End of Easy Money: Global Tightening in Full Swing, While the Fed Promises to Wake Up in Time Next Year

Central banks jacked up rates to catch up with run-away inflation, but most fell further behind; only Russia caught up. The Fed didn’t even try.

By Wolf Richter for WOLF STREET.

The Czech National Bank dished out another surprise today, raising its main policy interest rate by 100 basis points to 3.75%, the highest since February 2008, and the fifth rate hike this year. A hefty rate hike had been expected, but not this hefty: None of 11 analysts polled by Reuters predicted a 100-point hike.

At its prior meeting on November 4, the CNB had jacked up its policy rate by 125 basis points, the biggest shock-and-awe rate hike in 24 years. Since June, when it began its rate-hike tango, the CNB jacked up its policy rate by 350 basis points, from 0.25% to 3.75%.

This sense of urgency – sorely lacking from the Fed – was motivated by red-hot inflation which hit 6.0% for November, the highest since 2008, amid supply chain bottlenecks, labor shortages, and spiking energy prices.

Ironically, the Fed, which is confronted with an even higher inflation rate – 6.8% in November – hasn’t yet raised the target range for its policy rate, which is still stuck near 0%.

The Central Bank of Russia, on December 17, raised its policy rate by another 100 basis points to 8.5%, its seventh rate hike this year, totaling 425 basis points, from 4.25% to 8.5%, pressured by surging inflation, particularly food price inflation. Overall inflation in Russia hit 8.4%, food inflation hit 10.8%.

This makes the Central Bank of Russia the only central bank whose rate hikes have actually caught up with inflation. Interest rates that are below the rate of inflation are still stimulative and inflationary; Russia has reached some level of neutral.

Since July, the Bank of Russia has been using the term “persistent” in its statements to describe this inflation, while the Fed’s Powell was still clinging ludicrously to “transitory” and “temporary.”

The Bank of the Republic (Colombia), also on December 17, hiked its policy rate by 50 basis points to 3.0%, the third rate hike in a row, totaling 125 basis points since liftoff at 1.75% in September. Inflation hit 5.3% in November.

The Bank of England, on December 16, raised its policy rate by 15 basis points for liftoff, to 0.25%, dishing out a surprise to markets, after having walked back expectations of a rate hike at this meeting. Inflation in the UK surged to 5.1% in November, the worst in 10 years.

The BoE could start Quantitative Tightening as soon as February next year. In a strategy paper last summer, the BoE said that it would stop reinvesting the maturing bonds on its balance sheet, and would therefore allow its balance sheet to shrink, once its policy rate reaches 0.5%. A 25-basis-point rate hike to 0.5% could happen at its next meeting in February, which would open the door to QT.

Norges Bank, the central bank of Norway, also on December 16, hiked its policy rate by 25 basis points to 0.5%, its second rate hike, after its September liftoff from 0%. Inflation in Norway jumped massively from 3.5% in October to 5.1% in November, the worst since 2008.

The ECB, also on December 16, announced a sharp reduction of QE, from an average of €92 billion a month currently, to about €40 billion by March, and to €30 billion in Q3, and to €20 billion in Q4.

This reduction is a two-step process: First, the end of its €72 billion a month Pandemic Emergency Purchase Programme (PEPP) by March. To ease the blow of the €72 billion cut, the ECB will raise its classic QE program from €20 billion a month now to €40 billion in March, cutting on net its total QE by €52 billion a month by March.

The Bank of Mexico, also on December 16, surprised markets by raising its benchmark rate by 50 basis points to 5.5%, the fifth rate hike in a row, totaling 150 basis points. Inflation in Mexico has jumped to 7.4% in November, the worst since January 2001.

The Central Bank of Chile, on December 14, dished out a 125-basis-point rate hike, to 4.0%, in line with expectations, following the shock-and-awe surprise 125-basis-point rate hike at its October meeting, and the fourth rate hike since the cycle started in July, totaling 350 basis points.

Inflation surged to 6.7% in November, the worst since 2008, but ironically below inflation in the US, where the Fed had steadfastly refused to even acknowledge inflation as a serious issue until the U-turn in recent weeks.

The National Bank of Hungary, also on December 14, hiked its policy rate by 30 basis points to 2.4%, the seventh rate hike in a row, from liftoff in June at 0.6%. Inflation has spiked to 7.4% in November, the worst since 2007, up from 6.5% in October, and from 5.5% in September. So this is moving fast, much faster than the rate hikes, but at least it’s doing something, unlike the Fed.

The State Bank of Pakistan, also on December 14, jacked up its policy rate by 100 basis points, to 9.75%, after the shock-and-awe 150-basis-point hike in October, and a 25-basis-point liftoff hike in September from 7.0%. The three rate hikes totaled 275 basis points. Inflation in Pakistan spiked to 11.5% in November.

The Central Bank of Armenia, also on December 14, hiked its policy rate by 50 basis points to 7.75%, seventh rate hike in this cycle, from liftoff at 4.25%. Inflation jumped to 9.6% in November.

The Central Reserve Bank of Peru, on December 11, hiked its policy rate by 50 basis points to 2.5%, the fifth rate hike in a row, since liftoff at 0.25%. Inflation was at 5.7% in November.

The National Bank of Poland, on December 8, hiked its policy rate by 50 basis points to 1.75%, third rate hike in a row, totaling 165 basis points, from liftoff at 0.1%. Inflation spiked to 7.8% in November, from 6.8% in October and 5.9% in September – now moving very fast, and the central bank is falling way behind, but not as far behind as the Fed.

The Bank of Brazil, also on December 8, hiked its policy rate by another 150 basis points, to 9.25%. Since March, when the rate hikes started, it has jacked up its policy rate by 725 basis points, from 2.0% to 9.25%, as inflation shot straight up starting last year, to 10.7% in November, the worst since 2003, driven by all the usual suspects, from fuel to housing costs.

The Bank of Korea, on November 25, during its final meeting in 2021, raised its policy rate by 25 basis points to 1.0%, following its 25-basis-point hike in August. Inflation has jumped to 3.7%, the worst since 2012.

The Reserve Bank of New Zealand, on November 24 during its final meeting in 2021, hiked its policy rate by 25 basis points to 0.75%, the second rate hike in a row, after having ended QE cold-turkey in July, and after having created the worst housing bubble in the world.

The South Africa Reserve Bank, on November 18, during its final meeting in 2021, hiked its policy rate by 25 basis points to 3.75%, marking liftoff. Inflation hit 5.5%.

The Central Bank of Iceland, on November 17, hiked its policy rate by 50 basis points to 2.0%, fourth rate hike since liftoff in May from 0.75%. Inflation has surged to 5.1%, the highest since 2012.

The Bank of Japan, like the Fed and the ECB, has not hiked rates yet. And unlike the Fed and the ECB, it is not yet under red-hot pressure from inflation and housing bubbles. But ahead of the Fed and the ECB, the BoJ has ended its super-massive QE in May, after beginning the taper in the fall last year, when Abenomics came to an end with the exit of Prime Minister Shinzo Abe. And so one of the biggest money printers in the world has stopped printing money, which is a start.

And where is the Fed? Powell, after downplaying inflation all year, finally declared that inflation is a “big threat.” The Fed has cut its asset purchases, promised to end them entirely no later than March, discussed Quantitative Tightening, and put some timid rate hikes on the table for next year. But all this is too little too late, as inflation in the US has reached the worst level in 40 years, and is worse than in many of the countries listed here that have already jacked up their policy rates multiple times to tamp down on inflation, while the Fed’s policy rates are still near 0%, and it’s still printing money.

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  213 comments for “End of Easy Money: Global Tightening in Full Swing, While the Fed Promises to Wake Up in Time Next Year

  1. 2banana says:

    Mexico has lower inflation and higher interest rates than America.

    Capital will flow to where it is treated the kindest.

    • Julian says:

      Mexico? Nah, it won’t flow to Mexico at great levels – you should look at how the law operates in Mexico.

      • Cas127 says:

        Well…look at how the US operates…in current (20 yr+) reality, not some Hollywood/MSM/DC-contrived fiction.

        And not through a lost historical lens of policy competency.

        Plenty of governments are corrupt rackets, run like crap.

        More and more, the US is one of them.

        • phleep says:

          Relatively speaking, USA still has a good rule of law and independent courts, for purposes of commerce and finance. We are the best house on a bad block still, in that regard. And that is a vital component of how well capital is treated. Note accordingly, tons of flight capital and rich folks have stashes here.

          The latter point may show a certain kind of slippage. I think Britain’s next business model could be as (even more of) a glorified tax haven.

