THE WOLF STREET REPORT: After All This Money Printing, Where’s the Huge Inflation?

Oh, it’s here alright.

With all this central-bank money printing and zero-interest-rate policies and negative-interest-rate policies, and central-bank liquidity injections, with all these loosey-goosey monetary policies around the globe, why are we not seeing huge bouts of inflation? (12 minutes)

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  113 comments for “THE WOLF STREET REPORT: After All This Money Printing, Where’s the Huge Inflation?

  1. ooe says:

    I am going to tell you why. The recession was severe. it eliminated $ 1.50 trillion of US. economic output and the economy lost 8.40 Million jobs the BHO stimulus plan only created 3.50 million jobs, and it was not big enough per Krugman & Baker.
    then, BHO unwisely listened to the deficit scolds and cut spending in 2010, 2011, 2012 & 2013.
    This caused a liquidity trap which is well-known concept. May be you should sue Stanford because your economic professors did not teach you or you did not pay attention.

    • bungee says:


      he’s saying the inflation IS here. it’s in assets. Although i’d say Stanford’s ‘services’ are probably through the roof as well.

      but inflation in imports is the biggie because it means a drop in the exchange rate. Other countries not willing to part with their stuff for dollars. Definitely not here yet.

      I got a desk lock with a fob reader, two fobs and two cards shipped to my door in one day for under 12 dollars. An okay sit-down lunch (in SF) can cost 3 times that.
      I had to open up the lock and Frankenstein it for a project… it has a motor in there with gears and spring piston and a piezo speaker and little circuit boards. It works. 12 bucks delivered. It’s basically free right now.
      We need cheap imports for everything, including building these houses that inflate in price. From the tools to the screws to the drywall to the plumbing to the labor(!) to the vinyl that the windows are made out of to the key that opens the front door. free stuff.

    • Bobber says:

      I don’t understand why government needed to bail out bad financial players when the free market would have fixed the recession on its own. The “liquidity trap” you refer to is simply a temporary drop in asset prices that allows strong hands to move in and buy those assets for market-clearing prices.

      It was a case of simple supply and demand, but then government got involved and decided bad decision-makers needed to be rewarded and good decision-makers punished.

      • ZeroBrain says:

        Because the game is rigged. Tell me, in what universe is it fair for the Fed to continually devalue the currency and thus force savers’ earnings to either be whittled down or “invested” in the casino, where prices are more influenced by Fed action than any fundamental value? Obviously it’s not fair, decent, or honest, and that tells you all you need to know about humanity’s system of organization. Parasitism is built in.

        • HollywoodDog says:

          I agree. The War on Savers forces us into the casino just to preserve our holdings. I hate gambling, and Wall Street is one rigged house.

        • robt says:

          It’s just a function of democracy, or any regime in history that has needed to maintain order by buying some measure of peace with treats for the masses with wealth that does not exist when the confiscation of the wealth of those who create it reaches its limits. In other words, politics.
          To be fiscally responsible, like telling the truth, is political suicide.

        • RD Blakeslee says:

          “… is it fair for the Fed to continually devalue the currency and thus force savers’ earnings to either be whittled down or “invested” in the casino …”

          The Fed does not force all of us to “invest in the casino”. Some of us have owned hard assets, bought years ago with then-valued dollars, and have not cared ever since where the Fed’s artificial money rigging goes.

          The opportunity for that behavior exists today, just as it always has. Now, as then, it requires the discipline to make hard choices, which enable acquisition of the hard assets.

        • TruckMan says:

          Play a different game. I am bringing down the cost of future living by spending today. Better home insulation, new ‘lifetime’ roof, alternative power, tools for doing my own repairs, etc. I use money now which would only devalue if saved or invested in a rigged market, and I save later when inflation will make things much more expensive.

    • Iamafan says:

      According to SIFMA;
      there was $7,268.7 (in billions) Agency MBS outstanding at the end of 2018.
      That’s about $7.3 Trillion.
      At the end of 2008 (ten years before) we had $4,956.8 of Agency MBS outstanding.
      That’s less than $5 Trillion.
      So in the last decade, instead of reigning in housing loans, the Agencies actually pumped more than $2.3 Trillion more into the RESIDENTIAL Agency MBS.

      Comparatively, NON AGENCY RMBS went down from $2,714.2 (in billions) to $790.8 (in billions) from the years 2007 to 2017. That’s almost $2 Trillion LESS.

      So the Agencies (in conservatorship since Sept 2008) doubled down.
      The US taxpayer is now the real debtor to the houses they likely borrowed on. What’s wrong with this picture?

    • The GFC was initiated when 1T (?) of US collateral went offshore (through legal and illegal transfers), Money that was supposed to back ASSETS was suddenly out of reach. BB panicked and printed 1T more, which is your asset inflation. That offshore money never disappeared, and some showed up in JB’s 2016 Superpac. The Fed sets interest rates, not BHO. and if there was a cut in spending, (chart of national debt suggests otherwise) it was done with Rep Cong approval. (Tea Party). I am afraid too many of us were “paying attention..”

      • Iamafan says:

        Re: The GFC was initiated when 1T (?) of US collateral went offshore (through legal and illegal transfers), Money that was supposed to back ASSETS was suddenly out of reach.

        Can you prove this?

        Let’s see what happened during QE1? Dec ’08 to Mar ’10.
        The Fed’s Balance Sheet reflected $1,068,697,160.7 (in thousands) of MBS purchased. Since the Fed paid for this with EXCESS RESERVES, I doubt the local primary dealers will be allowed to transfer $1T in reserves to foreign bank reserves.

        Off Balance Sheet Custody Account for Foreigners went from (in millions) 2,509,692 from Dec ’08 to 3,012,512 in Mar ’10.
        That’s about a $250 billion increase in around 15 months. Considering our Balance of Trade and Services issues, this looks normal to me.

        Also if $1T left the USA, some of it will show in the Balance Sheet of Foreign Banks doing business here.
        Under Liability (Borrowings) Dec ’08 was $561.2 B. In Mar ’10, than went DOWN to $469.9 B. How to money moved OVERSEAS is a big question mark.

        If banks want to LEND overseas, they can simply create money.
        They don’t have to move the Fed created reserves.

