The horizon is not so far as we can see, but as far as we can imagine

Yes Virginia all that money printing did show up as inflation

One of the great “mysteries” of the last 7 years or so is why all the money from unconventional monetary policy hasn’t shown up as inflation.  Many analysts thought that printing that much money must surely increase prices, but inflation indices in most of the developed world are barely up, and in many cases are flirting with deflation.

The answer is obvious, but you’ll hardly see anyone point it out.

First, who was the money given to?

Rich people and corporations.

Ok then, what do rich people and corporations spend their money on?  Stocks, and real estate—high end real estate.

In America as a whole, let alone New York, housing prices have not returned to pre-financial crisis values.  But luxury apartment prices now exceed pre-financial crisis pricesReal estate prices, period, in London, are now higher than pre-financial collapse.

Meanwhile, the Dow Jones Industrial Index is up about 175% off its lows of 2009. The annualized gain is therefore about 29% a year.  GDP has not risen anything like that, neither have wages.  Corporations, however, are flush with money, and they have spent a great deal of it on stock buy-backs, while rich people, of course, have bought stocks.

Inflation has, then, shown up exactly where one would expect, in the assets bought by the people who were given money.  Ordinary people did not receive the largesse from unconventional monetary policy, rich people and corporations did.

This is not hard, this is not difficult, this is not complex.  The fact that mainstream analysts and pundits do not connect the dots on this is because they do not want to.

That inflation has not shown up in much (though not all) of the rest of the economy is simply based on the fact that no one else except the rich and corporations has received (I can’t call it “earned”) more money.  Nothing more, nothing less.

This economy is entirely artificial. It is based on giving money (in various ways) to those who already have a lot of it.  This is in no way a competitive market, certainly not a free market, and barely deserves to be called a market at all.  It is pure oligarchical abuse of the power of printing money in all its modern guises.

If you enjoyed this article, and want me to write more, please DONATE or SUBSCRIBE.


People are very strange: murder edition


So, the Separatists are now on the offensive in the Ukraine


  1. markfromireland

    Well duh. Yes of course and how remarkable that you should have to point out something so obvious.

    It’s rather like Stalin’s crack about the people who count the votes deciding everything, the people who decide what’s in the “basket” of goods and services tracked decide the headline rate of inflation at any rate.

    Tracking producer goods prices and as you point out above the rise in prices of assets bought by the very wealthy and corporations would help provide a more accurate picture but that’s not in the interests of mainstream analysts and pundits.


    PS: Incidentally the cost of “investment art” has gone through the roof as well. It’s led to people who own some very very minor works being contacted by auction houses and “art investment agents” offering entirely ludicrous prices for the said very very minor works and when I say very very minor I mean not even “school of” more on the lines of “kindergarten of”.

    How does an inflation rate of several 100% grab you? Restrict your basket to these works of art and that’s what you’d get.


  2. Ian Welsh

    Ah yes, I should have used investment art as an example as well. Good point.

  3. Jeff Wegerson

    Class warfare. The 0.01% against the 0.1%. The evil rich against the filthy rich. Someday it might again even be illegal for the rest of us to have money. I suppose that in the sense that real money transactions happen in the world of stocks and bonds and real estate that is already the case. Lucky for them modern computers can handle lots and lots of zeros. As long as your income raises faster than the hyper-inflation rate you’re doing fine. Debt overhang? Nothing cures it faster than inflation. And when somebody notices the ridiculous numbers of zeros, well then time for a round of revaluation. Sure some of the 0.1%ers might suffer, but hey!

  4. VXV

    The 0.01% against the 0.1%.

    If you’ve read “You and the Atomic Bomb” by Orwell (and remember that H-Bombs are 1000 times more powerful than the sort of bomb he was writing about at the time) it sort of makes sense that things would be shaking out like this, and several further rounds of consolidation might be expected to follow on from it until we end up in a place with no obvious historical precedent.

  5. Jason Bonham

    Thought experiment:

    Stock Market drops from current levels to 1/3 of current levels. (near lows of 2009). Have the Rich lost all their money? Who got their money? Where did it go?