        • PHL: The US has the most “deregulated commerce and finance..” Elon Musk does business in China, lived in California, and moved to Texas. You’re right about GB, they will become a tax haven. What happens when governments finally throw in the towel on taxes? When the automakers have to build the roads, they will sing a different tune. Stay with me my Neo-Liberal Baby.

        • Jake W says:

          phleep, i don’t think so anymore. look at the way bankruptcy law was upended and unions given the assets of chrysler and gm that should have belonged to their secured creditors.

          look at the politically motivated prosecutions of people like george zimmerman and kyle rittenhouse, when it was very clear that the prosecutors did not have probable cause to bring the charges.

          look at the police “investigations” for “hate speech,” which are constitutionally protected.

          our legal system is becoming just as bad as many third world countries.

        • Rand says:

          One of them the U.S. wrote the book on corruption. Once a government is corrupt there is no solution but to replace such.

          “When legislature is corrupted, the people are undone.” ~ John Adams

          “The Central Bank is an institution of the most deadly hostility existing against the principles and form of our Constitution.” ~ Thomas Jefferson

  2. Nathan Dumbrowski says:

    My take away is that inflation is causing global havoc. Not just in countries that printed $T into existence. It would appear that internationally the interest rates are headed higher (We are watching you Turkey). So how is this a global problem as I don’t recall hearing about helicopter money going out to all these countries from Central Banks

    • KPL says:

      “My take away is that inflation is causing global havoc”

      Look at it in another way. But for the inflation none of the hikes would have happened and central bankers, who are basically arsonists and firefighters rolled into one, would have been printing like there is no tomorrow (drumbeats for having saved the economy) and along with governments would have implemented Universal Spending Income by now. Talk of checks and balances.

      • Depth Charge says:

        The FED is STILL PRINTING.

        • KPL says:

          But then less.
          IMO, 2008 has scarred them forever.
          It looks like they had the confidence to mop up after removing the punch bowl before 2008. But after 2008 they are scared crazy of the consequences of removing the punch bowl.
          Now they are caught between the proverbial devil and deep sea. Stock Market sinks or Inflation becomes uncontrollable (may be it will go away!). Take your poison
          If they can make inflation go away as easily as they can conjure up money they will keep printing for ever.

        • WES says:

          Wolfe didn’t mention the BoC!

    • phleep says:

      “I don’t recall hearing about helicopter money going out to all these countries from Central Banks”

      The USA did so massively around 2008. Google “swap lines.”

    • Old school says:

      My belief is the long term current path is ever increasing debt, lower highs and lower lows for the dollar, lower rates (approximately 1% – 1.5%) at which stocks and recession occur and negative real rates for many years to come.

      Sign of the times that Elon Musk can cash out $20 billion dollars on a company that when summed up hasn’t made money yet. But he is smarter than chumps that paid $1200 per share.

      Government will eventually have to eat more bad debt especially student loans.

      Every broad asset class has a negative real income return if purchased today. It’s all based on finding a buyer at a higher price.

      • Fromks says:

        Government eats student loans? I thought these have been securitized into SLABS same way mortgages are MBS. After years of private gains, why should I expect socialized losses?

        • Pea Sea says:

          Why *shouldn’t* you expect socialized losses? This is the United States. Along with privatized gains, they’re practically the national religion.

      • Jay says:

        Tesla has been profitable since Q2 2020, I believe. So, they’re not exactly the best example. Do I think the stock is overvalued? Absolutely. But, just about everything is overvalued.

        Everything else you say seems pretty reasonable.

        • Jake W says:

          how profitable will tesla be without the carbon credits?

        • Old school says:

          Tesla has a lot of years of losing money to make up for. If we had severe recession and they went under I don’t think they would have summed up to making one dollar.

        • MyLadyHumps says:

          Tesla’s product is their meme stock. Meme stocks are a high demand product, along with crypto currencies these products have no utility but are highly coveted and people are willing to exchange months of their labor to own a tiny sliver of these imaginary commodities. And that’s their business.

          Selling cars is an unprofitable distraction, the real money is in producing and selling stock.

    • Swamp Creature says:

      Ms Swamps’s hairdresser is going to Turkey to have some dental work done. The savings from the disparity in costs more than offsets the travel costs. Its 1/3 of the cost here due to the devaluation of the Turkish currency. So now the US is outsourcing medical care to third world countries. What’s left to outsource?

      • Old school says:

        They will be delighted to get the dollars.

      • roddy6667 says:

        When we were in Thailand a few years ago, I saw dental and cosmetic surgery clinics everyhere. They were targeting English speaking tourists. At the airport I saw a sign about a government program that promoted medical tourism. American health insurance companies have been sending patients needing knee and hip replacements to India for years now. South Korea is the world’s cosmetic surgery capital. Most prescription meds are now made in China and India. They are marketed and packaged in the US.

        • Harvey Mushman says:

          Where should I go for new hair?

        • David Hall says:

          A few feet south of the Yuma, AZ border is “Molar City” where Mexican dentists have set up shop offering low rate dental work.

        • Swamp Creature says:

          I fellow coworker of mine set up a bargain basement oral surgery center in his basement. He was doing tooth extractions for $75. The operation was totally illegal. All payments were in cash. He claimed to be making a profit since he had virtually no overhead nor taxes. He had plenty of excellent references and was booked solid.

      • Wolf Richter says:

        Swamp Creature,

        Wouldn’t it be easier and cheaper to do this in Mexico? They’re already set up for this. They have deals with US insurance companies, etc. And I imagine, travel costs and language barriers would be lower.

        • 2banana says:

          It is and does.

          Go to any major border crossing.

          For example – In Yuma – there are signs everywhere for American doctors practicing American level medicine in Mexico to avoid all the government regulations and trial lawyers.

          They cost half to a third for the exact same treatment with the exact same doctor with the exact same equipment as on the American side.

          In fact, most of these American doctors commute the few miles from America into Mexico for their practice.

        • Swamp Creature says:


          She’s from Turkey and is taking the whole family of 3 there. She probably feels more comfortable dealing with people from her own country.

        • Wolf Richter says:

          Swamp Creature,

          Little detail you left out :-]

          Now it makes perfect sense!

        • Swamp Creature says:

          You’re witnessing the future of commerce in America. This trend has been moved forward due to the pandemic. A hairdresser now working out of her home as well as a commercial beauty shop. Her basement has been set up with a minimum of investment. Her clients are flocking to her home and paying her mostly in cash. She sells hair products at the same time. She works on Sundays when everyone is more relaxed. It’s much safer than going into a beauty shop with a bunch of strangers, many of whom are sick and unvaccinated. Its working great for her and for us and her other customers. Mrs Swamp suggested she do this when the pandemic started. She did it and is making out like a bandit. Good for her.

      • Augustus Frost says:

        What’s left to outsource?

        The country’s standard of living.

        There is a day of reckoning ahead for American living standards. The majority of Americans are destined to become poorer or a lot poorer.

        Wait until credit conditions reflect actual credit quality and the USD reflects what the country actually produces. Yes, I know it seems like it will never happen but the day of reckoning will arrive.

    • kam says:

      The deal in Turkey seems to be that Erdogan is going to make up the difference if the Lira falls vs. the U.S. dollar, for anyone who takes a currency hit by investing in Turki’s government debt.
      Weimar Republic much? Print more worthless lira to fill in the gap of worthless lira.
      Economics, always subservient to Politics.
      Politics – “Too Big to Fail”
      Economics – “Too Big to Exist”

      • Old school says:

        I think it would be one of the first times one of these schemes work. Sooner or later, you just have to float your currency so people quit trying to ditch it for dollars or sometimes euros. Once confidence is lost you have to peg it to a real currency

      • masked ghost says:

        KAM wrote: “Economics, always subservient to Politics.”

        It was a big mistake to separate “Political Economy” into two separate
        categories. They are inseparable.

        • Enlightened Libertarian says:

          Massively subsidized and unsustainable liability debts [pensions and healhcare].
          So what if a letter mailed cross country costs more upfront, I bet it is still cheaper to the taxpayers in the long run.

  3. J-Pow!!! says:

    No prob. I got this.

    • historicus says:

      “I”ll keep a close eye on it”………Powell and Yellen

      Those who push inflation upon us always seem to have an inflation protected future. Inflation protected pensions, courtesy of the People who now have 7% inflation digging into their savings and earnings.
      Yellen must have at least three inflation protected pensions (U of C, Fed, Treasury). The lap dummy is okay. And for both, there are always the “speaking fees”, or as some call it “delayed compensation”

  4. DR DOOM says:

    Biden Administration is on a ventilator and its Covidian Faith Movement is collapsing. A fiscal black hole is headed their way. They will ignore it. The markets are not acting like Powell is serious or they just plain called his bluff. This bubble is gonna get bigger because he is still Juiceing it and inflation is going to create a dangerous increase in poverty which will cause more printed money to be handed out to keep them from hitting the streets and this will keep the feed back loop pushing inflation even higher. I just love getting into the holiday spirit.

