For nearly a decade the Federal Reserve, along with nearly every other central bank in the industrialized world, has used zero or negative interest rates to try to bring about annual asset inflation to a designated benchmark of 2%. And while they claimed that almost every year since the 2008 Financial Crisis that inflation has remained below this number, their monetary policies have finally reached a point where not only have they achieved that desired number, but they have subsequently lost control as the inflation monster is now growing at rates they can no longer manage.
This is in essence why belief that the Fed will be instituting rate hikes each quarter for the foreseeable future is high on the forecasts of financial analysts, and why history also shows that once inflation breaks a certain point it requires extreme measures to tame it rather than through the incremental moves wanted by today’s central bankers.
Just as everyone was finally accepting the idea of deflation and negative interest rates, inflation decides to pay a return visit.
What happened? Well, towards the end of 2015 most of the world’s major governments apparently got spooked by deflation and decided to ramp up their borrowing and money creation. China, for instance, generated the following stats in 2016:
- New loans totaling 12.65 trillion yuan, or $1.8 trillion.
- M2 money supply growth of 11%.
- Debt-to-GDP ratio jump from 254% to 277%.
In Europe, the European Central Bank ramped up its bond buying program, pumping about a trillion newly-created euros into the Continental economy:
And the US increased its federal government debt by over $1 trillion, presumably spending the proceeds on things that raise wages or increase the demand for commodities. – Dollar Collapse
Governments and central banks have done a great job in filtering inflation numbers to separate price inflation from inflation which benefits asset holders and the 1% over the past 30 years, and thus their monetary policies have been pointedly aimed at the latter rather than the former. But you can only fool the people for so long when they discover that their costs for food, rent, medical, utilities, and education are rising five to ten times faster than their wages, and the propaganda of ‘low inflation’ no longer has any meaning in monthly or quarterly reporting.
Those living in the ivory towers of academia, or cocooned in the the halls of government, rarely have to feel the pain of what the unwashed masses have to endure from failed fiscal and monetary policies enacted behind those gates. But the fact of the matter is, those in leadership can only control so much as the invisible hand of natural economic law will always prove itself in the end, and just as man cannot stop nature when it rages forward in an oncoming storm, so too can central bankers not stop the inflation monster once it has broken out of its cage.
Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.com, Roguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.