    I see inflation everywhere too – I just don’t get that because the stock market is inflated, the Rich must have made money on it. Anyone buying it now is simply paying more for the same assets.

    If anything, people with a lot of money (The Rich, the savers etc) are being punished with low interest rates. The Debtors are being rewarded.

    Because the Debtors are being rewarded, and because they are idiots, they can call leverage 20-1 and buy homes which drives up real estate.

    I agree with you regarding inflation – I just don’t see it as so dead simple.

  6. Mel

    Yeah. It’s about time we recognized inflation in the luxury real-estate market. But it’s not there to be seen in the Dow-Jones, or, arguably, even in investment art. Investments are valued differently.

    A lowlier example: if the price of porridge doubles, in the inflation-engendering view, you’re paying twice as much for porridge. In the investment view, you’re getting the opportunity to eat porridge that is twice as valuable as it used to be.

  7. DMC

    The QE money isn’t out chasing (most) goods, its being invested in that high end real estate, investment art, a few high value markets like yachts and jewelry. Meanwhile, the proles are facing virtual deflation due to their being effectively less money in their pockets. When an ever increasing number of people have to shop at Dollar General because even Walmart is too expensive, you have some pretty powerful forces acting in a deflationary direction.

  8. Jason Bonham

    DMC – you nailed it.

    Inflation calcs are so manipulated these days that it has become a measure of disposable income rather than inflation. (as they allow for substitution)

    Because disposable income is going down, the official ‘inflation’ measurement is artificially low.

    Real inflation numbers? Look here:

    The economy can’t get better until people have more money to spend. And the 1% are doing their best to make that impossible.

  9. reslez

    To quote Bill Mitchell, QE is a blunt policy instrument with ambiguous effects. Under QE the Central Bank swaps reserves in exchange for higher-yielding longer-term assets. This has the effect of draining income from the private sector, it is hardly inflationary. The low interest rate environment also has the effect of draining interest income from the private sector (pensioners, bond holders, etc.).

    But you certainly don’t need QE to have a stock market bubble, and given the actual operational reality of QE it’s a stretch to say QE caused the current one. And in fact what we see is a deflationary wider environment with spots of ridiculous excess among the looter class. More likely culprits are the explicit guarantees of Too Big Too Fail, lack of wage increases fueling speculation mania, careful market management, and the now-imploding energy sector.

  10. BlizzardOfOz

    I agree that inflation is showing up in things the rich buy (professional sport teams are another example — the sale prices of NBA franchises has exploded over the past few years). I also agree that this should be obvious. Anyone who has tried to invest money can see that there is too much money out there, chasing too few opportunities. If you want a safe, liquid investment (treasuries or an FDIC-insured savings account), then you can expect a less-than-1% return. Not too long ago, you could make 4% or more from a savings account (actually you still can, in some countries).

    But what I wonder is, how this will trickle down? You know it has to, somehow, eventually. All that extra money can still buy physical goods and services, at their (relatively) un-inflated prices. The recipients of the printed money are not going to be content trading inflated paper with each other, but are going to start buying up physical goods. I think that this process should be visible in more real estate segments, not just high-end. Just from personal observation, it seems like rental prices in Orange County are increasing by more than 5% every year.

    To take the example above of pro sporting franchises, you can already see the trickle-down process starting: you now have to pay a premium to the cable companies to watch these games, that were free on broadcast networks a couple of years ago. (Ok yes, pro sports is a non-necessity service, but it is one with mass-market appeal not limited to the rich.)

    How about this example: bubble-level investments in Silicon Valley companies and San Francisco real estate (driven by investors flush with trillions of printed money) drive up salaries for “tech” employees. You might think this is good for that segment of the workforce, and it is, but of course the owners and investors do not see it that way. Hence the constant drum-beat for increased H1-B visas, and for immigration generally.

    And I haven’t even mentioned the cost of health-care and insurance (providers of which now have a captive market thanks to Obamacare).

    My point is that the non-rich are going to end up, one way or another, paying more than their share for the money-printing binge. Don’t know about you, but I feel like the proverbial frog in the pot sometimes.