  5. George Wood says:

    Why is the Post Office of the USA underfunded?

    Sorry, I know this comment is off topic and should be deleted.

    Congress, never blinks when it comes to appropriating Trillions of dollars to fund the US defense budget. Yet, the US postal service continues to face budget shortfalls and ultimately its fate as a going concern.

    We the people, love having our stuff delivered directly to our homes via the USPS, Fedex and Amazon…

    Democracy did not fail, we the people. We the People, failed Democracy…

    We the People, let Congress do as they please, nothing represents this better than what has happened to US Postal Service. The US needs to maintain 800 military bases in 70 countries and yet struggles to fund its own postal service?

    We the People, allow this nonsense to continue and in doing so, we the people, are to blame for our own demise.

    • Enlightened Libertarian says:

      As someone who worked for the USPS for over 25 years, I was always advocating for the USPS to be abolished. There is simply no reason for it to still be in existence other than funding reliable Democrat voters.
      Hopefully we can get back on topic now.

      • OutsideTheBox says:

        Is that you Louis DeJoy ?

        • Enlightened Libertarian says:

          No. Disabled USPS employee and real estate investor. RE has worked out very very well for me [67 years old]. Better than the market.

      • phleep says:

        And while you’re at it, defund those pesky voting station personnel too. Heck, abolish voting. It’s a Democrat tool. Just set up small states with 2 Senators apiece.

      • Wolfbay says:

        Buggy whip factories disappeared. USPS should also.

      • roddy6667 says:

        Living in China for over 7 years, noticed a few things about their postal service (China Post). You only see them delivering parcels. Nobody writes letters. That is state of the art 1750. People talk on videochat on Weixin, even the old people. Nobody gets bills in the mail. They are paid with an automatic bill-paying feature on your bank account. You can also pay them online with a debit card. Nobody uses checks. There is no junk mail. None. Everybody seems to have a mailbox, but nobody uses it. Once a year I locate the key to ours and clean out the KFC and McDonald’s flyers. The US Post Office should go this route. This is the 21st century.

        • Ray Cao says:

          China Post’s express delivery business (postal service) also operates at a loss, but it can get profits from banking and insurance businesses. China Post is a state-owned enterprise. Its purpose is not only to make money, but also to serve the people. It seems that “Nobody writes letters”, but the postal service always exist in China. If someone needs to write a letter or send something to a family member in a remote area, he can use China Post. In fact, China’s high-speed railways and highways also suffer losses all the year round, but they are necessary.

        • Cambric Finish says:

          So everyone in China has access to a computer and a network or has a cell phone. Every business is also networked into the banking system or has an Email account. I didn’t know that.

        • Anthony A. says:

          roddy6667, my 75 year old sister doesn’t have a computer or cell phone. She has a house phone that she actually ANSWERS! (that’s novel these days, the answering part, I mean).

          Once a year, my Sis writes me a multi-page handwritten letter and sometimes includes photos of her great grandkids!

          I know, she’s Luddite, but I love her and getting that letter each year. Electronic stuff just wouldn’t be the same for either of us. I’m sure I’m not alone here.

        • Sams says:

          Cambric Finish
          An observation done by many foreigners visiting the USA is how “backwards” the USA is when it comes to new technology in the administration. To many it look like paper forms, paper letters and filing cabinets are still widely used where other countries even the tax office is close to online only.

        • Wolf Richter says:


          This sounds like one of those silly apocryphal stories. I haven’t done ANYTHING on paper with any administration, neither federal nor California, neither my company nor personally, in at least a decade. All online. Even my driver’s license has been renewed online. Passport online, taxes online, other reporting online. Medicare enrollment online. Social Security account setup online. I cannot think of anything I had to do on paper over the past decade.

          There may still be options to do this stuff on paper for people who don’t have internet access. And it’s important to keep this option open. But it’s not a requirement.

          In addition, I do most other things online, such as ordering prescription drugs, even doctor’s appointment via video. ALL financial and insurance stuff is online. Our bills get paid online (automatically). I really have no clue what you’re talking about.

        • Sams says:

          Thanks for an update on the USA Wolf.
          My information is then either outdated or those foreigners have been/ where met different.

          Also thanks for the write ups and have merry Christmas!

        • Swamp Creature says:

          Some things may be done better using “Horse & Buggy” technology. Like voting.

      • Jake W says:

        the problem with that is that the private couriers will not provide reasonably priced service to very remote areas. you can argue that that is part of the cost of living out there, but on the flip side, do we want more people to pack in to our already packed dense urban areas?

        • Sams says:

          The interesting question, if there is no post services to remote areas, how do the tax office send their forms?😉

          With no public services the end game is lawless areas where the few that lives there get away with a lot before any governmental organization bother to care.

        • Augustus Frost says:

          It’s not all or nothing. Someone doesn’t need to move to the urban areas to move away from the sticks.

          It’s also possible an Amazon type model could work for postal delivery outside the “core”.

          I have received a few medical bills this year by USPS. Everything else (outside of a few packages) to my recollection is junk mail.

      • 91B20 1stCav (AUS) says:

        EL-just curious, what other Constitutional provisions (sec.1, art. 8) would you like to see abolished rather than improved in good faith?

        a happy holiday season to all, and-

        may we all find a better day.

      • George Krenshaw says:

        I also worked for USPS. I was at headquarters in Wash DC.
        I agree completely. It cannot be fixed at this point and should be abolished.
        BTW, if you think your local post office is bad… Hahaha.
        Postal headquarters makes your local post office look like a Swiss watch. I would go home most nights wondering how the inefficiency could continue. Pretty amazing.

        • Swamp Creature says:

          Last December an entire truckload of 1st Class mail was found dumped in a parking lot in Baltimore. The mail service was so bad that it couldn’t get much worse, but it has.

    • historicus says:

      “We the People, failed Democracy…”
      Some people failed….those who voted for these idiots.
      But who voted for the Fed George?

    • Old school says:

      Last time I looked at postal service vs. Fed Ex and UPS you could see the difference. Fed Ex and UPS could do much more per person because they had invested a lot more capital. It’s how a corporation can be more efficient than a nonprofit and still pay shareholders a high single digit return.

      • LK says:

        They also don’t deliver everywhere because it is too costly or delivery everything that can be delivered, like chickens.

        The USPS is a Postal SERVICE, not a company seeking a ROI. OFC you can see the difference between comparing it to Fed Ex and UPS, but you notably focused on the Commercial perspective, and I think that’s an apple to oranges comparison.

        • Old school says:

          That is true and everything shouldn’t be done on a commercial basis.

          It is very hard to kill of tiny post offices out in the middle of no where. I know of two tiny ones out in the sticks. Post office was put there in days of horse and buggy.

        • rankinfile says:

          It’s like comparing the US Army to Blackwater.

      • Wolf Richter says:

        Old school,

        Did you ever send a letter by FedEx? Does it cost $0.58 to send a letter by FedEx from San Francisco to New York City? People forget what the USPS does, and why it exists.

        • Nemo 300 BLK says:

          As long as you don’t forget it is losing money sending that letter across the country for 58 cents.

        • Depth Charge says:

          Who sends letters anymore? I think I was in middle school the last time I did that, and it was during summer break when I wanted to keep in touch with the young ladies I no longer saw on a daily basis at school. Today’s youth just text all day and night. Can’t imagine if I had snapchat back then.

        • Wolf Richter says:

          Depth Charge,

          People send donations to Wolf Street by first class mail. Thank you!! And there are no fees involved unlike credit-card based payments (via PayPal et al).


          But in terms of long, beautifully crafted love letters, yes, that is unfortunately true, they’ve fallen out of use. My wife and I, before we were married, wooed each other that way for years while we were half a globe apart. It was wonderful, and we still have all of them, unlike the emails that came afterwards.

        • Auldyin says:

          “Who sends letters anymore?”
          Exactly, and yet some old paper letters go for zillions at auction. How will that work in future? emails? Or could it be that paper letters might be worth a fortune historically on supply and demand grounds?
          Just wonderin’

        • Anthony A. says:


          “Who sends letters anymore?”

          Well, actually, I do, and my 75 year old sister does. As a matter of fact, I mailed a letter to Wolf a month ago.

