USD monetary base has increased 3.5x since 2006. Why no huge inflation?

[mcplums]

See http://upload.wikimedia.org/wikipedia/commons/e/ef/U.S._Monetary_base.png

I realise that this is monetary base, and not money in the economy. My question is, is it only a matter of time until this money does find its way into the economy? Potentially many times over, due to fractional reserve lending?

Or, is it possible that you can have huge increases in monetary base without ever having these increases passed onto the economy?

[vrm86]

Maybe the reason is that some developing countries unofficialy use USD as their real currency? I wonder how much US dollars are circulating outside US borders.

[chmod755]

Or, is it possible that you can have huge increases in monetary base without ever having these increases passed onto the economy?

I guess most of that went to the stock market so it doesn't really make a difference for consumers. If there's a major trend change on the stock markets you might see the prices of goods and services going up.

[odolvlobo]

Much of the increase in the base money is still held by banks in the form of reserves.

[thezerg]

So what triggers spending those reserves?  It must be something... that is the point of a reserve.  That is when high inflation hits.

[johnyj]

So what triggers spending those reserves?  It must be something... that is the point of a reserve.  That is when high inflation hits.

Suppose that you are a bank, you drove a credit bubble by loaning out 1 million dollar again and again and get 5 million dollars worth of  mortgage backed securities, and then housing bubble crashed, you took the chance to sell those securities to FED in exchange for real money 5 million dollars

Now you have 5x more money than before, will you release them to market and trigger a large hyper inflation and destroy your money's value? Of course not, you will let them trickle down to the whole society as slow as possible

The reason that there is no hyperinflation is because banks controls those money, hyperinflation only happens when majority of people  receive those money. If you keep majority of people poor, there will be no hyperinflation. Bankers can buy some castle or yacht or build some underwater hotel, but that won't increase the income of majority of people, so no inflation

[chennan]

IMO the maket is focusing on the European crisis, especially on the peripheral European countries at the meantime. And the Europ is introducing government bond buying program, we call it "QE". So the market has quite negative sentiment for it. the euro is under selling pressure comparing with a basket of other currencies including dollar.

[H.W.Z]

So what triggers spending those reserves?  It must be something... that is the point of a reserve.  That is when high inflation hits.

Suppose that you are a bank, you drove a credit bubble by loaning out 1 million dollar again and again and get 5 million dollars worth of  mortgage backed securities, and then housing bubble crashed, you took the chance to sell those securities to FED in exchange for real money 5 million dollars

Now you have 5x more money than before, will you release them to market and trigger a large hyper inflation and destroy your money's value? Of course not, you will let them trickle down to the whole society as slow as possible

The reason that there is no hyperinflation is because banks controls those money, hyperinflation only happens when majority of people  receive those money. If you keep majority of people poor, there will be no hyperinflation. Bankers can buy some castle or yacht or build some underwater hotel, but that won't increase the income of majority of people, so no inflation

The monetary base is kept in that so called reserve by the bank at the moment. As you mentioned , they will let the money trickle down to the whole society as slow as possible. So the ppl eventually will receive the printed money in hands. So I believe the inflation is not reflected in reality yet, but just the matter of sooner or later.

[manselr]

With this graph you can see why USD is a scam and BTC isn't:



We all know how this is going to end.

[manwithat]

Yes, but the prices could be going down. I am from Spain and prices are going down 1%, and GDP is growing 2%. This is be cause euro is working like good in Spain and we can't devaluate.

[stonerider]

There's inflation in the US where I reside currently. I used to be able to buy a package of cut-up whole chicken for $0.99 per pound about eight months ago; today, the same package is costing me $1.49 per pound. I'm not claming 50% inflation, not at all. All's I'm saying is today's consumers are paying more for the same items than in the months ago, but the increase is uneven and sometimes hard to notice. The way the government measures inflation is f**k'ed up anyway. The unseen inflation hits the consumers very hard at the moment, but like sheep, we go to work, hand over our hard earned dollars to big corporations and take the pounding in the asse$ without a complaint.

[dinofelis]

The monetary base is kept in that so called reserve by the bank at the moment. As you mentioned , they will let the money trickle down to the whole society as slow as possible. So the ppl eventually will receive the printed money in hands. So I believe the inflation is not reflected in reality yet, but just the matter of sooner or later.

The Basel III agreement requires about 3 times more reserves than before, so the money multiplier should, when entirely implemented, be 3 times smaller (grossly speaking).  This implies a 3 times higher base if you want to keep the same monetary mass.

[SmoothCurves]

With this graph you can see why USD is a scam and BTC isn't:



We all know how this is going to end.

Interesting.

100k/BTC by Q4 2017?

1M/BTC by Q4 2021?

[johnyj]

So what triggers spending those reserves?  It must be something... that is the point of a reserve.  That is when high inflation hits.

Suppose that you are a bank, you drove a credit bubble by loaning out 1 million dollar again and again and get 5 million dollars worth of  mortgage backed securities, and then housing bubble crashed, you took the chance to sell those securities to FED in exchange for real money 5 million dollars

Now you have 5x more money than before, will you release them to market and trigger a large hyper inflation and destroy your money's value? Of course not, you will let them trickle down to the whole society as slow as possible

The reason that there is no hyperinflation is because banks controls those money, hyperinflation only happens when majority of people  receive those money. If you keep majority of people poor, there will be no hyperinflation. Bankers can buy some castle or yacht or build some underwater hotel, but that won't increase the income of majority of people, so no inflation

The monetary base is kept in that so called reserve by the bank at the moment. As you mentioned , they will let the money trickle down to the whole society as slow as possible. So the ppl eventually will receive the printed money in hands. So I believe the inflation is not reflected in reality yet, but just the matter of sooner or later.

