Amazing how people from all walks of life, from teamsters to Nobel laureates end up with the same dull talk, that the Fed is responsible for high/low inflation. I'm -flabbergasted!



There are two main ways to create inflation. The first one can be induced through monetary policy. The second one may come from higher wages.



If a CB wanted to create real inflation, it would have to create massive reserves and the Treasury would force them into the monetary flow in a way that the new reserves madly speed up monetary velocity. Weimar November 1923, France 1794, Zimbabwe 2008 and others. In essence, that amounts to monetize the fiscal deficits and then still keep "printing" several orders of magnitude beyond that point. That can be done in a matter of days, if not hours. The inevitable collateral damage is the free fall of the currency when compared to its peers.



But there is a catch. If only one of the big CB is doing it, it will succeed. However, if all major CB do the trick at the same time, that offsets the monetary effect of increased reserves and it ends up as a zero sum game. Weimar, France and Zimbabwe were for instance alone at that time in printing... and it worked, swiftly killing their currencies as a result. Over the last decade, we have witnessed not so massive printing of US$, Yen, Yuan, Euro, Pound, CHF. But they were altogether at the same time. Didn't do the job...



Think the days after Executive Order 6102 in April 1933. Gold was revalued from 20 bucks/oz to 35. Creating outlandish "reserves", by only one country at the time. It immediately induced a +30% inflation!



The limited group of major currencies act as a competing oligopoly in classic economic theory. When one of the actors lowers the price (value of currency) of a product, the others immediately follow suit. So I do not see a single chance of achieving monetary inflation by increasing reserves at the major CBs cartel.



Wage inflation is different. It is based on the supply/demand of labor, at a given price. The more the supply of labor is limited, the more wage inflation gets structurally embedded in the price of goods.



On a globalized economy like today's, labor supply and demand is a global market. Bear in mind that never in the history of mankind have so many low income workers joined the labor market at once, with no offsetting at the retirees age tranche.



1980-2015 has seen the Eastern European countries and China join the global supply labor from low income workers. That is a one in a millennium (or even more) event. Deflationary event. Still today, the 2,5 billion people that glut the global labor market are generating deflation, they are still competing at the lower bound of income. And here comes India, who is about to join the global labor arbitrage party in earnest. Make sure you can keep mental track of the deflationary wave that this is going to cause on a worldwide basis.



How to reverse course of the labor supply tsunami? Besides conspiracy theories like epidemics and that kinda crap, the only way is to end up the global trade as we know it, killing most foreign competition in full. Sounds even less possible than creating monetary inflation!



This is why I believe the inflation talk is totally obsolete.



Mankind has destroyed wealth/money through inflation over millennium, with extremely rare and short periods of deflation. This mechanism is over. But as higher prices gave the false impression of "getting wealthier" (at least on a nominal basis), the world did not fell into outright worry, and so, savings were invested looking for (inflated) yields.



2000-2010 marked the transition period from inflation to deflation, pretty much like 1920-1930 marked the transition with the gold exchange standard.



We are already into a very long period were wealth/money will be destroyed through sustained deflation. It would be too long to explain that here. But bear in mind that the structure upon which deflation will cover the planet comes from rampant wage deflation. That is unavoidable. Back in the 1980's, the West thought China labor costs were unbeatable. As of today, India labor costs are a fraction of China's. And India is overcoming China as the mos populated country right in 2024...



In deflation, the chase for yield becomes an utopy. So people worry that by today next year, they will have less money (in monetary terms). So investment and consumption enters a long bear hybernation, and the prophecy self-fulfills smoothly.



Wage deflation is like doing the military service, a great equalizer, but at the lowest possible bound. The fact that 1,4 billion Indians gain access to potable water and daily food and some very basic health coverage means the Western population will be deprived of every luxury it enjoys today. And the West is absolutely unprepared to go down that track. (Read that back again).



One last word about the Fed (or other major CB). They are never ahead of any curve.

Never been. Never will be. CB actions are enacted to get to where the curve already is at any given moment. Today th July 2019 the 10-Year Bund is yielding less (more into negative territory) than the ECB rate of deposit. So the ECB is about to lower rates in the coming weeks to meet where the Bund already is! Poor commercial banks...



Think twice. If that set of people had the alchemists powers (that so many people accord them), they would be quadrillionnaires, and no need to wake up early in the morning to extend and pretend magical powers in front of a superstitious dull crowd of numbskulls.