        • There are no official figures on mass corruption. Pallet loads of $100 bills left ME on a C131 for Baghdad where the money was “thrown” out the back of PUs to “contractors.” Abramoff and Delay were funneling campaign money through VC to internet casinos, which were really banks. Private investors were going to seminars on offshore tax shelters. The question where is the inflation sort of begs the answer, there really would have been none, if the crash had been run of the mill, but the obscene gains in assets continue to reflect expansion of the money supply. Periodically the winners take a few chips off the table.

        • Gandalf says:


          Great article about uncovering massive offshored hidden assets:

          It’s there all right. Trillions

  2. Xypher says:

    Assets are inflated. I can’t buy the same house I did back in 2008 after the crash, 2800 sq ft 4bed, 3 bath, 120k on short sale. same house now is over 247k

    • RD Blakeslee says:

      But, if you bought it back then, love it and intend to die in it, you don’t care one whit what its “price” is today.

      • RD Blakeslee says:

        Correction: current price does need to be known for insurance and, sometimes, taxation purposes

  3. Paul says:

    I didn’t watch to video, but suggest that the lack of price inflation is a result of the velocity of money decreasing as the money supply increases.

    Another factor, I suggest, is the “fractional banking system”.

    We all understand how that multiplies money in the system by a factor of 10.

    Or do we all understand that????

    The last time I looked, the multiplier, as figured by FRED was about 0.86???????

  4. Michael Engel says:

    – There will be inflation soon, but the yield curve will fail to show it !!
    1) SPX since 2009 low in a very strong uptrend.
    2) From Feb2016(L) @ 1810, +1131 points, to Sep 2018(H) @ 2941.
    3) The Dec 2018 correction was 595 pts, or (-)52%.
    The uptrend changed from very strong to medium weak.
    4) But the uptrend is not over yet. SPX will move lower, in the next
    few month, in order to popup to a new all time high.
    5) The leadership will rotate from tech to energy !
    In the next low get energy stocks.
    6) A major correction in mid 2020, get your hand on the trigger….
    – Example : XOM, monthy, linear chart :
    1) XOM built a 3Y powerful Lazer, tilting up, between Oct 1997 to Oct 2000.
    When the Lazer was mature, XOM ducked to escape the radiation of the hot beam, falling to 30, in 2002.
    2) When the accumulation period was over, XOM hopped over the Lazer, reaching 90.50 in May 2008.
    3) The 2008 bear market sent XOM to 56, in May 2008.
    4) XOM was restricted by the Lazer and hit 56 again in 2010.
    5) When the Re- accumulation #1 was over, XOM peaked @ 104.76
    in July 2014.
    6) XOM lurch lower, crossing the Lazer, hitting 66 in 2015.
    Bounced backup, but was rejected by the hot beam and fell to
    65 in Dec 2018. That was few months ago.
    7) When Re-accumulation #2 will be completed, XOM will attempt to cross the beam. XOM will make a new all time high by just reaching the Lazer, within few years.

  5. Brant Lee says:

    Anyone trying to raise kids these days is screwed from the start. It’s either help from parents or the government-or both.

    • Paulo says:

      Plus, people always forget that hidden in the inflated numbers is the further demonizing of labour and unions in order to drive and keep wages down. This has been a coordinated and directed effort from Reagan, and other leaders, onward. Come’on, really, don’t people understand that this land is not for you and me, (Woody Guthrie).? Hell, a week or two ago a commentor posted that only landowners should have the right to vote (like it used to be). If that doesn’t indicate just how far sensibilities have dropped, I don’t know what has?

      Canadian perspective :

      American Perspective: “Many things have changed since then in this country which has 126 million full-time workers. Only 11.9 per cent are unionised and the number of strikes has plummeted since 1981 to the point where they are considered merely symbolic. What started this? Ronald Reagan’s government “with its anti-worker policies”, “the attacks and changes in labour laws and regulations” and “the obstacles to trade union organising at the workplace and collective bargaining,” Gonzalo Salvador, AFL-CIO spokesperson, tells Equal Times. The fast-food industry “where each franchise is considered independent” instead of part of a sector, is just one example.

      Job classification is another hurdle. For example, those who work from home or in the gig economy are considered “independent contractors”. These workers already represent 32 per cent of the labour force in the US, and the US Bureau of Labor Statistics itself recognises their lack of social cover and set working hours.”

      Dollar Generals have proliferated because people need to use them. Think of Walmarts as a mirror. When wages don’t keep up to inflation, it sure is hard to raise a family and get ahead.

      • Ethan in NoVA says:

        At the same time, I don’t think I should have to pay someone to operate the up button on an elevator for me, or use a power screwdriver at a conference center, or all sorts of other crazy current union protected functions in society. Gentle medium, please.

        • chillbro says:

          Yes, please provide a nuanced example of union abuse to justify the dismantling of the entire system for the benefit of capital owners.

      • alex in San Jose AKA Digital Detroit says:

        Paulo – again a breath of fresh air.

        I suggest you look into the writings of one Morris Berman, whose most famous book is “Why America Failed” but has written quite a few others also, “Dark Ages America” being considered by some to be his best so far.

        His whole point is is that the US is a hustler, scammer nation, and that it’s catching up with us. Best to get out, and if you can’t, find some physical/cultural backwater where you may survive. If you don’t have kids, don’t have ’em. If you do, at least get ’em out.

  6. Jason says:

    We are seeing huge inflation! it’s just not being reported properly!!

    • polecat says:

      I see inflation in that unimportant ‘non-asset’ called FOOD !

      Way to go Fedheads. Certainly ‘substitution’ is not part of YOUR personal strategy, is it ! ……… unless it’s serf-on-a-skewer, am I right ??

  7. timbers says:

    All I know is that since Mr Market’s hissy fit late last yr that caused Powell to do a not U-Turn, U-Turn and a not interest rate cut, interest rate cut, and flood assests with not liquidity, liquidity….The Internets & Zillow tell me my house went up 9% in just a few months! But what do I know?

    • Anon1970 says:

      Now? Nothing, unless you were planning to move to take a better paying job somewhere else or retire to a less expensive part of the country. Unfortunately, trading houses is not like trading stocks. Real estate transactions costs are much much higher.

  8. timbers says:

    Err sorry…The internets say my house is up 15% in 7 months not 9%!