I am afraid this time people might never receive those printed money, since most of them is used to purchase the debt, and a debt will be paid back by almost equal amount of interest cost over decades, for each dollar they earn, they must pay 1 dollar interest, no money left

[Undermood]

So what triggers spending those reserves?  It must be something... that is the point of a reserve.  That is when high inflation hits.

Suppose that you are a bank, you drove a credit bubble by loaning out 1 million dollar again and again and get 5 million dollars worth of  mortgage backed securities, and then housing bubble crashed, you took the chance to sell those securities to FED in exchange for real money 5 million dollars

Now you have 5x more money than before, will you release them to market and trigger a large hyper inflation and destroy your money's value? Of course not, you will let them trickle down to the whole society as slow as possible

The reason that there is no hyperinflation is because banks controls those money, hyperinflation only happens when majority of people  receive those money. If you keep majority of people poor, there will be no hyperinflation. Bankers can buy some castle or yacht or build some underwater hotel, but that won't increase the income of majority of people, so no inflation

The monetary base is kept in that so called reserve by the bank at the moment. As you mentioned , they will let the money trickle down to the whole society as slow as possible. So the ppl eventually will receive the printed money in hands. So I believe the inflation is not reflected in reality yet, but just the matter of sooner or later.

I am afraid this time people might never receive those printed money, since most of them is used to purchase the debt, and a debt will be paid back by almost equal amount of interest cost over decades, for each dollar they earn, they must pay 1 dollar interest, no money left

But you should know that the institution or banks receive the money, they will try to find ways to spread out the money and get as much return as possible. So the money will eventually come to the ppl and inflate the price of every things. 

[galbros]

Exactly what a few others have said, all the created money never left the banks, so no inflation.  The banks held on the cash reserves to meet their liquidity obligations, which were threatened by the downturn, and the stress tests that were required by their regulators.

I was surprised by this too.  I guess the question is, if the banks stop needing all that liquidity, will inflation return in a big way very quickly?

[tabnloz]

Exactly what a few others have said, all the created money never left the banks, so no inflation.  The banks held on the cash reserves to meet their liquidity obligations, which were threatened by the downturn, and the stress tests that were required by their regulators.

I was surprised by this too.  I guess the question is, if the banks stop needing all that liquidity, will inflation return in a big way very quickly?

I'm not too surprised. There's a school of thought that says all this QE is deflationary.

Banks have been able to borrow money at 0% and lend it back @2% to gov. That's money for nothing, a no brainer, but doesn't help the wider economy.

They've also got billions in toxic debt on their books, and with derivative contracts being so complex, who actually knows who owes who what? The way to counteract that is to increase asset prices; stocks, property way way up, savings rates heading negative (forces the issue of whether to invest or not). It was hoped that reinflating asset prices would spur employment and consumer demand however it has largely failed. Demand has stayed low. it hasn't worked in Japan for 30 years and despite the different economy there, it hasn't worked in the West for 7. Companies are trying to offset lack of demand by 'shrinkflation' (smaller product / substituted ingredients, same price) or the stock buybacks (as opposed to investing in r&d, company itself).

Some sections of the market, many regular consumers, have decreasing or flat wage growth, zero interest on savings and debt. They're paying down debt and cutting their retail purchases. That's deflationary in an economy built on expansion and credit. Of course, in a currency war it is thought that deflation precedes inflation.

In my opinion, I've no idea how this will play out. To sit on the sidelines or get in while Main St asset classes are rising? We've tried the Great Depression playbook and it has failed. We're now in unchartered waters and the next generation will sit back eventually and study the mistakes made in hindsight before creating their own.

[johnyj]

So what triggers spending those reserves?  It must be something... that is the point of a reserve.  That is when high inflation hits.

Suppose that you are a bank, you drove a credit bubble by loaning out 1 million dollar again and again and get 5 million dollars worth of  mortgage backed securities, and then housing bubble crashed, you took the chance to sell those securities to FED in exchange for real money 5 million dollars

Now you have 5x more money than before, will you release them to market and trigger a large hyper inflation and destroy your money's value? Of course not, you will let them trickle down to the whole society as slow as possible

The reason that there is no hyperinflation is because banks controls those money, hyperinflation only happens when majority of people  receive those money. If you keep majority of people poor, there will be no hyperinflation. Bankers can buy some castle or yacht or build some underwater hotel, but that won't increase the income of majority of people, so no inflation

The monetary base is kept in that so called reserve by the bank at the moment. As you mentioned , they will let the money trickle down to the whole society as slow as possible. So the ppl eventually will receive the printed money in hands. So I believe the inflation is not reflected in reality yet, but just the matter of sooner or later.

I am afraid this time people might never receive those printed money, since most of them is used to purchase the debt, and a debt will be paid back by almost equal amount of interest cost over decades, for each dollar they earn, they must pay 1 dollar interest, no money left

But you should know that the institution or banks receive the money, they will try to find ways to spread out the money and get as much return as possible. So the money will eventually come to the ppl and inflate the price of every things.  

True, people are still waiting for these money to flow to them, while banks have no better place to invest but lock those money permanently at FED and receive interest on them. Only when banks start to spend their interest income, people will get some money to earn, that will be years later

If an alien come to earth, he must be shocked by the fact that human on earth will starve just because some printer is not working  

[manwithat]

Because velocity of money is going down.

[BitmoreCoin]

The monetary value of various assets has increased, it absorbs the extra monetary supply.