  11. alyosha

    @Blizzard of OZ -I’ve been wondering about the same kind of things, reflecting on how rents across the board have been steadily ratcheting up in Los Angeles since 2009 (and earlier), forcing the non-rich to shrink their lives, or leave town.

    No professional economist here, but my guess is that the conventional tools used to measure inflation, used more or less successfully for decades, are too blunt at this point to see where inflation is actually occurring.

  12. Sharon

    The inflation also showed up in the designer clothing that the 1 percent purchase. A dress that was $800 in 2010 is now in the $3,000 range. The whole range of luxury clothing and accessories are all, by considerable magnitudes, more expensive than they were two or three years ago.

  13. Pelham

    And as a lovely bonus for the wealthy who are receiving this free money, their assets are all the more valuable because they’re gauged according to the supposedly uninflated dollar that the rest of us use in the real economy.

  14. Ian:
    Did Roubini ever reply to you on Twitter?

  15. Ian Welsh

    Phil, no.

    People like Roubini do not talk to people like me in any serious way: I am not a member of the club.

  16. Ryan

    You are talking about real phenomenon, but it’s a shame you use the word “inflation” to describe it. There is an economic definition of inflation, and what you’re describing isn’t that.

  17. Charlie

    What you’ve stated is a rather obvious logical explanation for what is happening now. I do wonder about the “deflation” though. With the prices holding fairly steady, but with reduced standards, such as weight of food packaging (less cereal in a box, same price, for example), plus real wages on par or even less than 40 years ago, isn’t that a form of inflation as well? Reduced purchasing power being a form of inflation.

    Of course, for the average person, there’s deflation for shit we don’t need (TVs, iPhones, tablets, etc) and hyperinflation for things we do need (rents, health insurance, electricity, water, etc). Which, balanced out, makes inflation look better than it really is.

  18. Neft

    Reduced purchasing power being a form of inflation.

    To be pedantic it isn’t, but the underlying idea is entirely valid. When inflation is used as a bugbear, invariably the implication is that it will reduce purchasing power. So crowing about low inflation numbers without pointing out that purchasing power is actually declining is lying by omission.

  19. John

    What I find interesting about this is that the Chinese government is fighting deflation, which QE is purported to do, by spending on the fiscal side at the bottom of the economy by increasing the wages of 39 million government workers by 60%. They seem to be going for full spectrum recovery. They know bad things happen to leaders that let the bottom starve.
    It would be a hoot if the Chinese, by allowing plutocracy and taking care of the little people, are rewarded with a strong successful economy. Their history is replete with examples of the misfortunes of governments that don’t take care of those on the bottom.

    And of course, our plutocrats are probably whining because of their inflated world: art sales at Sothebys and Christies, inflated Gulfstream, yacht and palace prices. What was that about 1700 Gulfstreams delivering the retinue of overlords to Davos to talk about global warming. I bet some of them even had to use ride sharing.

  20. JustPlainDave

    While it would be comforting to believe that the phenomenon is confined to the very, very top of the income / wealth pyramid (some definition that ensures it’s all “them”), the net likely has to be cast somewhat wider. Looking at the neighbourhoods with the largest increases in median prices (and what those prices are), it’s clear that this type of cheap money-based asset appreciation is more broadly distributed than “them”. ( I’d personally bet that a non-miniscule percentage of the readership is implicated in this, actually.

  21. Ian Welsh

    There have been some other groups that have made gains, of course. There always are. It is, however, definitely concentrated near the top.

  22. Lisa FOS

    It’s worse that you think Ian.

    I do find it it fascinating that price increases in living costs are ‘inflation’, while assets are ‘capital gains’. Capital’ gain are good’, ‘living cost inflation goodish’, wage ‘inflation’ horrible (except for some at the top when it is ‘good’ again because ‘market….’)

    This is deliberate and has been the case for any, many years now. Reduction in the rate of capital gains, capital assets taking out of the inflation measures (as the Keating Labor govt did in Australia).

    How the asset inflation money pump works now:
    Cheap and endless debt available, especially for corporations and the rich.
    They buy assets.
    Hence inflation in asset prices.
    Get more debt and buy more assets.
    Rinse and repeat.

