linked. Commercial property prices (such as apartment buildings) are justified by the hoped-for revenues the properties can generate. And those revenues are rents or leases. They don’t move in lockstep, but they move together. In SF, property prices started to climb in early 2012. And that was about at the time when rents (which never came down that much during the crisis) also started to soar. Look up the data. I’ve been writing about the soaring rents in SF for a few years now. It has been called a ” Housing Crisis” (the extreme state of soaring rents) for at least the past two years.

      I know, time flies…

      • chris hauser
        Dec 27, 2015 at 11:54 am

        supply will overtake demand. and all unicorns will not fly. there’s only so much arithmetic to go around.

        there was an article in the washington post, 2005, i think it was, that said given the average appreciation of house prices in dc area, by 2030 median house would be $14 million. or was it 2040?

        just don’t let the house drag you down, or the unicorn eat all your hay.

    • Vespa P200E
      Dec 28, 2015 at 1:52 pm

      SillyCON valley has succumbed to the gravity albeit late in the cycle. Last time was in 2002 when ex-high tech worker turned cabbie picked me up from San Jose airport lamenting on the tech downturn. Lot of start-ups in the SF area struggled when what appeared to be “easy” money evaporated in 2008 and 2009.

      Lot of young kids who grew up in rather narcissitic world where it appears everyone is a winner don’t know what’s coming ahead. Take a look at the unicorns in cusp of crashing down many valued less than VCs generous spiogots. And when the slew of start-ups with same and often dumb ideas run out of cash (and unable to raise once abundant cash) the bottom wil fall out with the rent and housing prices to follow as supply and demand is bound to catch up in the housing market.

      • Bob
        Dec 29, 2015 at 11:05 am

        Couldn’t agree more. I grew up south of there in the 70s and 80s. This is fairly routine but the next crash I fear will be particularly brutal as the next wave of hopeful millionaires will get crushed with their stock options being worthless and they will be saddled with huge mortgage debt. It’s cyclical and its overdue.

  4. Jonathan
    Dec 27, 2015 at 6:35 am

    @CrazyCooter

    “For reasons I don’t want to get into, CPUs haven’t really advanced”

    Yup, computing never fundamentally changed since the 80s except doing the same old things much much faster, and even then software complexity and bloat grows at a faster rate than the speed of chips.

    It always amuses me seeing techno-futurists who drinks the Singularity Kool-Aid fetishing over how Moore’s Law will bring us to AI utopia when my PC built in 2015 cannot even do something as simple as like booting Windows instantaneously. There’s so much attention on Moore’s law IMO only because of the utter lack of any world-changing technological breakthroughs for the past 2 decades.

    Back to economics, I don’t see how demand can go up when everyone on this planet is saturated and sick of gadgets…No I don’t want your stupid idea of having my house lights connected to the Internet.

    • Petunia
      Dec 27, 2015 at 10:39 am

      Even though I share your attitude about the future of tech, I think we are both wrong. My son’s Xmas wish list was all tech and music. His friend bragged about the new router he received. Times have changed.

    • chris Hauser
      Dec 27, 2015 at 11:47 am

      not so many kids sitting in starbucks creating apps these days.

      and as to the internet running my house, that’s gonna require a new house.

      • economicminor
        Dec 27, 2015 at 12:47 pm

        and a lot of money hooking it up.. the geeks that invent all this stuff have those wonderful upper middle class jobs and can afford all this new techno stuff but as Wolf and many others have documented, incomes have not gone up even though things we need have.. Thus leaving less and less for most people to add a smart phone enabled lighting/heating/AC/cooking enabled systems to their homes. Thus the audience for the NEW tech is shrinking and will shrink even faster IF/when the interest rates rise.. Which I know is going to happen, not because of the FED but because of the losses due to all the malinvestment..

        I see the FED/gobbermint’s only real hope in preventing an immediate catastrophe is to start putting money in everyone’s bank accounts and forget about trying to lend us more..

    • prepalaw
      Dec 27, 2015 at 11:48 am

      Cooter or to others,

      why can I not buy a regular cell phone with a stronger antenna to give me better reception. Or, why don’t cell phone manufacturers offer a regular phone, with a switch to link it up to a satellite service. I seems to me that the utilitarian features of a cell phone are not being advanced. There may be better software – but no one offers more powerful hardware.

      I bought my first business computer in 1980 – it had 2 x 5-1/4″ disk drives – one for the software disk and the other for the data disk. The unit with a black and white screen and a key board cost $12,500. Every new version of the spell checker or spreadsheet program or general operating program cost $600. I was in heaven – that machine eliminated one secretarial job and paid for itself with labor savings in less than 6 months.

      35 years later – the personal computer has made enormous strides – but again, the utilitarian functionality seems to have peaked 5-years ago – I am running Windows 7 Pro on 4-year old Dell laptops.

      The biggest improvement for me in the past years has been text to voice and voice to text transcription with a very high accuracy rate. I use the free Google voice program and work in English and German. The time savings is incredible. In 20 years, keyboards will be forgotten and handwriting known only to those practicing calligraphy. Verizon gives me text printouts of all voice voices messages for $3.00/month. That is worth it for me because I travel in areas with very poor cell phone reception (mountains and rural areas) – when reception is a available for a short time, I get the transcripts of the voice messages – when I can not reliably connect to a cell tower to call my voice mail.

      The unfortunate thing in a personal service business is that people expect immediate responses to their concerns. And, I can react in a timely manner where ever I am.

      • Nick Kelly
        Dec 27, 2015 at 6:23 pm

        I think you are probably correct in that written language will be largely unknown to a large slice of the population in 20 years, but I don’t think of it as an improvement. Rather I see it as the next big step in the dumbing down of the lower class and under class.
        This has already been tried once with ebonics, a kind of simplified English for blacks, that was shot down because it was race based.

        You sound like an intelligent guy- anyone who is fluent in more than one language has my admiration and envy.
        So I assume that from time to time you research a topic.
        What are you going to do in this future you imagine- have the computer read aloud to you?
        As someone who has had to do a bit of research for money and lots for my own curiosity, I can hardly imagine something more frustrating than receiving information audibly.
        BTW: have you looked at a mechanic’s car manual recently?