          I must be a Luddite! LOL

          OH, I forgot, we cancelled an insurance policy last week and I wrote (typed) a letter to them and sent it certified mail, return receipt.

          When I had my business for 20+ years, EVERY tax return and document that I sent to the IRS was certified, return receipt. That saved my ass numerous times.

          We need the Post Office.

        • Enlightened Libertarian says:

          Massively subsidized and unsustainable liability debts [pensions and healhcare].
          So what if a letter mailed cross country costs more upfront, I bet it is still cheaper to the taxpayers in the long run.

        • RockyCreek says:

          My wife and I, who are in our late 50’s, love the post office. My wife has a writing desk where she has everything carefully and thoughtfully organized. She writes letters and cards to our families and friends. She loves to browse the stationary stores and will come home with new pens and pencils and beautiful hand made paper. She even has the wax and seal she applies to the back of the envelopes. We sent a hand written letter to Mr. Richter too. For all the years we have used the USPS it has been, for the most part, wonderful.

        • Depth Charge says:

          So…I’m imagining a scenario where I write Wolf a letter along with a donation by check, in which case he learns my identity, and the NSA comes calling to Wolf because, horror of horrors, I’ve been too critical of Weimar Boy and this entire regime. I’ll end up on the stockade.

          Or, maybe Wolf becomes so annoyed with me he just decides to pass off my info to the NSA on his own accord. Hahahaha! Just kidding, Wolf. You seem like a stand-up guy. But what if the NSA is putting the squeeze on you? “Tell us, Wolf, tell us who EEEEVERYBODY IS or YOU’RE going to the stockade!”

          As you can see, my trust in the government is at an all-time low. I never used to think like this. At all. I am, after all, a law-abiding citizen.

        • 91B20 1stCav (AUS) says:

          DC-with respect, do you really think your cyber security, (or mail handled by FedEx/UPS/DHL/et.al.) is any more secure? (the brave new interweb, ipso facto, has been the greatest opportunity-multiplier for global crime since the Saturday Night Special (lotsa time to achieve the right number of keystrokes in the secluded privacy of a home or behind that of an international border…).

          happy holidays to you and yours, and a better day to all…

        • SK says:

          Apparently, none of the USPS naysayers here either sell or buy on online venues like eBay, Etsy, Poshmark, etc. The majority of sellers (including myself) use the USPS for shipping packages. I can package an item, print a label, stroll out to the mailbox, and conduct retail business without leaving the house.

          I also still pay some bills by check, mail letters and Christmas cards, and mail important documents (such as trust documentation) by USPS. I also like the older stamps, which when perused, are like taking a walk through US history.

          Retail services for first class and priority mail requires a warrant to be opened, and are probably more private than your email, which I suspect is scanned and mined for data by various entities. Anyone notice how Amazon doesn’t put any customer info in their emails anymore?

          I love the USPS.

        • Swamp Creature says:

          I heard Jimmy Carter still uses the old fashion way to mail letters. He writes them by hand and puts them in an envelope and then pastes a stamp on the envelope and drops it in the mailbox.

    • Swamp Creature says:

      The mail is go bad here that you cannot depend on any letter getting to where it is suppose to go or receiving a bill on time before it gets hit with a late fee. We complained to the local post office here and they keep blaming Covid and staff shortages. Nearly every day there is a new carrier, and they deliver mail at 10PM at night on many days.

      • Anthony A. says:

        Swamp, we had that problem. Have all your bills be sent via email. Or get a Post Office Box and eliminate the carrier.

        • Sams says:

          Or do like modern countries. Have bills sent straight to the bank from the billers accounting system to the bank accounting system where it show up when you log in to your bank account. After a notice message on the phone or by email.

        • Swamp Creature says:

          Anthony A.

          Then your e-mail gets hacked and you’re in big trouble. You still have to make the payment via snail-mail.

          Automatic billing – forget it. Our Utility company misread the meter once and charged me over a thousand for a $100 bill.

          I pay my bills using “Horse & Buggy” methodology, paper checks mailed via snail-mail.

          Even that gets screwed up. Comcast loses my payment frequently.

    • Karl Brantz says:

      Absolutely on the money! However, as in all empires, the official thieves either run out of willing victims or are themselves victims of the inevitable revolution. You just can’t outrun the history train…..

    • General Strike says:

      That’s an easy one. The USPS is publicly owned. The capitalist makes no money from the operations of the USPS. The US Congress, a wholly owned subsidiary of Wall Street, is using what has been referred to as a” scorched earth “ campaign against the USPS for the purpose of brainwashing the public into thinking capitalists can do a better job delivering the Mail. Similar propaganda campaigns are in use against Social Security. Most people think the payroll taxes used to fund Social Security are the only way it can be funded. Not true. The Congress can allocate any amount of funding over and above payroll taxes to fund Social Security. For example, the corporate welfare masquerading as “ defense “ spending can be redirected to fund both the USPS and Social Security. How can this be accomplished ? A general strike.

      • Petunia says:

        The post office is underfunded by design. They make enough money from postage, but congress makes them fund their pension system fully for 75 years in advance. Nobody else does this, only the post office. The giant pool of cash is under somebody’s control, maybe wall street, maybe it goes into some black budget. But it’s not going to improve the post office.

    • Jesse says:

      I’d imagine most of what USPS delivers is junk mail ads or correspondence that could’ve happened via email, that goes directly into trash or recycling bins. Would love to see them gone just for that.

      At least when Amazon, FedEx, or UPS deliver, it’s actually something I requested.

    • Oroku Saki says:

      “The US needs to maintain 800 military bases in 70 countries and yet struggles to fund its own postal service?”

      Funding the USPS is not a struggle. Running it efficiently is.

    • Pea Sea says:

      Because many people, including many who should know better, hold the fantastically stupid belief that the Post Office should be expected to make money, rather than be seen as a subsidized service that benefits everybody even when it costs money.

      Almost none of those same people hold the same belief about the military-industrial complex.

      • Jake W says:

        i agree. nobody expects public parks to make money.

        having only private courier services would be a disaster. what if, for example, a rogue government managed to buy up all the stock in fedex and ups, such that they controlled the companies. they could shut them down or do other things to damage our national security.

        that’s not to say that the usps doesn’t have things that could be improved for cost savings and efficiency, but downright elimination should not be on the table, any more than eliminating the national park service should be.

        • rankinfile says:

          As long as politicians can use the postal service to send out their political flyers at election time for free, the post office isn’t going anywhere.

  6. Richard Gilbert says:

    So why has the USD rallied? The DXY has risen from approximately 89.5 to 97 this year.

    • Jake W says:

      for some reason, the dollar is strong internationally, but it’s becoming crap domestically. i can’t quite figure it out.

      • Depth Charge says:

        It’s because everything is dogshit, so they just run to the world’s reserve dogshit.

      • brisket says:

        Debt. International debt is denominated in US dollars… and boy is there a lot of it. So everyone needs USD to pay their bills, even if they have little direct interaction with the US. The mountain of dollar debt is so large that this state of affairs will persist for a long time, even if an increasing number of countries start to make other bilateral arrangements (as India and Iran recently have).

    • Auldyin says:

      You’ve got it in one!
      Because JP jawboned the world into thinking the Fed was going to up rates, all the psychological suckers in the world scurried to the $, so all these other CB’s had to up rates to protect their currencies. That’s how it works.
      God help the USA if that psychological worship of the $ ever disappears.
      China appears to be headed the other way, does that tell us something?

    • Sams says:

      The exchange rate may have risen, but commodities bought and sold internationally in US dollars have risen too. Now, have the USD really rallied?

  7. Sams says:

    It can be interesting to see how this play out. Many of the countries on the list are “small” countries. They may have their own asset bubbles, but a lot of price hikes, consumer price inflation, is imported. Exchange rate, and especially the exchange ratio to US dollar as a lot of world trade is denominated in US dollars then play a large part in the CPI.

    Now, devaluating the US dollar is not good for export from these countries, yet there may be circumstances where lower internal inflation have less impact than a higher exchange rate versus US dollar for the local currency.

    There is also a catch with the oil price. A lot of oil producing countries do like to see the oil price stable in the local currency. If the producers coordinate pricing, the result can be a weaker US dollar and a higher oil price. Net result, oil price hike is exported to the USA and everyone else have the same price in their local currency.

    • Julian says:


      Let’s look at the Countries/Economic Areas with the World’s Most Traded Currencies – and their interest rates.