  9. brent says:

    Dear Wolf and forum — We are renters in a RE market that has increased 100% in the past 10 years, unable to get on the housing ladder, and increasingly disgusted by the prices to want to try anyway. I’ve heard different scenarios about the future purchasing power of our money to buy real estate. Some say that what house we can buy with our dollar will continue to decline, so we should jump in as soon as possible. Others say that there will be house price deflation. Might house prices stay high or increase further relative to incomes if something like further QE or direct debt monetization happens? Speculators have been made whole by monetary policy, while value oriented people like me have been squashed. Whatever happened to moral hazard, because a lot of people feel unfairly treated and are losing trust in our system.

    • Bill ted says:

      You should wait for the recession to start before you buy.

    • Dale says:

      Nationwide, using the Case Schiller National Home Price Index, US homes are cheaper now than they were for 90% of the time between 1987 and 2008… as long as you are buying with a 30-year mortgage. The low interest rates have made it so.

      1. From 2008 to late 2016, home prices (as calculated above) were the most affordable. That time is past.
      2. These stats are national. A lot of major cities (especially in California) are far less affordable than ever. To make housing affordable in these cities, for those with incomes that are average in those cities, would require significant decreases in interest rates (i.e., negative interest rates).
      3. In the last 60 years, real per capita PCE have quadrupled. This suggests that maintaining a middle class lifestyle costs much more than it did. Housing costs do not exist in a vacuum, but instead compete with education, healthcare, and pretty much every other cost (especially services).

      It is actually quite amazing that this housing bubble has lasted as long as it has. A tribute to Americans deciding that they no longer need savings. Or, rather, Americans deciding that housing prices must continue to go up, apparently to infinity and beyond, so that housing becomes their savings.

      • sc7 says:

        “The low interest rates have made it so.”

        Which makes it a low-interest fueled bubble. The cash values relative to income are near record highs. In most desirable cities, they’re at all-time highs (as you’ve stated in #2).

        I fear the next downturn will make housing look much worse, particulary with the fed limited in what they can do to re-inflate this time around. Buying now = sucker’s bet.

    • In the search for yield as the Fed keeps on cutting the Fed funds rates without any rent control the price of homes will just keep on rising and so will rents. Home prices will go into an upward spiral and renters will be doomed.

      • Cashboy says:

        “Rents will keep rising”.

        I cannot see that happening in the UK.
        I see governments putting rent controls on landlords in the future as more and more people get government housing benefit to be able to live.

    • sc7 says:

      “Some say that what house we can buy with our dollar will continue to decline, so we should jump in as soon as possible.”

      The only people pushing this are the professional liars in the Real Estate Cartel. The market is showing signs of peaking, buying know will make you catch someone else’s falling knife. Continue to rent frugally and save.

      “Others say that there will be house price deflation. Might house prices stay high or increase further relative to incomes if something like further QE or direct debt monetization happens? ”

      There’s an ever-increasing glut of people in your situation. Eventually if you price the whole market out, prices have to fall to attract buyers. I don’t buy the “buy now or be priced out forever” mantra.

    • alex in San Jose AKA Digital Detroit says:

      The word, my son, is plas, er, pitchforks.

    • economicminor says:

      Brent, My theory is that when this finally rolls over we will get a huge amount of deflation in all these assets that have been inflated.

      My reasoning is the massive amounts of leverage in all our systems has to be serviced. The idea that exponential growth in debts can be serviced with ever more borrowing is insane. Those responsible to service the debts are actually those who are productive. Those same people who have not gained much during all the monetization/debt growth in the past 20 or 30 years. So much of the servicing is done with more debt.

      So once it happens, there will be trillions of dollars on balance sheets that will just disappear. Way to many trillion$ for the FED to deal with besides the FED only wanted productive assets. They never wanted the real junk. So much will be written off and so many jobs lost. There will be much less money in circulation and few new loans. Those who have houses with big debts against them won’t be able to sell them. Many existing renters and debt laden people will be unable to pay the demands due to the shrinking job picture.

      IF you had cash you could score your dream home but few will have cash and most banks will be struggling to survive so will be very tight with their money.

      I believe our future holds another Depression. I have no idea when but the idea that we can pile debt upon debt upon debt and call that an asset and borrow against that over and over just doesn’t work in my addled old brain. And the outcome isn’t prosperity for all but the opposite.

  10. interesting says:

    I dunno about this “where’s the inflation” BS that I keep hearing about. It’s all around me. There’s a place that had a banner sign right down the street from my office that says “4 burger, 4 fries, 4 drinks” it’s was $11 in 2008 and it’s $23 now…….so………and gas for me is about $4 a gallon. A starter home in a good hood is $800K

    • AlamedaRenter says:

      Chipotle at the newer Alameda strip mall starts at $17/hr with tuition assistance and free meals.

      A burrito and medium soda cost me $12.

      Surrounded by 1.2million townhouses with $500/hoa (which the crazy Bay Area HOAs are going to come to roast sooner than later).

  11. Mike R says:

    Inflation will be more top of mind, and in the mainstream news, once gold prices go over $2000. Of course by then, inflation will be on a near run-away tear across so many industries and products and especially services, it’ll be too late to do anything about it.

    Sometime in the next 3 months, its highly probable we will see gold go on a near parabolic rise. Will it be due to a significant drop in the dollar ? There are actually quite a few catalysts in place, not the least of which is the Fed making the HUGE mistake of rate cuts.

    The consumer is slowing down on purchases of big ticket items, and its not just cars. The slow down will show up more strongly by end of Q3.

    • Escierto says:

      So between July 7 and October 7 you expect a parabolic rise in gold? Fueled by what? Gold is fluctuating around $1390 to $1400 today and I expect in three months it will be the same price or lower. Paradoxically, the USD usually gains strongly after a rate cut so I expect the USD will knock gold down a few notches. Eventually gold will rise but that day is many years away.

      • Robert says:

        So if a bank that used to pay savers 3-4% APR now pays 0.1% (or, if they have their way charges YOU to save with them), why should a further cut, say to 0.05% APR strengthen the dollar? The knock on gold is that it pays no interest (as if 0.1% were any interest), but in fact, someone buying the GLD ETF could write covered calls against that position yielding 8-10% APR or more. (cautionary note: the PM ETF’ s are themselves a scam, but you get my point.)
        The great sucking sound that H. Ross Perot (correctly) associated with NAFTA’s sucking jobs out of the USA could as easily apply to dollars being sucked overseas by an entity regarded as honest paying as little as 1/2%-1% APR

  12. roddy6667 says:

    Inflation in health care is in stealth mode. The government uses the price of the monthly premium, while ignoring the larger co-pay and the massive increased deductible. This is often larger than the premium, on a yearly basis.