        But for many members of the illiterate class that I know- it would make no difference- because they never research or learn anyway.

        You can notice the collapse of general knowledge even in the middle class. People can have some kind of specialized expertise, or work for the public sector, and have virtually no knowledge of history.
        They won’t know when World 2 was, or who were the the main parties involved. (I had a girl friend who didn’t know which country Hitler lead but that was a bit unusual)
        I am amazed how many guys, even ‘car guys’ who don’t know how a car engine, or a lawn mower engine works. They don’t know what 4 stroke means. They don’t know what 60 HZ on the back of an electric appliance means.
        I am a former teacher who watches the field try to wriggle out of its poor performance- they would LOVE to be off the hook for teaching reading and writing and your suggestion fits perfectly.
        BTW: they already try to explain to parents that not every kid is an academic- and what are the academics: reading, writing and arithmetic (math)
        Note that the word ‘academic’ has two different meanings in each sentence. In the first it means an ivory tower, professor- type book worm. In the second it means the basic skills for a citizen.
        So when the school says not every kid is an academic- they may be saying you don’t need to be able to read or write.

        I agree that in 20 years what we call basic literacy will be in further decline, but you can bet that the upper class will be literate and social mobility will be much harder.
        Literacy will be required but entitle you to a place as a mandarin.

        PS: industry already does its best to weed out illiterates hiding behind their computer: many applications require a hand written covering letter.

      • CrazyCooter
        Dec 27, 2015 at 9:15 pm

        “I am running Windows 7 Pro on 4-year old Dell laptop”

        Because it works. That is what commodization means. Back in the 90s, folks upgraded because that new PC meant they couldn’t make a pot of coffee while they waited for a spread sheet to open – time is money. That isn’t the case anymore.

        A business in the 90s had to figure out how to have a web presence and even retail online. Some adapted, some didn’t but ultimately customers picked winners and loser.

        This exact same outcome is going to hit all manner of “info tech” companies that write software, provide products and services (accounting to online advertising) where the dust settles and the capital owners start to focus on minimizing overhead costs after the intellectual heavy lifting is done and things are in “maintenance mode”. Just think and consider the talent required to BUILD a high rise and the talent to MAINTAIN a high rise – that is what is happening – the “info tech” construction boom is over and the “info tech” (building) owner just needs to keep s**ters flushing and rent checks coming in the door.

        Antenna and reception is physics and infrastructure. This is one of those spaces where one can’t paper over crappy infrastructure/design/etc. It works or it doesn’t. I can say if it was easy, it would work – so it is either expensive or complicated (or both).

        Personally there is a great satisfaction going for a walk/hike and losing cell signal – it feels like freedom. But I appreciate your need to stay wired.

        Regards,

        Cooter

        • Davep
          Dec 29, 2015 at 11:45 am

          The computer has morphed from a productivity enhancing asset to a popular wealth depleting liability with planned obsolescence celebrated with consumerist lust. When your whole attention is focused on Facebooks virtual neighborhood its easy to ignore the shithole your physical and emotional environment has become.

  5. Kevin Beck
    Dec 27, 2015 at 6:56 am

    One other place this money went was to “money heaven.” As stated in the paragraph about financial assets, it also extinguished the bad debts in some of these sectors. But the amount of bad debts in the world economy is far greater than the amount of new money that’s been “printed” since 2008. Therefore, it will take massive money printing, far more than what’s happened so far, before consumer inflation will take effect.

  6. Dan Romig
    Dec 27, 2015 at 7:16 am

    Wolf, you are spot on with these assessments:

    “Because the money has been channeled to big financial and corporate entities, …”

    “The Fed keeps hawk’s eye on wages, especially the lower 80% of the workers. Its goal is to provide cheap labor to corporate America.”

    “… the Fed is trying to make cheap debt available to them (consumers), turning them into debt slaves, …”

    As Thomas Jefferson stated, ” If the American ever allow private banks (which the Fed is) to control the issue of their money …the banks and corporations that will grow around them (Citigroup, JPMorgan Chase, Goldman Sachs etc.), will deprive the people of their property until their children will wake up homeless …”

    Ben Franklin stated, “The refusal of King George III to allow the colonies to operate an honest money system which freed the ordinary man from the clutches of the money manipulators (the Fed today vs. the Rothschild empire then) was probably the prime cause of the revolution.”

    The USA was founded on the principle of an honest fiat currency. That principle has been sold out to the Fed, and until the Treasury takes back the power to issue currency, we will remain in servitude to the private bankster cartel.

    Happy New Year!

  7. Jungle Jim
    Dec 27, 2015 at 8:53 am

    If any proof was needed that the Fed is either corrupt or incompetent, this is it. People can’t spend money they haven’t got. So, what does the Fed do ? They pay the banks above market interest rates to keep all of that QE money OUT of the economy where it might be spent.

    Here is a link worth checking out

    https://finance.yahoo.com/news/federal-reserve-will-pay-banks–12-billion-in-2016-165253054.html#

  8. lawisevil
    Dec 27, 2015 at 8:57 am

    There has been deflation the likes of which you have never seen. All that money being created is simply being destroyed by massive losses and unheard of bankruptcies.

    What the article misses is the people who have been getting the money (the banks) have been hiding their losses and have been doing a job that is right out of the Bernie Madoff and Enron playbook.

    The reason all those prices increased for various services and goods is because the banks used all the free money to double down after 2008 to try to become solvent again. IT DIDN’T WORK. ALL THE COMMODITY PLAYS THEY MADE HAVE BACKFIRED AND IT IS CLOSE TO THE TIME WHERE THEY CAN NO LONGER HIDE THE LOSSES.

    If you look at every commodity, just about everyone of them is 50% off their highs. Soon even oil will be $10 per barrel. The banks still own oil at $100 per barrel. They are in the same situation with copper, aluminum, cotton, corn and on and on and on. Mark to fantasy accounting rules are letting them get away with hiding the losses but soon they will not have any money to even pay their basis bills.

    If you as an individual reading this have half a brain you must get your money out of the casino (Wall Street) and out of the banks immediately and put it in treasury direct or literally under your mattress. If you can, try and sell any hard assets you own such as a house and rent.