      1. USA (88.3% of daily currency trades in 2019) – 0.25% (Hasn’t moved).
      2. European Union (32.3%) – 0.00% (Hasn’t moved).
      3. Japan (16.8%) – -0.10% (Hasn’t moved).
      4. United Kingdom (12.8%) – 0.25% (1 rate increase of 0.15%).
      5. Australia (6.8%) – 0.1% (Hasn’t moved).
      6. Canada (5.0%) – 0.25% (Hasn’t moved).
      7. Switzerland (5.0%) – -0.75% (Hasn’t moved).
      8. China (4.3%) – 3.80% (Moved down 0.05%!!).

      So looking at the Top 8 Countries representing 181.3% of Global Currency Trades (Out of 200%) – so over 90% of all sides of Currency Trades there has been a “Net” of ZERO interest rate moves in the last few weeks/months. (1 up and 1 down).

      It’s not just the Fed doing nothing much – it is ALL the MAJOR Central Banks doing not much.

      • Sams says:

        Now, the interesting part is how does it look when countries/economic areas are sorted by their output of oil, commodities and industrial products?

        Most traded currency do not necessarily translated to largest supplier of oil, commodities or industrial products.

      • phleep says:

        Central banks’ greatest fear is precipitating strong deflation-recession. Only Volcker had the minerals to do it, loud and proud.

        Ironically, once things get bad enough, we may see a repeat of Carter’s hail Mary nomination of Volcker, with Biden, preceding another GOP president’s term in 2024.

      • Peanut Gallery says:

        So basically this basket of currencies is kind of the same mix as the DXY?

        As someone mentioned earlier, capital will flow to where it is treated kindest. I’m sure some of these smaller economies will begin to attract capital.

        Maybe I won’t jump into converting all of my money into the Turkish Lira, but there are some smaller and somewhat reliable economies out there that you could depend on (BOE, BoK).

      • Wolf Richter says:

        Julian, now wait a minute…

        You’re ignoring QE. That’s the biggie. That’s a huge factor in this inflation. It’s QE that pushed down long-term interest rates. The major central banks did massive amounts of QE. Before raising rates, they have to stop QE. So:

        BoJ: ended QE in May 2021
        Fed: $120 billion a month in QE cut to $0 no later than March 2021, reduction started in Nov, speed of reduction doubled in Dec.
        ECB: is cutting QE from €92 billion a month to €40 billion a month by March.
        Canada: ended QE in Oct
        UK: let QE expire, first rate hike.

        • Jay says:

          Sure, but will they? The later 1/2 of 2022 is going to be very interesting. It’s almost impossible to tell which way the economy is going to head, including inflation, at least in terms of either how much higher it goes or does it start a slow descent.

          Either way, look for the FED to do everything they can to suppress rates, short-term & longer. If they don’t, the house of cards will final burst from this slow QE “gas leak” that’s been going on for 13 years.

          QE needs to be outlawed. Any money injected into the system has to come from Congressional appropriations. The FED should NOT be allowed to manipulate interest rates outside of those rates their mandated to control.

          It sure seems like about 8-10 years out is when the BIGGY comes, based on Wolf’s charts about how much MBS & Treasuries mature in that approximate timeframe.

        • Peanut Gallery says:

          Like how others have mentioned, the Fed has been completely politicized and I am sure Nov 2022 is on JP’s mind. I’m curious who is yanking at his strings harder. Team Blue is nervous about inflation and being blamed for it, but then the medicine will probably mean recession(s) in the economy. Maybe Team Red wants to keep inflation in place until Nov. so that they can use that as fuel for fire in their plans to gain seats in congress next year? Or do they also want a recession?

          As historicus has always said, cui bono?

  8. Anthony says:

    Food price inflation just needs a series of bad weather events anywhere in the world to smash food prices. In the USA, all you would need is a repeat of the very hot 1920s and 30s (when Co2 was low) which destroyed much of the wheat crop in various years. I can’t imagine what a dust bowl situation would do to prices. Luckily, it’s cooler now than then.

    • Depth Charge says:

      “Smash prices?” That would indicate a price crash. Don’t you mean the opposite?

    • SK says:

      It is not cooler now than then. Average surface global temperature is significantly higher across the globe, and is even higher in the interior of continents.

      One difference is the surface cooling effect of a tremendous amount of irrigation in the US breadbasket, thanks to the Ogalala aquifer, which like most of Earth’s precious resources, is being depleted at an unsustainable rate.

  9. Anthony says:

    I guess wholesale natural gas prices rising around 600% in Europe tends to get people’s attention. Even if it is just for this winter, it will push other products and services much higher. I’m on a fixed rate for heating until August next year (here in sunny England) but who knows where the prices will go. You can see now why the Bank of England put interest rates up.

    • Julian says:

      The current trajectory of natural gas prices in Europe are entirely political.

      The EU is playing political games and they could crater the natural gas price at any time they wanted.

      They want these high natural gas prices for whatever reason – because it is a political decision on their part to stop the approval of NSII.

      • Auldyin says:

        The EU is on a Green suicide mission.
        They are religiously dedicated to only rely on renewables at the behest of the WEF.
        They are destroying Nuclear, EDF France 3 plants down for heavy repairs. Belgium finally agreed to permanently shut down 7 old reactors.
        They are trying to force their people to like it or lump it. If they get through this winter without street riots and revolution it will be a miracle IMO Energy, pandemic, inflation.

        • Anthony A. says:

          It’s a good thing Russia is there to supply the EU natural gas. It will cost the EU dearly, though.

        • ivanislav says:

          Anthony, US LNG tankers are finally headed to Europe en mass.

        • ivanislav says:

          en masse *

          I had the spelling right originally, and then google-dictionary decided to highlight in red as if it was mispelled. Google you suck!

        • Auldyin says:

          Yup! The US will do anything to prevent NS2 opening.
          Question is, will EU pay the same price as China would have done for the diverted gas and will the frackers be happy with the change of customer?
          US cuts off its nose to spite its face whenever Russia is involved.

        • Auldyin says:

          Of course, meanwhile Russia and Iran will see China OK at, no doubt, the higher price.
          Noses and faces.

    • Old school says:

      The knock on liberals is they are good at working on problems of the future, but can’t fix a practical problem of today.

      • Bet says:

        Problem is the problems of the future are here now and one party practices one thing ,obstruction. Do they even attempt at ideas ?

  10. Juicifer says:

    Hi Wolf, Everyone. Happy Holidays. Great collection of data, by the way.

    Just wondering if you have any thoughts on the Japanese situation. Japan’s Bank is still sitting on massive amounts of public debt, while total debt to GDP is the highest in the world. True, the banksters aren’t buying more, as you say, but then again, the government just passed another USD 317 Billion “extra budget” spending for COVID relief, and the total money supply has expanded here even more (I think) than in the US over a same period.

    Yet, inflation still hasn’t even scraped close to the Bank’s “happy target” of 2%, an strange situation to be sure. Why? I understand that inflation definitions often leave out pesky essentials like food and energy, and we’ve seen quite a lot of “shrinkflation” here where products are now smaller/reduced/inferior, but still selling at the same price. (Hence, not counted as inflation in terms of price rises).

    Still, I’m wondering why this Galapagos Of The East continues to see such rare and strange economic fauna take root, while the rest of the world seems to suffer from quite similar phenomena? It’s not like Japan is isolated from events around the world, or is it? Could it be the consumption tax hike a year or two ago pre-baked in a mini-pop to consumption bubbles that other countries have recently seen only expand and expand? An aging demographics driving down demand while the Youngins of the West just wanna party like it’s 1999?

    Thanks, and keep up the splendid work.

    • leanFIRE_Queen says:

      It’s a combination of Japanese consumer behavior and flat wages, which are tied at the hip as well.

      The Japanese consumer is like me and unlike most Americans. I don’t shop at a store that increases prices, I shop at Trader Joe’s that hasn’t done it in years. Americans see price increases and accept them, they are used to spend as much as they can.

      My savings rate is much higher and it’s not discretionary to save a massive amount, my life is structured to allow for a high savings rate. Japanese are like me, savers, not debtors. Germans are similar.

  11. Michael Engel says:

    1) If JP raise rates to 3% – 4% he will destroy US bond and the RE markets. Both are larger and more important to people than the stock markets.
    2) If JP will raise rates and WB sells his AAPL to balance his bonds portfolio losses, JP + WB will destroy the global economy.
    3) The Bank of Mexico can raise rates to 5.5%, but the Fed can’t. True, food isn’t imaginary. Gas isn’t digital. RE isn’t a metaverse property. Hollywood can live in the meta world, silicon in the digital and wall street futures markets in electronic,t JP face real p

    • historicus says:

      “If JP raise rates to 3% – 4% he will destroy US bond and the RE markets. Both are larger and more important to people than the stock markets.”