    • Winston says:

      Also, in their formula they attribute a FAR lower percentage of relevance (weighting) to medical costs than they should. They also use the totally BS figure of owners’ equivalent rent. So there are two HUGE inflation sources that are badly under-represented, I’d bet intentionally.

      So, control the world via central banks using simplistic garbage economic theories used to create simplistic garbage models fed data manipulated for political reasons (read about the Boskin Commission) and you get to where we are today.

  13. Ididsa says:

    The central banks continue to express their concerns about asset price inflation yet each and every one of them continue to support the very same policies that foster the asset price inflation!. I lost count of the number of central banks that have jumped on the ultra dovish bandwagon in the last few months. Doing “whatever it takes” is pure unadulterated hypocrisy. The central banks need to grow a backbone. Stop capitulating to politicians and Wall Street.

  14. otherbrother says:

    At some point in The Great Recession, investors began pouring money into the crashed housing market, buying-up highly discounted properties and turning them into rentals. Meanwhile, as the older generation from WWll basically died off, Baby Boomers with retirement cash joined the crowd of real estate investors, who are looking for higher yields than banks offer. Add-in Airbnb’s and crowd sourcing and you have a rental market that has become a strange tangled bubble. This rent bubble is not unlike the situation around 2006, when almost every county in America and beyond miscalculated future growth rates — that point in time when not enough homes could be built, for all those future buyers (who didn’t show up). It’s challenging to figure out how this pops, but it seems as-if too many people are over leveraged in one area, waiting for big gains in future cash flow. It seems unlikely that rents can continue to explode, even if we might be in the midst of Stealth Stimulus, which might push housing values higher and rents into an area that would be unsustainable, in terms of renter income potential. At some point, the golden goose wont produce.

    This is from Wiki and worth pondering: One 2017 NBER study argued that real estate investors (i.e., those owning 2+ homes) were more to blame for the crisis than subprime borrowers: “The rise in mortgage defaults during the crisis was concentrated in the middle of the credit score distribution, and mostly attributable to real estate investors” and that “credit growth between 2001 and 2007 was concentrated in the prime segment, and debt to high-risk [subprime] borrowers was virtually constant for all debt categories during this period.” The authors argued that this investor-driven narrative was more accurate than blaming the crisis on lower-income, subprime borrowers.[8] A 2011 Fed study had a similar finding: “In states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with investors. In part by apparently misreporting their intentions to occupy the property, investors took on more leverage, contributing to higher rates of default.”

    • wkevinw says:

      Correct. Mid- to High income/investor “class” caused a lot of the defaults.

      The Real Estate bubble was also global. So, blaming it on low income/subprime US borrowers does not hold water.

    • California Bob says:

      ‘… mostly attributable to real estate investors’

      You mean ‘flippers,’ right? We should limit the term ‘investors’ to those willing and able to take a stake in something for the long term.

  15. fred flintstone says:

    Our inflation rate will not become a problem until the US gets control of it current account. Until then money that is printed continues to leak overseas into foreign central bank reserves. They have no reason to complain since they are getting richer at our expense. Our politicians will do nothing to change it since their masters like a labor force that is scared.
    Only a patriot that understands that our nation is being robbed will try to do anything.

  16. bungee says:

    “Until then money that is printed continues to leak overseas into foreign central bank reserves”
    That has not been true for a while and is something to watch.
    Foreign official holdings of U.S. treasuries (which is what we mean by money that is printed) has not changed for 6 years. I think it’s now negative in the foreign private sector as well. We are just bottling it up ourselves right now.
    Wolf, you know a lot about Japan. Why have they not seen explosive inflation? Or have they? Everyone keeps saying ‘japanification.’ Is that possible here?

    • Wolf Richter says:


      Japan’s credit market is experiencing mega asset-price inflation right now (part of NIRP).

      Life is very expensive in Japan for the Japanese, where pay is now relatively low compared with the US. Rents are expensive, for tiny apartments. Tiny condos cost a fortune. Houses in the big urban centers are expensive, and they’re small. Food is expensive. Cars are expensive, except for minis with motorcycle engines (which are very popular). Tolls, fuel, taxes, everything is expensive for the Japanese. But healthcare is cheap for individuals (government pays for it from the taxes it collects and the money it borrows.) Japan needs deflation to bring prices down. Or it needs wage inflation to make things more affordable. Neither of which are happening.

      • Paul says:

        Is Japan’s 200% of GDP national debt gross, or net of the BOJ’s assets?

        If gross, those assets would cut that 200% nearly in half???

      • Bologna says:

        It’s almost as Japan is a perfect model ,albeit just not for the masses

        • Escierto says:

          Japan is on the road that we are going down just a lot further ahead of us. In the next decades the US will confront a declining population and gigantic government deficits on the order of trillions each year.

      • alex in San Jose AKA Digital Detroit says:

        Wolf, I spend too much time watching youtube videos by people actually living in Japan, and it looks pretty good, frankly. Cheaper than the Bay Area, and I’ve lived in flyover and found it to be effectively more expensive than the Bay Area.

        Owning a car, even a “mini with a motorcycle engine” which sounds fun, is not mandatory the way it is in the US. Rents seem to ballpark around 1/2 as much, food 1/2-1/3 as much. It’s pretty amazing. There’s healthcare. There’s public transportation. There’s a feeling of “we’re all in this together”.

        • Wolf Richter says:


          Yes, the government pays for most of the healthcare in Japan, and the Japanese pay for the government :-]

          And yes, public transportation is superb — but not cheap.

          And yes, they have a lot of cohesion — which can be rephrased that there is a lot of pressure on individuals to fit in. No one gets to rebel or do something differently, without big negative consequences that include expulsion from society.

          Gaijin are not subject to this pressure. We can kind of do whatever we want (within limits), and the Japanese will forgive us. But society is very strict with the Japanese.

          If you compare what an accounting professor makes in the Bay Area, or even in Campaign, IL, and then what the same accounting professor (a Japanese national) makes when he gets recruited to a university in Japan, you’re confronted with an eye-opener.