    About 1/2 of the 3500 or so banks in the US will disappear literally overnight. Anyone with hard cash (dollars) will see that money explode in value so that $500K home will sell for 1/2 or even 1/10th its current price.

    • Petunia
      Dec 27, 2015 at 10:50 am

      Just saw “The Big Short” movie. It was a reminder of how little anything has changed, in the financial system, since the financial crisis. I can easily envision it all happening again.

  9. Yoshua
    Dec 27, 2015 at 9:17 am

    The U.S oil consumption is 15 million b/d – the production is 10 million b/d = and imports are 5 million b/d.

    The European oil consumption is 14 million b/d – the production is 4 million b/d = and imports are 10 million b/d.

    As long as our economies are fueled by oil and we are net importers of oil, I guess that low oil prices benefits our economies, even if one sector of the economy hurts ?

    • Dec 27, 2015 at 11:01 am

      Low fuel prices are the cart behind the horse; the consequence not the prime mover.

      Prices are low because customers are broke. The marginal customer somewhere in the (globalized) World is broke.

      Customers are broke because the drillers have first call on credit; the drillers’ customers are starved of it. The more the drillers’ borrow the farther they fall underwater; the less able the customers are to retire the drillers’ loans.

      In general, the term ‘sustainable’ means the ability of company to have its loans retired by its customers’ borrowings instead of by the government or by way of its own lender(s).

      The crash in price indicates the entire fuel industry — Exxon-Mobil, Chesapeake, Hess, Saudi-Aramco, etc. — is insolvent.

      • Yoshua
        Dec 27, 2015 at 12:34 pm

        Are we heading towards bankruptcies and a wealth transfer on a global scale where oil companies and oil wells end up on the balance sheets of western financial institutions ?

  10. Paulo
    Dec 27, 2015 at 10:07 am

    Your article nailed it.

    regarding: “But because cheap labor makes for bad consumers, the Fed is trying to make cheap debt available to them, turning them into debt slaves, problem solved, for the moment.”

    I am beginning to think the oligarchs/corporatists simply hate their fellow man. They certainly thrive and focus their energies with their boots on the necks of citizens, and do so for their own gain and screw everyone else. Their foot soldiers are their Govt. minions marching to the proganada media band.

    Jon Corzine has continued to avoid prison. The bank sector and investment cadre continues to thrive, much like tapeworms. Violence and anger has been misdirected towards ‘outsiders’, while the parasites continue to take over important aspects of society. Bread and circuses for the masses further enrich the .01% who own the franchises. It is tragic.

    • economicminor
      Dec 27, 2015 at 1:15 pm

      “But because cheap labor makes for bad consumers, the Fed is trying to make cheap debt available to them, turning them into debt slaves, problem solved, for the moment.”

      Except this is/was the ONLY answer because the FED does no control the greed of corporate leaders.

      Lending first to corporations to increase production caused a glut of products. The corporations did not need to increase wages of the people who produced these products because there is a glut of people in the world willing to work for basic subsistence which didn’t leave enough disposable income to purchase the production.. This is truly mal investment.

      SO the banks (the FED) decided that in order to get repaid for their mal investments they needed people to buy the production at market rates high enough so that the corporations could make a profit and pay back their loans… SO they lent to We the People… And We the People were dumb and greedy enough to think we could spend tomorrow’s income today on a production that wouldn’t last the length of the loans.. So they extended the loans or lowered the interest rates… and even lowered the qualifications of who could borrow..

      In the end, We the People spent all of tomorrow’s income and now have no more ability to borrow because during all this, the corporations that could, like the health care scam and the education scam and the Industrial Arms Complex all raised their cost to us..

      I believe we have crossed the peak and just haven’t really started down the other side of this gigantic bubble of debt begat debt that begat more and more debt. 2015 will have been a year to remember as it was the top of the insane bubbles. The junk bonds are just the beginning. This will accelerate into 2016 and then the rest of the debts will start to collapse. How fast? Probably much slower than you would expect but fast enough to scare the hell out of everyone. I think the corporate debt balloon will facilitate the collapsing private debt balloons and that will cause a total collapse of purchasing power and on and on… right into the next Presidential election..

  11. Dec 27, 2015 at 10:53 am

    Wolf Richter, the reason why there was/is no inflation after ‘all the money printing’ is that there never was any money printing (not by central banks, anyway). ‘Money printing’ is an Internet meme straight out of ZeroHedge and Peter Schiff.

    Central banks hold assets but they didn’t generate them out of thin air; the private sector ginned them up out of thin air. Contrary to popular (Schiffian) opinion, Wall Street does not need anyone’s help to lend money to itself! Before 1913, US banks got into trouble for just that reason, lending to each other far in excess of what collateral they held deemed reasonable.

    Central banks are collateral constrained; they cannot make unsecured loans; the security being loans made by others. The central banks by necessity are constrained in this manner, they have to be, they are reserve banks, they cannot fulfill their function — lenders of last resort — if they offer unsecured loans.

    Commercial lenders make unsecured loans, by doing so they become insolvent. What is underway right now is the mother of all insolvencies as lenders around the world have overextended themselves.

    If central banks make unsecured loans they are no different from commercial lenders; the outcome is no lender of last resort, no guarantor for deposits => runs out of banks, credit markets, even currencies (as is being seen in EU/Greece, China, Japan, Argentina, etc.).

    @Wolf sez:

    “They (workers) would have spent most of it … “

    Non, non mon ami, they would have spent ALL of it, then they would not have had ‘it’ any more. At the end of all roads are bankers desperate for repayments. That is the workers’ purpose: to retire the (massive) debts taken on by their betters. Even without QE or NIRP there would be the flow of (borrowed) funds toward tycoon-enterprises and their creditors.

    “Where did all the printed money go?” There never was any. The CBs (excess) reserve holdings are only deployed if there is a call for them … as during a bank run, when the commercial lender’s balance sheet has imploded.

    • economicminor
      Dec 27, 2015 at 1:24 pm

      “Where did all the printed money go?” There never was any. The CBs (excess) reserve holdings are only deployed if there is a call for them … as during a bank run, when the commercial lender’s balance sheet has imploded.”