      Destroy, or take back the magic? Why do SPIKED prices have to be defended? Why do people who engage in FOMO have to be protected?
      If real estate just came back 20% over the next two years, then we would be back to pre Covid levels. So what? Those who stuck their neck out took the risk of the marketplace.

      There is a whole group of people who could step in and buy residential real estate and stocks on a reasonable break…..and that is what a market does, attracts demand when the price is attractive.

      The Fed sponsored nonsense (30yr mortgages 4% below inflation, Fed Funds 6.5% below inflation) has NEVER HAPPENED BEFORE! And it must end to return to a normalcy. Historically, Fed Fund (prior to 2009) equaled OR EXCEEDED inflation.
      The Fed has over done it, and must retrieve the injection, roll off the balance sheet.

  12. historicus says:

    Three 1/4pt raises predicted?
    Fed Funds still under 1%.
    You could have TEN 1/4pt raises and still have Fed Funds 4% below inflation.
    The history of this nation’s monetary policy has been that Fed Funds equal or exceed inflation (prior to 2209). It briefly occurred in 2018.
    The markets didnt like the evenness of that.
    Are we now in an era where the market defenders DEMAND Fed Funds be at a great disparity to inflation? And why must their wishes be honored? And why now the break from historical norms? Cui Bono?
    Fiscal irresponsibility coupled with a cooperation from a monetary irresponsibility can break a nation.

  13. historicus says:

    Is Powell just waiting for his confirmation before he starts to tighten?
    It will be an interesting point in time.

    • Peanut Gallery says:

      lol, you said cui bono and then asked this question. could it all be as simple as that? that one man is just acting in his own best interest?

      i think JP is a figure head for a much more complex web of interests. theres got to be a reason behind all of this

  14. Old school says:

    Did my tax planning for 2021 as I am in sweet spot at 62 and can make my IRA withdrawal or Roth rollover anything I want. Generated table to see tax rate in $1000 withdrawal increments. Decided I would roll $12,000 into a Roth and pay about $2000 in Fed and state income taxes.

    If you believe inflation numbers my inflation tax on my savings was about $35,000. Why is government going to be in a hurry to kill off inflation?

    • Old school says:

      Should have said I am 66. Sweet spot is between 59.5 and 70.

      • Old school says:

        One bit of advice I would have for people saving for retirement is have a more balanced approach to retirement planning than I did. I crammed as much as I could in IRA and Roth. Probably should have had more in after tax accounts as cap gains tax is relatively low.

        Anyway for me pulling out about $23,000 from IRA makes marginal rate (due to creeping into social security getting taxed) of 22% Fed plus 5.25% state. It’s a little different for everyone depending on social security amount.

        • Peanut Gallery says:

          But things could change in the future right? I won’t retire for another 20+ years. The tax picture could be significantly different by then….

        • Old school says:


          Absolutely. All I am saying is I probably should have not relied so much on traditional IRA. Definitely get the match and do a Roth. After that I might just invest outside a retirement vehicle.

          Berkshire Hathaway is a good broad based stock to hold outside an IRA as it pays no dividends. You just pay cap gains when you sell. Vanguard has some tax efficient index funds as well.

        • Peanut Gallery says:

          Old School, I am sticking with traditional because I am in a high tax bracket right now. I am hoping to defer and pay taxes later at a lower bracket.

          In general the default advice I give people is that when in doubt deferring taxes into the future is the safer of the two bets if you are far out on retirement

          At or near retirement for the older folks? Different story…

        • TXRancher says:

          Peanut – “I am hoping to defer and pay taxes later at a lower bracket.”

          That “hope” is not a plan. One of the fallacies of 401K and IRA is that there is no guarantee your tax rate will be lower than your current tax rate. I think what Old school is saying is put enough in to get the 401k match (if offered) but stretch to maximize after tax savings too.

  15. SocalJim says:

    All looks dovish to me … a nothing burger.

    The US would need to lead a globalized policy response but it will never happen before Nov 2022. We will see lots of inflation for at least another year, perhaps longer.

    • Dazed And Confused says:

      Agree with your read on the current FOMC tapering and rate hike plans BUT I think you are missing the point that WR is making the case for an inflection point and a tightening bias.

      At the last meeting, FOMC doubled their taper speed and accelerated their rate hike plans. If inflation continues to exceed FOMC forecasts (2.6% next year) and unemployment drops faster than they expect (3.5% next year), FOMC might continue to tighten their plans e.g. doubling the number of rate hikes next year and beginning and then accelerating QT.

      As WR illustrates with these examples from CBs around the world, once tightening starts, things can move very fast ….

      • Winston says:

        Anyone know of a graph showing FOMC forecasts versus reality. I’d wager that it would show that listening to them is equivalent to going to a fortune teller using a crystal ball and believing what she forecast.

  16. Jeremy says:

    I guess it is bye-bye to NIRP.

    • Old school says:

      Say goodbye to Zirp and Nirp and hello to rnirp (real negative interest rate policy). Currently about 8% in the USA if you believe the Atlanta Fed.

  17. Dazed And Confused says:

    I read a MSM article the other day in which one of the Fed governors was openly talking about liftoff (first interest rate hike) in March followed by QT (balance sheet reduction) sometime shortly after that (April or May) with a goal of eventually reducing the Fed balance sheet from $9T down to $6T.

    I thought this was interesting because it was the first MSM article I have seen talking about QT since the pandemic began.

    The FOMC is still projecting that CPI will drop to about 2.5% next year while unemployment will fall to 3.5% and their current timid interest rate hike and QT plans are based on those projections so if inflation continues to run hotter than they expect (e.g. 4%+ next year) and unemployment drops faster (say below 3%) over the next few months then the rate hikes and QT could easily be accelerated.

  18. historicus says:

    Judy Shelton in today’s WSJ
    nails it.
    No wonder she was passed over.

    Some nuggets from her piece. (WSJ 12/23/2021)

    *nearly $4.3 trillion in bank reserves are now kept on deposit at the Fed; that’s an increase of some $2.5 trillion since March 2020—and more than four times the level of December 2010, when Mr. Bernanke alluded to the Fed’s powerful new tool for tightening monetary policy to reduce inflation

    *More than 97% of the $2.6 trillion in mortgage-backed securities owned by the Fed won’t mature for at least 10 more years. The maturity horizon on the Fed’s $5.6 trillion in Treasury securities is more varied; still, only about 20% will come due in the next year, while 38% will mature in one to five years, and 42% have maturity dates longer than five years out.

    *when emergencies arise that require the central bank to intervene in financial markets as lender of last resort, it is important to ensure that its presence in those markets doesn’t become a permanent feature of the economic landscape. Commercial banks shouldn’t be induced to maintain deposits at the Fed, nor should Treasury yields convey misleading price signals

    * nearly $4.4 trillion in securities the Fed has purchased since March 2020—

    She says the Fed should sell off that which they acquired …. reduce the balance sheet.

    • Peanut Gallery says:

      I also read that piece. So basically what she is saying is instead of raising the rates, sell off holdings in the fed balance sheet which will effectively raise market yields?

      • historicus says:

        That’s how I took it.
        The selling off will sop up the excess liquidity.
        The implied halt of QE would do the same.
        No need for aggressive rate hikes that might look bad in the paper….but behind the headline maneuvers .
        In the 70s, the Fed often (not always) followed bank prime rate hikes….followed the market with its raises.
        The massive injection, the expansion of the money supply must be reversed. But central bankers are not very good at getting out of their situations………they love “goin’ in”, but not so much exiting.

      • Jay says:

        If the FED actually started selling off its MBS & Treasuries, the supply of these on the open market goes up. In general, a higher supply means lower prices which means higher yields. And like Wolf is saying, the big banks are parking $1.7T overnight with the FED, so there’s already at least that much in unproductive liquidity to purchase all of these FED assets. They fun would really start once the $1.7T is gone. Would there be a return to September 2018 when the reverse repo market freaked out, requiring the FED to inject hundreds of billions of dollars into the core banking system.

        Honestly, I don’t think anyone really knows what would happen in the FED tried to cut its balance sheet in half over the next 2-3 years, not even Wolf. And, he’s the smartest guy in the room / blog.

        • Tbv3 says:

          “Would there be a return to September 2018 when the reverse repo market freaked out, requiring the FED to inject hundreds of billions of dollars into the core banking system.”

          Yes, according to Nouriel Roubini, who some months ago said Fed tightening would precipitate another “Repo Madness” like Sept. 2018.