          I happened to know this guy very well. He moved from teaching at the U of I to a university in the Tokyo area. He moved because he wanted to go back to Japan. But pay is just a fraction of his US pay. OK, healthcare is nearly free over there, but still. He made a lot more money in the US.

          The Japanese went from one of the most highly paid workers in 1989 to low-wage workers among developed nations now. This is called “internal devaluation.” That’s how they have kept their exports up etc. This was done without inflation. In the US, normally, this is done via inflation. Real wages have been declining in Japan since 1998.

          Japan in many ways is now a great place to be if you earn your money in USD. It’s gotten a lot cheaper for us, than it was in 1996 when I showed up there for the first time. I love being in Japan, and for me, it’s reasonably priced, compared to how horrendously shockingly breath-takingly overpriced it was in 1996 if you paid with your US-earned money (a theme in my book).

          My studio apartment in Tokyo had a double bed in it, and it mostly filled the room. There was a little kitchen corner, and something called a “unit bath.” These types of apartments were very common back then, either Western Style, or Japanese style with tatami, same size. About 90 square feet for the room, plus a “unit bath” and a little hallway with closet. So the whole apartment might be 150 square feet or less.

          You cannot compare this to a Bay Area studio with 500 square feet. And the Tokyo area is much bigger than the Bay Area. There are cheaper places with looooong commutes on packed expensive trains (unless your employer pays for it, which is often the case), and there are more expensive units with shorter commutes.

          But if you make your money in the US on the US scale, they’re reasonable priced.

          Now imagine that a Bay Area worker goes to Japan to make money in Japan, and finds that their pay gets cut by two-thirds or something. Suddenly, that rinky-tink 150 square foot apartment isn’t so cheap anymore. Then when he tries to sign the lease, he finds that he needs upfront 2 months’ deposit, 3 months’ key money (extra profit for the landlord), and a guarantor. This is either a relative or a company that charges you an arm and leg for guaranteeing the rent. So you still don’t have utilities….

          And it goes from there.

          The Japanese don’t normally entertain at home for the reasons described above. So they go out a lot. Restaurant food is excellent, and prices range across the spectrum, but it adds up after a while. This includes nearly mandatory dinners and drinks with coworkers at least once and usually more often a week. And when they go out to meet friends they haven’t seen for a while, they have to give gifts. There are a lot of things like these that are culturally very expensive….

          My business being possible anywhere with a good internet connection, and my income being in dollars on the US scale, we could comfortably live in Japan. But my wife (she is Japanese) would have to work on the Japanese scale, and she’d take a big pay cut, along with the other issues she’d encounter as a woman working in Japan. And so she doesn’t want to live and work in Japan.

          But my advice to you is by all means, give it a try. It’s hard to get into Japan to work. They’re really strict. But if you can figure out how to do this, I would encourage you.

        • alex in San Jose AKA Digital Detroit says:

          Wolf – Although I literally just came back from a Japanese language class ($3 per class for Yu-Ai-Kai members) I doubt I could ever hack the language, and I doubt they’d want a washed-up, used-up, rather shell-shocked elder straight out of the Great American Workhouse.

          As I’ll keep saying, my plan is to retire to Hawaii where I grew up, I know where everything is, and you can literally choose to live very much in Japanese culture, or not, or anywhere inbetween. It’s not cheap, but it’s a bargain compared to the bay area, and I can get by on very little there.

          I see this huge influx of mainland people who want to live in Kahala and other really expensive places, spend 6 months there and declare themselves “locals” etc and I just think, wow, I grew up there, in the culture you’ll never know there if you didn’t grow up there, and well, just like $1200 a month is a lot of money in Silicon Valley (except on that you’ll live in the street) $1200 a month is a lot of money in Hawaii if you’re wiling to forgo cars, butlers, catered meals, island-hopping vacations, the yearly pilgrimage to Vegas, etc yadda yadda.

        • Petunia says:


          Japanese people have many taboos about the dead. I heard they will not live in a rental where someone has died. You can get a huge discount in rent by seeking out this kind of unit, in Japan, and maybe even in Hawaii. Good luck.

        • alex in San Jose AKA Digital Detroit says:

          Petunia – I scored a very large studio (large sliding divider, walk-in closet, full size kitchen and fridge, balcony etc) for $600 a month in 03 and interestingly the guy who’d been in there before had in fact died. I still watched his premium cable!

          Ghosts don’t bother me …. and yeah I know, tons of taboos about the dead.

    • Iamafan says:


      Re: Foreign official holdings of U.S. treasuries (which is what we mean by money that is printed) has not changed for 6 years.

      From H.4.1 (in $millions)
      Off Balance Sheet, Money held in Custody for Foreign Institutions:
      June 26, 2019 3,463,337
      10 years ago.
      June 24, 2009 2,764,033
      Increase is 699,304 in millions or about $700 Billion.

      For the last six years:
      26-Jun-13 3,290,397
      So there has been an increase of $172,940 (in millions) or about $173 billion.

      In December 2003, the amount in custody was only 1,060,521 (in millions) or about 1 Trillion.
      It’s about 3.5x now. Wonder where this money is coming from?
      The Balance of Trade and Services does not translate equivalently to the same magnitude for CURRENCY valuations or NET Balance of Payments.
      A lot of Negative Trade Balances ends up in USD Treasuries or in dollar denominated ASSETS (and other securities).

      Talk about a hegemon. There is a difference with Japan. Over here, foreigners (including Mrs. Watanabe) do the heavy lifting. Not sure how long that will last. In the last ten or eleven years, the Fed had to help in the lifting.