      OR when there is massive bankruptcy and the loans from the banks are not repaid. Isn’t that why there is such huge reserves at the banks now? In anticipation of the inevitable?

    • Kam
      Dec 27, 2015 at 3:40 pm

      Steve:
      The Fed has a symbiotic relationship with the U.S. Treasury. And it is this relationship that provides the basis of the core financial illusion.
      Primary dealer banks bid on U.S. Treasuries and are fully back-stopped by the Fed. Rather than the Fed buying Treasuries directly, they go through the above pretext and handsomely reward the primary dealers for their part in the public display of pretend demand for government debt.

      Today the Fed is the largest holder of U.S. paper-
      December 23, 2015
      US Treasury Bills (T-Bills)
      US Treasury Notes and Bonds (Notes/Bonds) 2,346,579,113.6
      US Treasury Floating Rate Notes (FRN) 59,743.8
      US Treasury Inflation-Protected Securities (TIPS)* 98,534,104.2
      Federal Agency Securities** 32,944,000.0
      Agency Mortgage-Backed Securities*** 1,757,757,418.1
      Total SOMA Holdings 4,235,874,379.7

      That’s 4.3 Trillion- or about 4 times the holdings of China or Japan.

      In other words- the security held by the Fed, for the largest part of the Fed’s assets, is future U.S. taxes. A curious proposition with decades of unending deficits.

      To Wolf’s article- I think the numbers show we have been through huge inflation- stocks and commodities- all funded on margin by the Fed’s beggar-thy-citizens policy, resulting in nearly unimaginable folly in capital investments to produce more commodities.
      Now we are experiencing massive oversupply combined with declining demand. All as a direct result of the Fed, like the old Kremlin, deciding they are the market, and have the wisdom of the gods.
      Money is being destroyed on the back end of this insanity as fast as it was “created” on the front end of it.
      In the classic Capital/Labor trade-off, ZIRP and QE strangled job creation, as replacing people with technology (capital) was subsidized by the Fed’s thumb on the free-market interest rate scale.

    • Nick Kelly
      Dec 27, 2015 at 6:36 pm

      At one point after the 2008 crash the US had to farm out some printing of the 100 bill to Switzerland because it had exhausted the capacity of domestic industry.
      Of course the central bank doesn’t have to physically print money to create it , anymore than you have to physically send 500 bucks to a relative.
      The FED injected money into those banks it deemed worthy or at any rate to big to fail, but it didn’t print it and then deliver it.

  12. chris hausrr
    Dec 27, 2015 at 11:44 am

    um, seems to me that prices are sticky to higher in “regulated” industries. try getting at&t to compete against verizon. ha. and so on, etc.

    as to liquidity, some have it, most don’t. as to solvency, you have to have something to dissolve.

    look at new jersey’s taxes versus ten years ago. and you have to pay an exit tax to leave. might as well have to go to a bail bondsman.

    my insurance deductible went from 1750 to 2750 “because the 1750 isn’t offered anymore.” meanwhile, the premium only went up 1%……. without revealing too much, 1000 divided by 12 = 83.33, which translates to a 20% (i’m rounding down here to be generous) rise in hidden obfuscated premium, and i have to go to their doctors, etc etc.

    and utilities, eight different charges on the bills, etc etc

    i could go on, but when energy starts to rise, sooner or later, so will inflation……..

    • cd
      Dec 27, 2015 at 12:31 pm

      The fed will create inflation via commodity rise in 2016, so let it be written so let it be said….

      they have too, saving face is important….they have everyone leaning short on commodities….expect the opposite, though it will not be because of demand picking up. It will just be….

  13. Yancey Ward
    Dec 27, 2015 at 12:20 pm

    I have long argued that the inflation showed up in the assets much more strongly than in consumer goods. My long-run prediction remains unchanged- eventually, the holders of the appreciated assets will attempt to turn them into consumables (think retirees spending down, or much younger heirs finally getting their hands on the assets). At that point, the inflation transfers itself from assets to consumer goods, or the assets deflate a great deal as more people try to sell them. I predict the central banks will end up with massive QEs buying up all the financial assets in attempts to stop the asset deflation.

  14. mike gunderson
    Dec 27, 2015 at 2:11 pm

    Look at corporate greed as a result of this easy money. Apple gets to borrow vast amounts of money close to zero percentage to pay its dividend yet when it is suggested it pay more taxes it screams like a stuck pig. 140 billion dollars overseas in their coffers is an example of their refusal to payback this country for the infrastructure provided that allowed a company like Apple to flourish. Its payback time Apple, GE, and Whirlpool!

  15. faustus
    Dec 27, 2015 at 2:28 pm

    Surely inflation measures such as consumer inflation do not work anymore. For example, one component of inflationary pressure, wage inflation is not fully borne in the UK, by employers . Instead tax credits top up low incomes. As most indexes examine supermarket goods or other staples then failing to take into account that employers do not need to increase wages as much ( the state does some of that), inflation is not being measured correctly. Perhaps better to concentrate on services such as lawyers bankers etc. Who are not getting tax credits?

  16. MichaeltheArchangel
    Dec 27, 2015 at 2:33 pm

    I have 100. dollars. I loan it out. I’m being paid back in intervals. However I soon realize my extravagant lifestyle requires more money. So i print up more money to represent the SAME investment of 100. dollars ? With no new capital, how is this Legal? Isn’t that the same as stealing?

    • david
      Dec 27, 2015 at 7:14 pm

      it used to be called counterfeiting, that is if you and I did it. its called business as usual when the govt does it

  17. SgtMilstar
    Dec 27, 2015 at 3:28 pm

    Everyone forgets most of the US Dollar is overseas. When it returns (Dollars) back to the USA inflation will begin. 66% of the US 100 Dollar bills are located overseas. When was the last time you saw a 50 Dollar bill?

    • Petunia
      Dec 27, 2015 at 4:14 pm

      Actually the atm machines in Florida started giving out 50’s recently. Maybe it is an acknowledgement that a 20 doesn’t buy much anymore.

  18. Merlin
    Dec 27, 2015 at 5:23 pm

    Most commented article I have seen on Wolf’s blog this year. Not sure whether this is an outcome of more folks being off this holiday weekend with time to comment or the magnitude of the topic on personal finance and quality of life when the crash comes. According to my crystal ball, 2016 will be another unpredictable year. So, hunker down!!