        • Wolf Richter says:


          “..return to September 2018”

          Typo: September 2019.

          The first $1.7 trillion of Quantitative Tightening is just going to reverse the $1.7 trillion in reverse repos (RRPs). So that’s not even tightening. Anything above it would be actual QT.

          The Fed could easily take its balance sheet down to $4 trillion. It now has standing repo facilities, and the repo market knows this, and there won’t be any kind of repo market blowout, like there was in Sep 2019, when the Fed didn’t have a repo facility and the repo market panicked.

        • Wolf Richter says:


          “I don’t think anyone really knows what would happen in the FED tried to cut its balance sheet in half over the next 2-3 years…”

          We know it would tame inflation, including consumer price inflation, house price inflation, and general asset price inflation. Consumer price inflation will go to lower tolerable levels, house price inflation and asset price inflation would turn negative, with prices sinking substantially. And that would be a good thing for the economy, and some of the millions of folks now resting on their laurels might rejoin the labor force, and some of those 11 million open positions might then actually get filled.

        • Pea Sea says:

          “We know it would tame inflation, including consumer price inflation, house price inflation, and general asset price inflation. Consumer price inflation will go to lower tolerable levels, house price inflation and asset price inflation would turn negative, with prices sinking substantially. And that would be a good thing for the economy, and some of the millions of folks now resting on their laurels might rejoin the labor force, and some of those 11 million open positions might then actually get filled.”

          And that’s precisely how we know it won’t be done.

    • Old school says:

      You are always unpopular when you cut the drunk off from the punch bowl. It hurts to sober up and then deal with your real life

    • Swamp Creature says:

      Why didn’t T appoint Judy Shelton instead of those losers he picked?

  19. georgist says:

    All the countries listed trade with each other in the global reserve currency, USD.

  20. Old school says:

    I still contend global tightening is not in full swing yet. From the data I see the growth rate in big four central banks is nearly zero but not quiet, total big four central banks balance sheet will not peak for 1 – 4 months.

    The central banks let things get out of control. Running real rates at minus 1% – 2% is a sustainable policy for a decade or two, but minus 5% will blow up the system if not addressed as bank accounts will flee.

    If gold takes off above $2000 you know people are voting Fed has messed up.

    • Escierto says:

      Gold above $2000? Come on, be realistic. The powers that be are never going to let that happen. They can sell tons of paper gold whenever they want to drive down the price.

      • historicus says:

        7% inflation and gold goes sideways….

        A Fed that fights inflation will be very bearish to gold and Bitcoin….

        that’s a big IF.

        • Old school says:

          Fed has already laid out the plan NOT to fight inflation. When are short term rates getting to 2? Probably not in my lifetime. Economy would croak if rates rise 2%.

          Economy is so good people can’t be expected to pay back student loans and you have to pay money for people to have children.

        • Depth Charge says:

          “Economy would croak if rates rise 2%.”

          This is not true at all. It’s a convenient excuse for FED types and crackpot eCONomists to continue ripping people off.

        • Jake W says:

          depth charge, to them “economy would croak” means “stock and housing markets would drop.” they think the stock market and real estate market is the de facto economy.

      • Flea says:

        Read Basel 3

        • Escierto says:

          Basel 3 is irrelevant. It’s come and gone – nothing has changed. Gold bugs always see a new savior on the horizon. Face it – gold is an expensive door stop.

        • Old school says:


          Gold might sell for only $1000 next year. Who knows. If government and central banks did their job it wouldn’t be held as alternate money by folks.

          Look at Turkey. Gold has gone up 65 times Lira in less than 20 years. Governments can not be disciplined with money.

        • ivanislav says:

          Escierto, would you agree that gold has a relationship to the cost to mine it? If so, it should serve as a good wealth-storage device that basically tracks the cost of oil, machinery, labor etc. Basically just a commodity with high physical value density.

        • Flea says:

          Escierto check gold returned 9% a year for 20 years best inflation hedge out there

    • historicus says:

      ” global tightening is not in full swing yet”

      WE are speeding to the abyss at 55 MPH , not 60 MPH any more.
      Hopefully we will get the Jerome Powell we had in early 2018 after he is confirmed in a month.
      Holding my breath.

      • David Hall says:

        There is only about $18 trillion worth of negative yielding bonds remaining in the world.

        The Fed funds rate is close to zero.

        Loose as a goose.

        • David Hall says:

          I could not properly fact check this. Negative yielding debt was $16.5 trillion in August 2021 according to Marketwatch. Where it went from there I don’t know.

  21. Spencer Bradley Hall says:

    Personal Consumption Expenditures (PCE) Price Index, rose to 4.7% YoY in November. But Powell deemphasized the growth of the money stock.

    Regulation D thus eliminated the more than six withdrawals or transfers per month out of your savings account. And Powell didn’t seek comments in the Federal Register prior to removing the restriction.

    FAIT, the over-shoot, the make-up policy, has been over-done.

    The prospect is that, with the un-gating of bank-held savings, we will know less and less about money and the economy.

    • Richard Greene says:

      The core PCE was up +5.7% in November 2021, versus November 2020. The highest year-over-year growth since June 1982. Unless the Fed wants even higher inflation, they can’t ignore that number and claim it’s “transitory”.

  22. CreditGB says:

    Isn’t this a bit like going on a drunken weekend party to the Riviera, running our credit card way beyond its limit and our ability to pay, then returning home, and asking the credit card company to raise our interest rate from 19% to 39%?

    With more and more taxpayers “laying down”, becoming tax burdens instead of tax payers, isn’t this a bit of financial suicide?

    If not, please explain.

  23. fred flintstone says:

    The US has become a banana republic.
    It is only a matter of time until the dollar reserve status falls away. I used to think it would be a long time….not so much now.
    When that day comes life is going to change in the US.
    Economic reality will not be fun.
    Until then……..The 20’s in the US were a great time to be alive.

    • elysianfield says:

      “When that day comes life is going to change in the US.”

      In this you are correct. The day we lose the reserve currency status, our lifestyle will end with a bang, not a whimper.

      The whored-up dollar will float against all other currencies. Prices of items domestically produced might not spike in the immediacy of the moment, but anything imported will.

  24. Michael Engel says:

    3) AI suck !

  25. Flea says:

    We have India equal power to China ,

  26. SocalJim says:

    For years, many in the economics community have argued that globalization causes inflation to fall. For years, the evidence seemed to support that.

    Clearly, something has gone very wrong with that theory. Now, it appears globalization is having the opposite effect … rising inflation.

    In the 1970s, globalization was nil, and the FED had a handle on US inflation. I don’t think FED policy can handle inflation driven by globalization. Too many still have a 1970s FED midset.

    • Seen it all before, Bob says:

      Here is my theory on inflation based on what I have read.

      Globalization has been driving massive deflation. Clothing, chips, electronics made in Asia have been made cheaper in the US over the last few decades. Technology and automation has been similarly driving down prices. In some cases, even food. I can still spend 20 cents for a pack of ramen noodles that I spent back in my college days in the 1980s. Even the cost of producing oil has been dropping relative to inflation due to better technology and more efficient extraction. Wages have been stagnant due to globalization and technology.

      The banks and government will not allow deflation under any circumstances. The Feds job has been to balance deflation with more money printing causing a balancing inflation.

      Covid threw this out of whack. Demand is soaring, and supply due to higher production costs and backed up ships from Asia is inflationary.
      Electronics and critical chips now cost more due to lack of production driving up prices.
      The Fed has wishful thinking that this is temporary so they continue money printing to fight mythical deflation.

      I expect the Fed will raise rates and start QT since deflation is not an issue at this time with production and the supply chain. Once the supply chain sorts itself out and deflation becomes an issue again, QE and money printing will resume to fight deflation.

    • ivanislav says:

      Why do you think globalization is the key driver of today’s inflation, when there are so many other things to point to?

      Supply chains can break down when workers are forced to stay home, regardless of their physical location. Likewise, fiscal stimulus increases demand and has nothing to do with globalization.

      • Old school says:

        I agree economy is not functioning well and it’s hard to know how to invest. We are in a cloud of dust due to shut downs and massive stimulus. Probably best to wait til stimulus bulge gets through the python to see what economy is like.

        One thing is sure, the world will exit this health crisis at auch higher debt than when we went in. Probably pay for it with inflation or years of financial repression.

