Commodities and Resource

Why Isn’t Inflation Higher? Inflation Targeting14 min read

Comments (14)
  1. LKH says:

    This fits in with my own observations that money is being hoarded while financial policies continue to pretend that it moves throughout the economy, and (2) that people no longer make money from producing things, but rather from moving money around independent of any buying or selling of products. It doesn’t much matter whether more dollars should raise the price of things, since “money” is independent of “products” and work. This leads to more and more people being ambivalent about working in productive jobs, which eventually will produce real shortages in goods. Prices may or may not react—if the people who have all the money have enough, it probably won’t have much impact….

  2. Alex Balkcum says:

    The overlooked inflation never mentioned is in packaging. Take grocery items, several years ago most frozen vegetables were sold in 16 oz bags where today they are sold in so called convenience cook in 10, 12 or 14 oz bags. Cookies that were sold in 1 lb packages now are in 12-14 oz packages even Walmart packaging that once came in 17 oz packages and a bit cheaper to get your dollar have dropped to 15 oz sizes. I can remember when ice cream was almost always in 2 qt packages and today they are 1.5 oz to an occasional 1.75 oz package. The smaller packaging did not equal smaller prices which can and are creeping ahead once again 2 to 8 cents every several months.
    There are many more examples however you can get the point w/ these.


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  4. Bubba Jack says:

    Inflation is driven by more than the volume of money (i.e., the money supply). It’s also driven by the velocity of money (how fast it circulates). Yes, QE1 through QE3 (and Operation TWIST) created a great deal more money. But, the FED also paid the banks to park their excess reserves at the FED so that those reserves wouldn’t circulate. Instead of creating a lot more new loans with the newly created money, the banks instead earned guaranteed interest income for parking their money & not letting it circulate. This was riskless interest income & helped the banks rebuild their battered balance sheets. When that parked money truely starts to circulate with real velocity, then we’ll start to experience stronger inflation. That will happen when Treasury bond yields & loan interest rates increase enough & pull parked money out & into the economy where it will be put to work again. This will drive money at faster velocities in lieu of being dormant. Then we’ll have “more money chasing the same or fewer goods”. Presto, inflation will start to be a pain in the ascot.

    1. Michael s says:

      This is the problem also that everyone mistakes. Velocity of money has been falling for over 40 years. It won’t turn around. Ivan has actually wrote about that before and mentioned it again in this article. So no, velocity of money won’t turn around. Inflation will happen when people stop believing in the Dollar.

  5. Bubba Jack says:

    Michaels comments are not exactly right. The velocity of the M1 Money Supply actually rose from the late 50’s through Qtr3 of 1981, then oscillated sideways till Qtr1 1994, then increaed 52.89% till Qtr1 2001, fell slightly till Qtr3 2003, then rose 7.07% till Qtr3 2007. Since then it’s been falling (44.1% thru qtr1 2015).

    The velocity of the M2 Money Supply oscillated sideways from the very late 50’s till Qtr1 1991, then increased 20.5% till Qtr3 1997, and has been falling in fits & starts since then (24.95% since Qtr4 2007).

    The FED no longer publishes figures for the M3 Money Supply (I believe since 2006). But we could probably get calculated figures for M3 from John Williams website at

    I believe there are several possible reasons for the decrease in money velocity over the longer periods of time: bigger concentration of money in fewer hands (think big money hands), the development & evolution of the credit industry in lieu of real money, more money being parked in funding bigger Govt debt, & the flight of capital overseas or being held outside the country.

    1. Michael s says:

      Bubba, I thankfully accept your point. However, velocity of money is thought to be actual spending of money but it really isn’t. It’s simply transaction between two parties.

  6. CuizCal says:

    You leave out the staggering productivity growth brought about by maturing IT systems, which made monetary easing a sheer necessity during a historic transfer of the workbase of the economy.

    The ongoing baby boom retirement wave is also a giant deflationary force that will continue for 10 more years, to be followed shortly by the echo boom after that.

    With exponential progress rate in AI, the workbase will continue to be buffeted into an unrecognizable subset of its former self.

  7. Michael Job says:

    The reason the velocity of money is next to nil is because when the Berlin wall fell three billion new capitalists were created (granted China is semi capitalist). The “big sucking sound” as Ross Perot termed it came from Asia and to a lesser extent from eastern Europe. Their low wage levels attracted Western multinationals. This has kept inflation minimal in western economies.

    Therefore when our western central banks wish to stimulate their economies it is similar to trying to inflate a tire with a hole in it. The largest benefactor of our monetary policies has been China. The easy money has stimulated third world economies and commodity prices. Now that Janet Yellen may be raising interest rates in the US, it is these same third world economies, including China (no longer third world) that are experiencing the largest contractions and stock market “collapses”.

    Look at Janet Yellen’s policies as primarily affecting the third world and China!

  8. Peter says:

    MV=PQ velocity of money at all time low and cheap foreign products temp. increased Q but kept prices low

    1. Patricia says:

      What is MV and PQ in your equation?

  9. David says:

    The class system will continue to flow toward the the two class one with an huge gap between them. I have a deep concern about the economic future of the World with the West following the way actions in China are seeming to reap the savings from the masses with control and riches staying at the top. A possible outcome could be a revolution, but the media control and huge armies available to safeguard the presumed masters a matter to be watched.

  10. Bob G Innes says:

    What about Basil & requirements on banks– more reserves, less leverage, restricting derivatives etc? Less borrowing= less money creation, no? So QE just balanced that deflationary effect?

  11. Paul says:

    Inflation comes about when lots of cheap money chases scarce goods and services and consumers are prepared to pay more.

    Right now we have a situation where lots of cheap money is essential to service excessive consumer debt loads and that money is not used to chase scarce goods and services.

    The real reason why inflation has not taken off is because so many consumers are maxed out on debt. Consumers have to have low interest rates just to be able to service existing debt and to keep their heads above bankruptcy. Maxed out consumers don’t qualify to borrow more from banks. Consumers just don’t have extra money available to spend let alone borrow more to spend. And not only that. The US government has to have low interest rates to service their $18 trillion debt pile. That’s why the Treasury “swapped” all the short term relatively expensive bonds with long term low interest rate bonds due in 30 years and got the Fed to buy it because there were no takers for those ridiculously low interest 30 year bonds, not even the Chinese who used to buy it.

    This is also the sad part of debt leveraged “growth”. Debt servicing costs has reached such a high proportion of income that most consumers do not have the capacity to take on more debt, not even low cost debt.

    So now we have these trillions of cheap money sloshing around the system with no takers.

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