  19. ejhr2015
    Dec 27, 2015 at 6:18 pm

    QE is an asset swap [the simplest explanation]. No new money is involved;

    http://bilbo.economicoutlook.net/blog/?p=661

    I don’t think QE has anything to do with ploughing money into share buybacks and the like. That is happening because the economy is in deflation and firms don’t see reasons to invest in work when buyers are scarce and likely profits are not there. Buy backs give shareholders the illusion of work and progress, but it’s not a sign of confidence in the economy.

    • Dec 27, 2015 at 7:06 pm

      Asset swap: the Fred created assets and “swapped” them for securities => it created US dollars and used them to buy Treasuries and Agency securities from its primary dealers (broker dealers like Goldman). It’s that simple. And it did it for one major purpose: inflate the prices of all assets since it was creating new demand. And in that respect it worked.

      • ejhr2015
        Dec 27, 2015 at 9:52 pm

        You make it sound like money is created to do this, but it’s not. The existing money value is simply shifted to another account, like transferring from a cheque account to a savings account. Once it’s parked inside the Fed reserves its status rises but it doesn’t earn any interest. It’s supposed to add to bank reserves but as Bill Mitchell explained that not necessary to allow banks to lend. So basically the whole exercise is futile.

      • d
        Dec 28, 2015 at 12:01 am

        Monetary policy actions, take a long time to completely flow through.

        In 1929, Fed, did to little, to late.

        In 08 QE1 did what it was supposed to do (The stroke, that was missing in 1929 IMHO). QE 2/3 and the policy’s that went with them, did as you say, inflated assets, that stayed locked in the high wealth corridor/%, of the economy.

        Turning workers into cheap credit slaves, and destroying the middle class. The destruction, accelerated, with the addition of O bummers social engineering policy’s.

        Either this is what the Fed intended, and it is the evil entity, everybody claims, or the fed expected, flow through/trickle down, it did not get.

        The Jury is still out on the Evil Fed, IMHO, 20/20 hindsight is a wonderful thing.

        IMHO QE 2/3 should have been directed at infrastructure. With a “Buy American made, Build with American Entity’s” rider on it.

        Then I believe the American middle class, would not be on its way to the cemetery, as it is today. And we would have. Today. A moving and real Economic recovery in America. Capable of easily withstanding the, correction due now, and most indicators say, about to strike, like a very large, Thermonuclear Bomb (Due to QE 2/3 miss targeting).

        This correction IMHO, will possibly turn into the monster, long overdue, second leg, of a classic Double dip recession, that Fed has staved off since 08 with its misguided QE 2/3 and associated policy’s.

        Either O bummer intends to bury the American middle class for good, So destroying America, or he better get off his A and save it, as it is the engine that drives consumerism America.

        The world as we know it, will not function without consumerism America, or an Immediate HEALTHY replacement for it. China and India, are not that replacement, not even in your wildest dream’s.

        Worse I dont see any other “Immediate HEALTHY Replacement” for the current, stagnant, US Economy.

  20. interesting
    Dec 27, 2015 at 6:55 pm

    “since 1991, college tuition and fees have soared 338% and medical care 167%”

    and my income over the same time period -25%

  21. Dec 27, 2015 at 7:58 pm

    Wolf, can you explain this? I thought the Fed WANTED inflation. Then I read this article. http://finance.yahoo.com/news/federal-reserve-will-pay-banks–12-billion-in-2016-165253054.html#
    “In 2016, the Federal Reserve will pay at least $12.2 billion to U.S. and foreign banks to keep the money created via its quantitative easing programs out of the economy. If the Fed raises rates as expected next year, the amount nearly doubles to $23.1 billion.”

    With commodities plummeting in price, I don’t see the sense in what they are doing.

    Their Dec 15 press release ADMITS that inflation is running under 2%.

    This sounds like an entity where the left hand doesn’t know what the right hand is doing.

    • Dec 27, 2015 at 8:06 pm

      Yes, they did and do want inflation: They wanted asset price inflation, and they got it. They wanted consumer price inflation, and there is some, as there is almost always some, but it really hasn’t moved much since QE started, and is below where the Fed wants it.

      This is not to say that there won’t be consumer price inflation at a magnitude that will even cause the Fed to worry. But not yet.

      I’m one of those freaks who thinks that the only good inflation is zero inflation. Consumer price inflation is a transfer of wealth from workers to capital, and from creditors to debtors (of all kinds). But it doesn’t matter what I want. The Fed doesn’t listen to me :-]

      What they do NOT want is wage inflation.

      • ejhr2015
        Dec 27, 2015 at 9:58 pm

        This trend is only going to get worse; Look at this book by John Lanchester- “The Robots are Coming” reviewed here;

        http://www.lrb.co.uk/v37/n05/john-lanchester/the-robots-are-coming

        The robot revolution will concentrate even more capital and wealth at the top. The government will end up paying a pension to all the 99% so they can exist as froth on the top of a robot run economy.

        • prepalaw
          Dec 28, 2015 at 9:30 am

          This is a very sobering article. I thank you for the link. Some highlights:

          Imagine an economy in which the 0.1 per cent own the machines, the rest of the 1 per cent manage their operation, and the 99 per cent either do the remaining scraps of unautomatable work, or are unemployed. That is the world implied by developments in productivity and automation.

          hyper-capitalist dystopia. There’s capital, doing better than ever; the robots, doing all the work; and the great mass of humanity, doing not much

          the disappearance of 47 per cent of jobs in two decades:

          In the next two decades, 47 per cent of employment is ‘in the high-risk category’, meaning it is ‘potentially automatable’.

          The theme is clear: human-to-human interaction and judgment is in demand, routine tasks are not.

          it is mainly less well-paid workers who are most at risk.

          By contrast, high-skill and high-wage occupations are the least susceptible to computer capital.’ So the poor will be hurt, the middle will do slightly better than it has been doing, and the rich – surprise! – will be fine.

      • d
        Dec 28, 2015 at 12:17 am

        “What they do NOT want is wage inflation.”