      • bungee says:

        Okay. The dollars pile up in an account at the fed. But according to the TIC data the foreign official purchases has been flat for 6 years. So you say its going into assets, but then why is the money in these accounts growing? Seems its not moving? I don’t understand that report addmitedly.
        Also as per Wolfs articles “who bought the gigantic $1.5 Trillion of new us government debt…” hes showing that we (US institutions) are the ones propping our debt markets up and in another one he’s showing how big a difference share-buybacks make in pumping up the stock markets. (Let me know if you really want the links)
        I think the free ride from the rest of the world has already ended. We’re just not feeling it yet because imports remain cheap but that is where things start getting real. Because not only are personal items imported, but lots of stuff the goverment needs is too. And the Gov can print. We will find out next time the domestic private sector loses its appetite for US government debt. If the foreigners step up and buy, then we go another round. If not… then it’s like a new world and hegemon shmedgemon.
        And that’s why im so curious about Japan… How DOES that work? I’m definitely a pro-rip-the-bandaid-off kinda guy and hope japanification is not our fate…

  17. Bob Hoye says:

    Good them article and interesting comments.
    There is always room in the markets for conjecture.
    But there is only one financial history.
    Since the first bubble in 1720, there has been a pattern.
    Big blow-out in commodities and “inflation”, such as in 1711, with inflation in financial assets peaking in 1720.
    Number 5 in the series had commodities and inflation in 1920. US CPI at 22%. Big bubble climaxing almost a decade later.
    Big commodities with crude at 147 peaking in 2008, and a huge financial bubble peaking (?) a decade later.
    Here is the pattern:
    Inflation in tangible assets. Crash. Inflation in financial assets. Crash.
    Then the lengthy post-bubble contractions.

    • bungee says:

      Hi Bob Hoye,
      I enjoy listening to you on goldseek radio.
      Any reasoning on why a pattern of commodities first, financials later?

      For any readers here who may have missed it, Wolf was a guest about a week ago on goldseek radio. Check it out:

  18. Michael Gorback says:

    Most of the money went to very wealthy people -the kind who have way more than they spend. If $10,000 falls into their hands will that allow them to buy a Honda Civic, better cuts of meat, or new clothes for the kids, thus stimulating demand?

    That money didnt make it into the real economy, driving up prices of every day cobsumer items. It drove up the prices of financial assets, SWAG, and other unproductive uses. There was no demand to hire more workers to produce more stocks and bonds or bottle more wine.

    It went into portfolios where people who had $100,000,000 now had $150,000,000 but not changing spending or demand except maybe for an original Picasso or a gala fueled by Cristal Champagne. And Picasso isn’t producing any more.

    Do houses cost more inflation-adjusted? They should. Rates go down, people can afford higher payments (= higher prices). Those locked out of the new price range were herded into rentals. Then rentals actually responded to supply and demand and became unaffordable.

    This was just another stupid iteration of trickle down economics and like its predecessors all that came down was a trickle.

    • Nicko2 says:

      Case in point; the number of American billionaires DOUBLED in the past decade.

      Meanwhile, ~40% of the population haven’t seen a wage increase (inflation adjusted) in the past 30 years.

      • interesting says:

        “the number of American billionaires DOUBLED in the past decade”

        How many of them are billionaires on paper and are part of or work for profitless companies like Uber?

    • Mark says:

      This is the correct answer.

      Expansion of the money supply is being countered by massive deflationary forces:

      1. Extreme income/wealth inequality in the rich world and especially the US
      2. Technological change making highly paid but low skilled work obsolete
      3. Outsourcing more low skilled work to cheaper labor markets
      4. Aging of the population in the rich world

      • cienfuegos says:

        And the most important deflationary factor…the massive transparency engine called the Internet.

        • Raw Trader says:

          This is an extremely good point and very relevant in my industry, physical commodity raw materials (many imported). Competition is growing and margins are shrinking every year because of increasing transparency and easier access to information. It definitely drives down pricing and I’ve seen this change big time over the past dozen years.

  19. SeattleA says:

    For those of us in this unfortunate situation of wanting to purchase a house (I’m in the Seattle area), what should we do? Wait for a crash? Look for a bargain? Rent indefinitely? It’s so frustrating looking at houses that could have been purchased just five years ago for about half the price. The housing market seems a bit slower than a year ago, but prices are still high and desirable homes in my neighborhood are still going pending in two days. It seems like such an uncertain time to take on so much debt, but it’s also difficult to have so much uncertainty about our housing situation with a family. I don’t want to make the wrong decision.

    • Bobber says:

      The people who get really burned panic late in the game. These are ordinarily prudent people.

  20. Tim says:

    You starta business which, luckily for you, becomes valued at $2bn by the market. Your 50% stake makes you a billionaire. Congratulations.

    If you’re a billionaire, you ought to live like one. But you don’t want to dilute your equity, or sell stock that you think is going to go on rising. So you borrow $500m – well covered by your $1bn equity.

    But then comes 2008, and your stock price drops 60%. You’re underwater. You ask your friends in government to reinflate the market.

    They do……..

    (rinse and repeat)

  21. David Hall says:

    The US has the highest government debt to GDP ratio since WWII. This is due to deficit spending. The Fed is not to blame for growing deficits as they do not set fiscal policy. Lower interest rates will not cover the errors of those who borrowed and invested unwisely. A house in the LA area recently sold for $120 million dollars. Speculating in high end properties seems like a Ponzi scheme. Nobel prize winning economics Professor Robert Shiller recently advised against buying big houses.

    • Bet says:

      I bought a big house, about 2.5 years ago, bigger than i wanted 4000sq ft. BUT my mother had to move in with us after my father died and we needed room for family to come visit. Less than assisted living and a paid for hard asset that i hope doesn’t plunge one day and if it does, fine. I live here, not speculate. I see this every where in my demographic. elderly parents living with the adult children. Guess what it costs to have some one stay with mom for 24 hours if you need to leave town. try 720.00 a day, untrained medically, babysitters. America not a nice place if you are sick , old , infirm. They just want you to hurry up and die.

  22. Iamafan says:

    You can borrow money and buy a hard asset; or you can allocate monies you already have to equities and other securities TO KEEP UP with INFLATION. Otherwise, you have had a DECADE of interest repression.
    What’s wrong with this picture? The meaning of risk is displaced.
    A rude awakening might jolt us like an earthquake in California.

    • polecat says:

      This year, I’ve have serious inflation in our blueberry plant’s production of fruit ! In the immortal words of one J. Biden “That’s a REALLY Big deal, Man !” … those hard assets will gradually, then all at once, soften, and thus qualifyfor inclusion into the polecat bank of sub-urban homestead sustenance. I reckon, if things were to ‘go south’ in a hurry, those dried little gems would be worth their weight in gold ! Same with the backyard honey, and the eggs, and the cherries, and the onions, and the potatoes, and th…..

  23. Michael Morris says:

    The inflation since 2008 is staring you in the face, or that of anyone involved in equity markets. All the QE has been pumped into financial markets, almost none of it has reached Main Street.

    With current valuations in la la land, one can see what got inflated, the markets.