  27. KEVIN says:

    Wolf, your mention of the Bank of England’s 0.15% increase made me laugh. The BofE has a well earned reputation for breaking its promises(Mark Carney was nicknamed the “unreliable boyfriend” for multiple lies regarding rate increases, then in November BofE said it would raise rates and didn’t, then raised them in December when it never said it would!!!
    Basically the BofE is trapped just like the Fed, it has fostered and nurtured an enormous housing bubble that will create havoc when it bursts, and government borrowing is now over £2trillion so interest rates can never be allowed to rise for that reason too as the govenment would be unable to meet interest payments on existing debt,let alone roll it over for new debt.
    Additionally, the housing market IS now the Uk economy, so many people rely on it for their living and income and a gauge of their wealth and security, that when, not if the bubble eventually pops the outlook will be devastating.
    So they will continue to drag their feet when it comes to raising rates(they are current nearly 6% negative) and give numerous false signals that rate hikes are coming, and eventually they will begrudgingly raise them 0.1 or 0.2% at a time, whilst keeping an eye on house prices. The minute prices start to fall, the rises will be reversed and new incentives to “help first time buyers” will be introduced to stabilise prices, with entirely predictable results for sterling given that inflation will always exceed the interest rate.

    • Wolf Richter says:


      If you get anything out of this article, it’s that central banks are NOT “trapped.”

      • yeah but they are addicted…

      • Richard Greene says:

        What i got here was an excellent, concise summary of what lots of central banks around the world are doing. I have no idea why I’ve not seen similar articles on this important subject.

        What other central banks are doing is important news. Because central banks appear to “collude” on long term monetary policies, so it would be very unusual for the Fed not join other banks in trying to reduce the high inflation rate THEY CAUSED !

        • Auldyin says:

          That’s what makes WS special for people with a brain.
          MSM spread it out all over in small pieces or back pages, so you are not aware of it as a global trend,
          W does the work to bring it all together in a single well presented piece and you get the picture immediatly, that’s the power of good stats.

      • Tbv3 says:

        I disagree.

        I think “trapped” is a warrantably appropriate term for the plight facing major Central Banks who, like the Fed, will be reluctant in a market selloff to intervene, to inject funds in the face of already rising inflation.

    • Peanut Gallery says:

      KEVIN, why do central banks need to / want to / have to give forward guidance? Why do they benefit from that?

      Of course they are just going to come out of left field and do whatever they want. Why tip off your hand to the general public? The only obligation they (probably) have is to tip off their inner circle…

      • Old school says:

        Because the financial markets are so leveraged up they can’t surprise the market or some leveraged entity blows up. I bet if they surprised market with 1% rate hike the system would sling apart.

    • Auldyin says:

      We always knew him as ‘Bubbles’ Carnie.

    • Fat Chewer says:

      Same goes for Australia. Possibly worse even. Wolf, they are trapped. They are trapped within their own baloney promises to keep interest rates low forever. Then they wedge the opposition by claiming that any party who allows interest rates to rise are poor economic managers.

      • Ben says:

        Agreed. Australia are in the same category as the USA. Our official inflation numbers might be lower than the US numbers, BUT the AUD is falling against the USD. That ought to tell u something.
        The RBA governor came out with some quote that they will only raise rates when wage inflation takes off. But the government are experts at suppressing wage inflation: simple, just run the biggest immigration program in the OECD. So we will have high inflation, completely unaffordable housing, crushed families and low wages. The PTB are loving it!

  28. Mulling over Bob Prechter’s axiom, inflation in the producer nations is deflation in consumer nations. Google tells me “Compared to other major economies in the world, China has a moderate and stable level of inflation.” China is dropping its prime rate. Maybe their deflation is our inflation? Not sure if there are historical analogies to global inflation, but there are instances of global deflation.

  29. Dave says:

    All the central banks that matter are low. It’s a collective wink and nod to higher inflation

  30. Depth Charge says:

    Not only has the FED done NOTHING about inflation, they’re still printing massively. This is an outrageous act. 3 more months is a looooooong time. Is it any wonder the stock market has rocketed right back to all-time highs? The FED is a phony liar. They aren’t taking inflation seriously at all. They’re still causing it!

    • Ray Cao says:

      The strong deflationary policies may trigger a systemic financial crisis. The FED is threading on thin ice.

      They must raise interest rates in 2022, but they have to print money at the same time to keep the economy growing. The most difficult part is to maintain a balance between “Reduce inflation” and “Kill the economy”.

      • Jake W says:

        printing money does not keep the economy growing. all it does it causes inflation. nominal growth is not growth.

        • Sams says:

          Expanding the monetary supply keep the economy growing when the “growth” comes from different inflation corrections at the right places int the computing of growth…

    • WES says:

      If you want to remain in a constant state of confusion, just listen to what the Fed says and watch what they do!

    • Jake W says:

      if it was truly going to stop printing and raising rates in 3 months, all asset markets would be tanking, as they are supposedly “forward thinking.” what’s happening is that no one actually believes the fed will follow through.

  31. Depth Charge says:

    The FED was notified that they have a 5 alarm fire raging, after months and months of reports of a developing inferno. They responded with “thank you for calling, we have penciled in an appointment to look into that in a few months.”

  32. leanFIRE_Queen says:

    “with run-away inflation” I have yet to feel any of it. Remote work and moving to LCOL solves this. There’s no need to rely on the Fed when mobility within the US offers a massive arbitrage.

    In many senses, inflation is basically a tax on not being mobile.

    • Jake W says:

      have you looked at health insurance premiums? energy costs? rent (even in lcol areas)? food?

      • leanFIRE_Queen says:

        Health Insurance premiums: free Bronze plan with HSA, the key is to kill the big-ticket items, notably housing so that you save 80% or so and report as income what’s necessary to live (low enough to get healthcare for free). The error is to live in a HCOL surrounded by NIMBYs, that will inflate your income needs a lot, making you unable to get free healthcare.

        Energy costs: work from home! This is my 5th year, my Honda Civic doesn’t even need $20 in gas/month. Also, my city benefits from high gas prices, so what’s not to like?

        Rent: buy a REO that you can fix all cash. Make sure you can put all of the property under homestead exemption, property taxes under $1k per year

        Food: Trader Joe’s didn’t increase prices at all, I also grow much own food, every single herb, kale, fruits. Get free meat and nuts from my family farm.

  33. Swamp Creature says:

    Woke attack on the Fed in the works. They’ve got 3 months to do some serious tapering and tightening before these losers are appointed and confirmed to the Fed. Three vacancies are in play. They will prioritize Climate change and social justice in place of full employment and price stability I see the hammer falling right after the holidays. Powell will have his Paul Volcker moment, at least for 3 months. Get ready for a big surge in interest rates on the short and long end of the Bond market.

  34. Swamp Creature says:

    What’s going on with the Central Bank of Turkey? Didn’t see that in the chart. Our hairdresser can’t miss her flight or she will have to pay a lot more for her dental work, given the rate of devaluation of the Lira.

    • Swamp Creature says:

      Actually, I got it wrong. more devaluation of the Turkish Lira will help lower the price.

  35. Rowen says:

    As the case in 2010, as the West tightens, China loosens.

    The difference is that the US/ECB spent trillions in 2020 to boost asset prices, meanwhile China has been spending trillions to increase capacity, which is disinflationary even as its domestic consumption has been ramping up.

    Look at the energy mess in Europe, reliant on Ukraine and NS2. Meanwhile China is lapping the field in renewables, has more nuclear reactors under construction than the rest of the world combined, increased coal ouput, and built 10s of thousands of kms in natgas pipelines spanning all of west Asia.

  36. R Russell says:

    Seems the FED and other financial interests benefit from the real rate of interest being below the rate of inflation, and as far as I can see there is no even close timing for interest rates to be raised that much. With inflation over 6% it would take three 200 basis point rate increases to come close, and we can expect inflation to be higher in that time. And whoever heard of a 200 basis point rate increase? Certainly not from this FED. As long as interest rates are bellow inflation, the FED will still have the accelerator on the floor.

    • Jake W says:

      yes, but a small rate of increase will cause demand to drop and inflation to decrease, simply because the system is so heavily levered. in other words, i think a 100 bps increase will decrease inflation by more than 100 bps, and substantially so.

  37. Edward Teach says:

    Bread 81% higher than a year ago. Now thats some serious inflation. Housing about 10% per year for a decade. Inflation its called thats just a fancy word for collapse of currency.
    1. Money is supposed to be a store of value.
    If i work today and make $200 i should be able to hold on to that money because it will hold its value tomorrow, next week or next year.
    Fiat currency fails on that account. If you dont spend it today tomorrow its lost more purchasing power. So I dont care what anybody says inflation is just a fancy word for collapse of currency. Fiat currency only has value because people believe it has value. Just like Santa Claus, the Tooth Fairy and God. They all are in the same category because of belief.

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