        With the mess the big banks, O bummer, and the Fed have created.

        I dont see any way forward without either

        1 A long period of steady wage inflation, or

        2 A long period of steady, and final result huge, asset value deflation, particularly in average home, sales prices/values.

        If the Fed dosent want to accept a long period of wage inflation, then it must accept what it will then need. 2.

        If housing affordability, does not return to the American lower middle class. America will cease to be a first world economy. As to greater % of the population, will be locked out of the asset appreciation, that goes with home ownership, in the current economic model.

  22. Kreditanstalt
    Dec 27, 2015 at 9:57 pm

    Does anyone REALLY think that the new zero-real-growth, zero-yield, zero-real-jobs environment will change BEFORE these central banks are forced to shrink their balance sheets?

    Ever wondered why governments everywhere are, despite zero-real-growth going forward, resisting to the death cutting programs, spending and services? Why ‘extend-and-pretend’ applies to every entity, from companies to funds to governments to central banks? Why no one will ever be SEEN to go undeniably, openly, incontrovertibly bankrupt?

    This system can’t go in reverse. But it eventually WILL.

    • d
      Dec 28, 2015 at 12:24 am

      Implosion, is reverse, in this situation.

      Problem being, when it implodes, what level does it go back to, and what other catastrophes, go with the implosion, or cause it.

      Big war, and all that goes with it, is a way out of this sort mess. that has been used before.

    • Kam
      Dec 28, 2015 at 12:02 pm

      Kredit

      Exactly the point-

      “Why no one will ever be SEEN to go undeniably, openly, incontrovertibly bankrupt?”

      All the self-described TBTF banks were bankrupt on 2008 and are still bankrupt today. Like icing sugar on dog poop. Like Hiliary Clinton telling the truth. An empty shell, a facade, a Hollywood movie “based on real events”.

      Remove government spending (all taxes from someone else’s income or robbing future income via borrowing) and the real economy is a rotting corpse, with the Fed and other Central Banks spraying perfume in the room. None, and I mean none, of them have a clue about providing the conditions to grow private incomes; their only card trick is inflating existing assets.

  23. Lee
    Dec 28, 2015 at 5:26 am

    No comments about Japan……….

    Huge QE and no ‘inflation’ in the official stats.

    Large increases in certain everyday costs for the Japanese such as national health insurance (both costs and reduction in co-payments), national pension, and everyday things like water.

    Energy was going to be the economy killer until the huge fall in prices and the restart of some nuclear reactors.

    With 15 -20% of the housing stock vacant, ‘asset inflation’ in the RE sector is limited to commercial RE and a few areas in the big cities.

    Cheap real estate abounds in the country areas.

    Australia?

    Haven’t checked the monetary base for a while, but the huge change in government finances over the past decade will have a large impact.

    For those in other countries it may not sound true, but when John Howard left office, the Australian government was basically debt free and people were worried about the closing of the federal government bond market.

    How things change. Then the new left wing Labor government at the federal level not only ran up huge deficits, they spent everything that that previous conservative government built up for a rainy day. Now we have about a $600 billion debt and it is being added to at the rate of A$40 to 60 billion a year.

    Huge spending on new stupid programs by the Labor government coupled with falling commodity prices.

    So what did they do? The government started cutting back on areas that were weak as far as people being able to object.

    The Labor government hiked the retirement age to 67. They reduced and now the current conservative got rid of the medical tax credit for medical costs.

    For people that can claim the pension here and move to a country with a bilateral treaty (Unlike the USA you can still get SS if you qualify and live overseas.. at least for most countries. For example, NK is no no) you can get the pension. If you move to a country without a treaty you can not get the old age pension. You are SOL.

    What did they do? If used to be that after 25 years in Australia if you moved you got 100% of the amount. Less than that, 20 years, for example, you got 80% of the amount after 6 months overseas. Now you need 35 years to get the full amount. Started under the Labor government and implemented by the current crop of losers.

    They got rid of the working spouse tax credit. So much for stay at home mothers/fathers.

    And on and on. However, if you have kids or are a new refugee……………….

    • d
      Dec 28, 2015 at 5:57 am

      Juliar did to Aus, what Nanny Clark did to NZ, Screwed it terminally, using the same basic methods that they copied from England and Maoised. After the English proved and declared. Multiculturalism, and massed mixed cultural immigration, DOES NOT WORK.

      It may be possible to rebuild Aus, but it will be hard work, another Juliar type administration will kill it. Clark had 2 runs, 6 and 9 years (As D L was basically her Puppet 84 -90) which makes NZ practically irrecoverable.

      I spend Just under 6 months in Either state, and a few weeks else where, knowing the laws you will know why.

      The Single white Heterosexual man, without dependents, is Public Enemy number 1, in both states.

      Howard got Sodomized by Blair and Bush Jnr. He carried the can for iraq, and Aus carries the can for booting the rest of the party out with him.

      Electorates frequently get the governments they deserve.

      The fools that booted the rest of the party, not just Howard, deserved Juliar.

      Aus didnt.

      The next leftist administration after this lot, will probably brake Australia. Unless its luck holds.

    • ejhr2015
      Dec 28, 2015 at 6:11 am

      A couple of issues with what you say here. Howard did not leave Australia debt free. For starters the government debt is not a traditional debt needing to be paid back. It is the total of Treasuries held in the Central bank. But the sums are banks/investors own money stored in reserve accounts at the federal reserve. It’s like savings accounts which earn interest. Paying it off is simple. The money is withdrawn from the savings side and repaid to the investors cheque accounts.
      Howard left a budget surplus, which becomes a drain on the private sector, reducing the ability to raise GDP, and employment and business opportunities. Austerity.
      Labor is tarred by the same brush. Except they got it right with the stimulus package in 2009, saving us an austerity induced recession. It was just a one off unfortunately.
      Just don’t credit mainstream economics with any understanding.

      • Lee
        Dec 30, 2015 at 2:16 am

        Australia Labor under the Gillard/Rudd leadership was the worst government in Australia since Federation.

        They were a bunch of left wing retards that couldn’t manage a lemonade stand.

        The so called ‘stimulus package’ was the biggest waste of taxpayers’ money ever undertaken.