    It does depend on on the debt pump endlessly continuing of course, which central banks have been more than happy to ensure.

    Hence the terror by the elites of deflation, bcause many of them would be hung out to dry if asset prices drop, since many of them are carrying huge debt loads.
    Morever the financial organisation that have lent them the money would be wiped out.
    The jobs of central banks is to ensure that thise doesn’t happen, therefore they will, directly or indirectly, pump ever more money into the system to ensure asset inflation.

    Watchin the EU trying to pump another trilllion into their financial system (not a cent of which will go to ordinary people) to prop it up would be laughable if not so tragic.

    How ordinary people lose out.
    Cost of living assets, ie housing, are overpriced, which means greater debt by them, thus enriching financial organisations.
    Asset debt is backstopped by central banks and govts, if it goes pear shaped then ordinary people have to pay for it (Ireland being the classic example).
    Increasingly public assets are being bought by elites as an investment, if they are logal/regional/national monopolies so much the better. These are bought with that cheap, readily avalable debt, requiring them people to be gouged to pay for it.
    Corporations buy each other up, using this debt, forming massive monoplies.
    Capital misallocaton becomes rife. No one spends on fixing old infrastructure, etc let alone build new stuff , R&D, product development, unless it makes very quick asset profits.
    And so on…

    This is combined with massive a downward push on ordinary people’s wages and ending transfer payments. The first because that frees up more money for the CEOs and debt servicing. The second because it enable tax reductions on the elites and corporations.

    So you have a system for asset (and thus wealth) consolidation and impovrishment of ordinary people, the reducio ad absrdum of this is that eventually one person will own everything in the world and no one else has a single cent of income or assets.

    But it is fragile and self destructive, because as the cost of those assets goes up, it requires evermore debt to buy it, which has to be serviced and have capital gains to be viable.

    Eventually there is a crash, where prices drop and everyone tries to liquidate, but there are no buyers and a large part of the elite and corporatons are hung out to dry.

    It happened in 2008, it will happen again and be far worse because the ‘greater fools’ (govts and ordinary people) have already been ripped off and don’t have the capacity to pick it up next time.

    Not that is going to stop the elites. The stupid amongst them believe it can go on forever, the smart are getting ready for the learjet flight out.

    A DAVOS elite proposes their ultimate wet dream:
    ““If you could get those people, like a board, [to be an] unpaid workforce, pay them next to nothing or nothing, and have them go into the school system to be mentors to kids, and be an example of a certain type of success that you would get dramatically different outcomes. If you can get unemployed people that cost nothing, that can have this dramatic difference, that costs nothing. I love things that cost nothing that have great results. Imagine if you laid on technology and other types of things, you could really set the world on fire with this type of stuff.””

  23. Lisa FOS

    The Automatic Earth site has been covering this scam stuff in great detail for some years now and is well worth a read:

    The latest:

  24. Lisa FOS

    I’ll add this as well:

    “But here’s the deal: The way QE is supposed to work and the way it actually works, is the difference between public relations and reality. Bernanke and Co. know the difference. You can trust me on this. Monetary policy is not a random, shot-in-the-dark experiment with uncertain outcomes. The reason that inequality has grown to levels not seen since the Gilded Age, is because the Fed knows who is supposed to gain from its programs, and implements its polices accordingly. Nothing is left to chance.”

  25. Ian Welsh

    No, Lisa, it’s not worse than I think. I don’t write about economics much, but it was one of my main beats for years.

  26. JustPlainDave

    My point would be that once one starts looking at this through lenses other than “class warfare lite” (really, progressively higher ranked middle class strata wanting to stick it to whoever’s up-pyramid from them), it becomes even more worrying. The folks who bought those rapidly inflating properties substantially all did so with debt. Similarly, that the value of stocks held by the top 1% (a bit over a third) and even the top 5% (a bit over two thirds) might be pretty tenuous is, I expect, no comfort to the remaining 40% plus of the population who are exposed – they need the value of the stocks they hold a great deal more than those up-pyramid.

Powered by WordPress & Theme by Anders Norén