    • MC01 says:

      Speaking of all that money reaching or not reaching “Main Street”… this morning I went to my main bank, which is located squat in the center of an Italian city.
      The number of clothing retailers I walked in front of was simply staggering: they seem to be the only retailers in the area.
      Mind these are not the luxury retailers one will find in Milan: they are all pretty low end judging by the prices displayed. But all these clothing retailers are freshly refurbished, climate controlled etc. These are not temporary stores selling leftover stocks.

      Despite the lack of foot traffic the area is pretty pricey as far as rents go: a quick online search revealed they start at €1,500/month for a very small place.
      Let’s say the average shop pays €3,000/month and negotiated free utilities for a year from a desperate landlord. Leaving all other expenses aside, it takes a whole lot of €8 girlies to cover that rent since those €8 must also include VAT ( about €1,16) and the cost of the girlie itself, let’s say another €1 or so.

      Each and every one of these stores is a small Uber or Netflix: financially unviable unless it finds investors willing to plow money into it.
      And since there are so many of them they all compete among themselves and against big players such as Zara, thus applying downward pressure on prices, thus making their own situation even more untenable.
      The golden lining is that price inflation is somehow kept in check, but at an absolutely staggering price.

      • Iamafan says:

        Are they selling Chinese goods? Or products supported by the ECB?
        The last time I went to Italy, the AGROTURISMO wave was a bit too overwhelming. I wonder where all the money is coming from.

        • MC01 says:

          I peered inside one place (not to peep inside the changing rooms: the place was deserted apart from two very bored members of staff) and there was a pile of cardboard boxes marked “Made in China”. This is low-end clothing: generally speaking good quality clothing is made in Pakistan, India etc. I have just bought a pair of trousers in Thailand, made locally, which are incredibly high quality: not cheap but the quality of fabric, stitching etc is in another world.

          Agriturismo… don’t get me started. :-D

        • Gandalf says:

          When I used to live in Ventura, CA, there was a really nice Italian restaurant (with real Italians running the place) near the beach that almost never had customers. One of my partners was convinced it was able to exist because it was just there to launder money from the Mafia

  24. Unit472 says:

    Car key 2005 was $5, 2010 $75, 2015 $200 plus

    • Wolf Richter says:

      Today’s ” car key” isn’t a car key anymore. It’s a ” keyless entry” computer. And they have been around for decades. And they never cost $5.

      Our 2006 vehicle came with these keyless-entry computers. My 1999 vehicle had one too. It did all sorts of fancy things, like adjust your seat and mirrors for the driver that has this key.

      None of these systems cost $5 at the time to replace. They were expensive to replace. You couldn’t even get its battery changed for $5, back in 1999.

      • Gandalf says:

        Actually, the new car keys have an RFID system that is vulnerable to having their signals being captured and duplicated by car thieves.

        They are expensive only because every RFID key is proprietary to the carmaker and you have to get them replaced and programmed in at authorized car dealerships. I would bet they only cost a few dollars to make in China or wherever they come from.

        Within the context of your discussion about inflation, car keys have been moved from the deflated commodity durable goods sector of the economy to the high inflation US based services sector of the economy

      • Gandalf says:

        Car batteries also used to be pretty cheap (circa 1970-1980s)
        Then the concerns about lead ramped up – lead mines, lead production factories, lead disposal, everything having to do with the key component of car batteries came under strict guvmint regoolashun for its health and environment effects.
        Lead acid car batteries thus also moved from being just durable goods commodities into the high inflation service sector of lead disposal and health monitoring for lead workers

        • Wolf Richter says:

          I just checked on the internet: Walmart is selling what looks to be a 60-months 650 cold-cranking amps battery for $49 (ValuePower Lead Acid Automotive Battery, Group 65). That’s about the same amount we used sell these types of batteries for back in the 1990s. We retailed them, and we had an auto parts W/D business with two special battery trucks (similar to a beverage truck with drop-frame) that we used to deliver batteries to dealers and retailers in the multi-sate area. Those trucks also brought back the dead batteries that were then returned to recyclers. Sure, you can get more expensive batteries today, but you could also get more expensive batteries back then. This is a very competitive end of the business.

        • Gandalf says:

          Ok, I did some more research on car batteries.

          My memories of sticker shock for car batteries came about in the mid to late 2000s when it seemed that car batteries at every retailer except Costco had doubled or tripled in price and prices were in the $100-150 range. And indeed that was during this period when the price of lead had skyrocketed

          Prices have come down since

    • MC01 says:

      Honda introduced the Honda Ignition Safety System (HISS) on pretty much all their motorcycles in the 2000 model year.
      I’ll spare you all the gory details but in 2004 I managed to snap one of these keys and I had new one cut and programmed: the blank key alone was €35, plus a flat fee of €25 to have the key cut and the little ROM inside it flashed by the dealer. Total: €60 in 2004 money!
      I tremble in fear at the thought at what one of these things may cost today.

  25. CtKahanamoku says:

    Does any of this really matter? Inflation, deflation, Amazon, trucking, services industry. Isn’t all of that small potatoes compared to the derivative market? Isn’t that the real economy now? Isn’t that were all the cash is flowing? When derivatives hit the skids in 2008 how much money was at stake? 500 Trillion? I’m betting that now it’s 100x that amount. If that’s even close to the case everything else combined doesn’t even come close. What’s the real story with the current derivative market? What is it’s value and when is that uncontrolled market going to zoom us all?

    • Gershon says:

      DB has at least $43 trillion in derivatives, and the bank is in serious trouble. Let that sink in.

  26. CreditGB says:

    From the street level, if anyone still does their own shopping, you can’t help but notice that the quantity you get for the “same price” is 10% to 20% less that it was. Pay the same, but getting less. Is this not inflation?

    • Wolf Richter says:

      Quantity, size, and weight changes are included in CPI calculations. In other words, if the price stays the same but the contents of the package is reduced by 10%, then this counts as a price increase for CPI calculations.

    • Dave says:

      When I was delivering newspapers in San Anselmo about 60 years ago I used to stop by the drugstore once in a while to buy a candy bar before starting my route.

      I noticed that over time the candy in same candy bar for the same price kept getting smaller. This is not a new thing.