        In terms of social engineering they started a flood of immigrants into this country that has resulted in the current mess we face in regards to security concerns.

        And as far as your statement about debt, I refer you to the following chart which shows the net debt of Australia:

        http://4.bp.blogspot.com/-6goWIsM6G1A/UckTj1RK3QI/AAAAAAAAA-Y/l7xeukzBgx0/s1600/Chart2+June+2013.jpg

        Look at the year 2006 and see the negative number.

        • ejhr2015
          Dec 30, 2015 at 3:31 am

          Sorry, Lee. The Abbott mis-government took the crown for the worst performance since Federation!
          Contrary to your erroneous understanding the stimulus package was the difference between progress and recession. You have to spend money into an economy so there is money available to pay for more employment and projects!!!
          You clearly [but you are not alone] have zero idea of how money functions in an economy. The Federal government budgets have to be in deficit so that puts money into the economy. Being in surplus takes money away from the private sector. the result is recession, or austerity. That’s what you are advocating. Why would you recommend that?
          Your analysis is completely in error.

        • d
          Dec 30, 2015 at 4:04 am

          There was no Abbot Finaciall miss-government.

          Deficit spending to combat a recession works, in moderation, juliar was told, you can not spend that much, for that long, as you are spending projected mining income, we can not hope to collect, in a down turn.

          Juliar would not listen, which is why she now teaches other militant feminist leftist like herself, not to listen, in American leftist education facility’s. And Australia has her Leftist financial disasters, and social/population engineering, mess to clean up

          Howards surpluses were generated at the top of a boom, when they should be generated (Ie paid all my bills, time to save for the next rainy day) heading into the 08 Disasters. When Australia did not need deficit spending.

          Abbots mistake was to blindly keep backing the war criminals, Blair and baby Bush, when it was apparent to all, that they were in fact, lying war criminals.

          As a result, Australia wrightfully did what few other democracy’s do, threw its prime-minister, completely out of office. Along with his party.

          Then paid the price for it, as they got the, corrupt unionist troll, juliar, in a leftist/unionist internal labour party coup.

          Maggi was good, so were Indira and Golda, as is Angela.

          Juliar and nanny clark, for the good of their country’s, should both have suffered organized still births.

        • ejhr2015
          Dec 30, 2015 at 6:00 pm

          Do you understand what is the “output gap”? Deficit spending [remember the budget is just that; a budget] can spend up to the limit of an output gap without causing excess inflation. I think you understand the government’s limit is the “full faith and credit” it has in the world. That’s all that fiat currency has behind it. Lose that and you get hyperinflation. But the output gap is today very large since far from inflation we are deflating – less than 2-3% growth is effectively deflationary. Demographics is a large part of what’s causing it, people choosing to save and not spend.
          The solution everywhere in the West is deficit spending, a lot of it.
          Sorry to diss your political judgment. It is sorely in error! “Juliar”is a rank amateur compared to Abbott and Hokey [sic] I can direct you to websites that point out 15+ lies in a single Hokey speech. But that would be a waste of my time.

        • d
          Dec 30, 2015 at 9:21 pm

          Juliar was always, and still is, personally, financially corrupt, she was on the union mob tab, from day 1. Juliar is a mob criminal, the name will stay in History, she will not be “Historically reformed”.

          As the first female prime-minister, she was a disaster, far greater than O bummer is in the US she has made it much harder for another to follow her..

          All politicians are liars, it’s part of the business.

          Juliar is a personally, criminally, and financially corrupt, liar.

          A much worse animal than the average liar politician.

          +++

          “The solution everywhere in the West is deficit spending, a lot of it.
          Sorry to diss your political judgment. It is sorely in error!”

          Yes it is, and that is the problem, and my problem with it.

          I am an Austrian, not a Keynesian.

          Short term tenable deficit spending has a place, juliars like so many other was not, short term or tenable, so has, and is continuing to, cause problems.

          The problem is far larger than demographics or deflation.

          The problem is an unsustainable, consumerism based, capitalist model, controlled by the, Chinese American, Global vampire corporations.

          Globalization was supposed to lift the bottom up, globally. Those entity’s hijacked it, with the help of china, to lift themselves and china above everybody else. At the expense of the global middle class. Now having with O bummer, destroyed the American middle class, they realize they have destroyed the, Global consumerism, golden goose.

          Add that, and the unsustainable debt in Europe and china, Some of which has been hidden since WW I, to your demographic facts, and a much uglier picture arises.

          Then consider

          “The CCP, is like the DLA, it dosent know where it all is, or how much, it, and its entity’s, have. Except within the DLA, its inventory, with the CCP, its debt. Both state, and non-state.”

          The DLA has bought at least $7 BILLION worth of goods, it has no past, or future use for, and dosent know where most of it is.

          +++

          Australia will be fine, it has space, resources and is basically still self sufficient. Outside the major urban centers, if you dont, live on credit, drink Alcohol, or take drugs, life is still cheap, easy, and pleasant. Depression and deflation will not change that. It never has.

          Australian immigration policy’s are becoming tougher by the day (wrightly so) I may even have to become one before its to late, as it is a useful place for me, that I dont really want to get locked out of.

          As it gets Uglier globally, and locally, the “Ugly Aussie” will arise, and resolve the immigration problem’s, as they have before. Not nice, but, what has to be, has to be, sometimes..

        • ejhr2015
          Dec 30, 2015 at 10:57 pm

          If you are an “austrian” or a chicago school version of mainstream economics then you will be wrong most of the time. You will believe the trickle down paradigm and other elitist nonsense purveyed for the benefit of the 0.1%. Modern Keynesism [aka MMT] is the way to go. And now with deflation and collapse on the horizon “We are all Keynesians in a foxhole” [Robert Lucas].
          What the Rudd government got right. and the LNP always stuff up, is that budgets have to be nearly always in deficit. Wayne Swan stuffed up by saying he was going to get into surplus. The Australian government will NEVER AGAIN be in surplus, and thank goodness for that! Punters expect it but it just proves few understand macroeconomics and foremost among them are mainstream economists none of whom say the GFC coming and reminded of that by the Queen.
          Big change is on the horizon and the plutocrats are powerless to stop it. In fact they are driving us faster and faster towards our looming end of civilization destruction.
          Harry Dent thinks Australia will do Ok in the short term but how quickly we impoverish our natural capital is a major concern. We must remember that imports are benefits and exports are costs. All we get for our exports are numbers in accounts whereas we get real goods when we import. ETC ETC.

        • d
          Dec 31, 2015 at 1:16 am

          Short term deficit spending can be justified.

          Keynesian will never be the way to go, as there is no such thing as a free lunch, and Keynesian, just like communists, need a free lunch, to run their systems.

          Should Au never return to nett budget surplus, then it is as doomed as all the other Keynesian gay states.

          The lifestyle choice is an inherent part of the flaw, as it states the impossible, that there is such a thing as a free lunch. More Keynesian thinking, imports of fully built good’s are good for the importing country’s, exports bad, imports are only good for the economy’s of the exporters of fully built good’s, aka china.

          And yes the leftist Keynesians, are driving this current, economic, unsustainable, consumerism based capitalist model model off the cliff . Probably it must go off the cliff, for some anti Keynesian centrist reality to prevail.

          We need a sustainable capitalist system, this conflicts with the unsustainablility of the Keynesian model.

          Not everything in the Austrian model is correct, however it is a lot more sustainable, than the massive, regular, boom bust cycles, that are an inherent factor of the developed Keynesian system.

          Debt is poison. To everything, and body, except the lenders at the top of the chain.

        • ejhr2015
          Dec 31, 2015 at 11:10 am

          You haven’t the faintest idea of what you are talking about. Just some right wing rant driving us ever faster to oblivion.

        • Dec 31, 2015 at 11:48 am

          OK, d and ejhr, enough is enough.

        • d
          Dec 30, 2015 at 3:32 am

          “They were a bunch of left wing retards that couldn’t manage a lemonade stand.”

          They knew exactly what they were doing, they were out to do what clark did to NZ, change its ethnic and social balance permanently in their political favor, and make white men, a small, unwanted, voiceless minority, in the country.

          Should Au be stupid enough to elect another leftist administration in the near or medium term future they will have to watch it very carefully.

          When clark returned in open control, not as the puppet master in 99 all the, leftist, anti-whitemen, juniors, she had introduced to the public service, as puppet master 84 -90 were in intermediate positions and waiting for her return.

          The damage they did to the fabric of the country is irrevocable. They now run the public services, only promote, or employ, their own kind, and oppose Keys government at every turn.

          “New Zealand is going to get an awful lot browner GET USED TO IT” senior Helen Clark, Labour Party, politician.

          Australia will have to look very hard at who juliar put in its Public services administration, where. Juliar was not doing anything original. Australia must learn from the behaviors and mistakes of other, or pay the terrible price.

          How long before all the shops in Australia must close, and the traffic come to a halt, five times a day, to please the administrators, of one militant minority?

          Juliar and her kind, would have it like that tomorrow, If they could get away with it, if that was what was required, to keep them in power.

  24. Mary
    Dec 28, 2015 at 12:55 pm

    Great article. As you can see by the responses. In addition to those who seem to be awaiting the Second Coming as embodied in a Trump presidency, there is much very intelligent commentary. This is why we all keep coming back to your site.

  25. ERG
    Dec 28, 2015 at 12:57 pm

    I take issue with the premise that there isn’t much inflation. Sorry, but that is PURE BS!

    Not only does that not pass the sniff test for any normal US citizen who knows in the marrow of their bones that inflation is NOT gone, it doesn’t get past the government’s own statistics if the CPI is determined using the ORIGINAL 1980/1990 methods. Using those numbers – which show the clear progression of how the goal posts keep getting moved in order to deceive the public – we get the CPI at about 7.5% (1980) and 4% (1990).

    The bottom line is that consumer price inflation is alive and well and that if you torture the data long enough you can get it confess anything.

    • Dec 29, 2015 at 8:30 am

      ERG, Anyone who eats, drinks, uses healthcare. insures an automobile
      or owns a home can tell you that inflation for essentials is climbing.
      I don’t care what rubbish numbers the government publish.

  26. Dec 29, 2015 at 2:56 pm

    “One of the exceptions is rent. When residential property prices soar, rents tend to follow.”

    It’s not only property price inflation driving up rents. This period has seen increased “renter protection” laws passed, which inserts government into the renter-landlord negotiation, drives up landlord cost and excuses poor renter behavior. This in turn drives small-time landlords out of the market, choking off supply of rental units and driving up the rental price of the units still on the market.

    • d
      Dec 29, 2015 at 10:40 pm

      America seems to be heading back to the english system, where the majority of rental housing, is owned by “Housing Corporation’s”.

      What are the American “Housing Corporation’s” going to do, when the state regulations, start strangling their profits, and they are by law. Not allowed to sell out, or increase rents.

      The O bummer/Sanders Bots will do that, when it suits them, or they need the votes..

  27. June Genis
    Jan 1, 2016 at 1:36 pm

    What struck me most about the second graph is that of the 3 costs shown the only one NOT showing inflation is the one which does not receive government subsidies. Medical institutions are milking Obama care just as they have Medicare for a long time now. The availability of government backed student loans has allowed institutions of higher learning to keep increasing their tuition rather than focus on cost containment. A new car comes entirely out of your own pocket.

    Years ago I recall seeing a chart showing the relative cost increases for medical procedures that are covered by insurance and those that aren’t. Virtually all procedure costs have increased dramatically but two stand out for dramatic decreases: plastic surgery and laser eye surgery, neither of which is typically covered by insurance. I haven’t seen a recent update but I’d be willing to bet that this situation hasn’t changed.

    Without government subsidies those who supply products and services must find ways to keep their costs affordable or lose business. When the government picks up the tag the sky’s the limit.

  28. June Genis
    Jan 1, 2016 at 1:38 pm

    just adding this because I forgot to check the follow box

  29. hum_dinger
    Jan 2, 2016 at 11:17 pm

    The rich put the $ in their bank account.

    Human nature – when it sucks, u spend. U spend they get residual.
    Residual goes into bank.

    They dont spend it…..unless its election season, and they want favorable regulations/laws.

Comments are closed.