  27. This is the best read on asset inflation I have seen. There is still a matter of how forty years of reckless bond printing actually raised the asset value of those bonds? Or how issuing more stock makes that stock worth more? The supply of money precedes the supply/demand rules for everything else. So if the money supply shrinks will the dollar be worth more? If stock prices drop will those companies be worth more, if their PE ratio’s drop? If shrinking money supply would increase wealth why aren’t they doing it?

    • 91B20 1stCav (AUS) says:

      Mr. Bierce: perhaps it’s that ‘…next quarter is all that matters, and all that will ever matter…’-thinking appears to be the dominant paradigm? Keep trying to grab the easy money that has come from that in our recent past without critically examining its true sustainability? I like your observation that a shrinking money supply could be a ‘lifts all boats’ tide. Of course, the ‘I got mine, Jack’ mentality directs all of us to look away from the decline of the empire.

      The wheel of history continues its slow turn…

      May we all find a better day.

  28. Michael Engel says:

    No inflation yet.
    SPX will correct. The next bottom is around 2,000.
    From 2,000 SPX have a bull run to 3,860 SPX, in about 4Y.

    • David H says:

      Wolf perhaps an obvious question, but wouldn’t this then suggest piling into gold and cash and waiting out the storm?

      I sort of tried to do this and invested in mainly 50-60% bond etfs and 25% defensive stocks and gold but I do wonder how this translates into an investment strategy. I certainly think it is going to blow up spectacularly and possibly even translate into a 70s style series of crashes that lasts for a while

      Question is – how do you invest appropriately ?

  29. Rob says:

    UK real house prices are at 2003 levels. If you stripped out London it would be way lower as you can see from stagnating regional indices. No bubble to be seen whatsoever.

    • Wolf Richter says:

      You’re adjusting one inflation measure, “UK house price inflation,” by another inflation measures, “consumer price inflation.” All this tells you is which inflation has been bigger — house price inflation or consumer price inflation. And the UK had some pretty big bouts of consumer price inflation in those years, hitting 4.5% in 2008 and 2011.

  30. Petunia says:

    It’s a tale of two cities. Anything in a market where good incomes exist has inflated. Anything in a market where low incomes predominate is deflating and spiraling into non existence.

    I experience a little of both this holiday shopping weekend. Visited a clearance center of a major department store in the dodgy part of town. Purchased a pair of nice work pants, usually $60 for $11. Stopped for lunch at the nice mall, where it was hard to find a table, bought a box of donuts $15.

  31. otherbrother says:

    I generally view The Oracle of Omaha as a crook, but I agree with his recent thoughts on our weird economy (in general) and inflation. I had been looking for proof of wage increases, e.g. a magical list of which corporations are giving average employees more dough, but usually, the only things I find are theories that lowend part-time retail e,ployees simply lack the educations to be engineers … and thus lack skills which are in high demand.

    Warren Buffett recently remarked to CNBC on the current U.S. economic expansion, “No economics textbook I know was written in the first couple of thousand years that discussed even the possibility that you could have this sort of situation continue.”

    • Kent says:

      Well, economics text books have only been written for the last couple of hundred years, not thousands. And were generally written in a period of massive growth due to the industrial revolution. The industrial revolution is over, so they no longer apply.

  32. Michael Engel says:

    There are other scenarios which I cannot put on this blog.

  33. Old-school says:

    There is one finance theory that an asset can be valued only by future cash flows. For stocks that is the dividend. History shows us that there is about a 3% risk premium to hold equities over 10 year treasury. Now punch in 3% risk premium, 2% 10 year and a $56.08 dividend for S&P500 and the answer is dividends are going to have to grow at about 23% per year to justify price.

    I don’t know what is going to happen, but I think it could be one of the following:

    SP500= 1200 or

    10 year squished to zero

  34. nick kelly says:

    ‘In a note published by Goldman’s chief economist Jan Hatzius, he asks rhetorically “Why Cut?” and provides several good fundamental, economic reasons why there is no reason whatsoever for Powell to announce at the end of this month that the US central bank has commenced an easing process. Some of the key arguments are the following:’

    I hope I don’t get a smack for mentioning and quoting from ZH but along with a bunch of deranged conspiracy stuff they have this bit ‘Goldman admits Fed has lost control’

    My thought on the Fed: the December policy reversal of a rate hike and the implication of rate cuts was the Fed’s ‘Munich’ when it caved to pressure from the stock market and the WH. It has now been pulled into their orbit and attempts to extricate itself and getting on with policy normalization will be met with cries of ‘a deep state’ attempt to influence the election.

  35. Sporkfed says:

    Here is my own personal experience.
    My wages have gone up with inflation
    every year since 2008. My workload/productivity, has gone up 60
    percent. Labor isn’t sharing in the productivity
    gains and sooner or later, assets have to fall
    or the dollar has to decline in value.

  36. Iamafan says:

    Hey @MCO1

    I went to Prato a few years ago to check out China in Italy.
    I even saw a Chinaman (no offense meant) carrying traditional shoulder baskets in wooden clogs in the piazza. Blew my head off.
    Apparently China wanted to learn how to do the fine weaving that only the Italians could do. So they bought the whole town.
    Now I wonder what kind of deflation they “export” from there.

  37. William Smith says:

    Thank you for this simple, precise and concise overview nutshell explanation of the current fiscal “experiment” we all find ourselves in the middle of. As Einstein said: it takes a different level of thinking to solve a problem than that which caused it initially. You’ve defined the “problem” very succinctly, now who can we find that has that higher level of thinking needed to fix it? Certainly not the (central) bankster criminals (or moronic “economists” and imbecilic “academics”) that caused it in the first place. Or is the 1930s where we are all inextricably headed.

  38. Giovanni Turco says:

    Well, I fully agree with all what has been so clearly explained. My humble opinion, we should not apply the word inflation to the rise of price of every asset. Inflation is estimated by weighting the prices of a certain basket of products and is an approximate assessment of the rise in price of items that are in some way important, even essential for survival. Maybe we should try to understand why the money that is injected in the system inflates the price of assets instead of creating inflation. It is a formal aspect, however it may help our reasoning.

  39. Stephen says:

    The Stagflation does get delayed – as it did in the 60’s as the Vietnam War and the ‘Great Society’ spending eventually hit in the form of stagflation throughout the 70’s. Expect this stagflation in the 2020’s to be far far worse. America has far more debt now and does not have the domestic production capability that we had in the 60’s. The 2020’s will be a real butt kicker so brace for impact when the full force of this is felt in the coming months and years.

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