Here’s an interesting claim:
Trillions upon trillions of dollars have been pumped into the financial system by the Federal Reserve, European Central Bank and the Bank of Japan. Five years ago, if you knew how much stimulus central banks would push, would you have guessed that we would be in a disinflationary environment characterized by continuous deflation pulses? Would you have thought gold would be below $2,000? Most likely, no one five years ago could have possibly thought that deflationary pressures would remain as strong as they have been in the system today.
No one? What about Paul Krugman and I? It’s discouraging when the people who got it wrong don’t pay any attention to the people who got it right.
If you had told me in 2009 that the Fed would still be doing massive QE in 2014, I would have realized that one of two events had occurred:
1. The Fed had decided it was a good time for hyperinflation.
2. The economy remained weak, nominal rates remained stuck at zero, and hence the Fed was still trying to use unconventional stimulus.
After about 2.8 seconds of deep thought, I would have concluded that the second outcome was more plausible, and of course I would have been right. Am I reasoning from a quantity change? Check the post title.
Because people were wrong about QE, they try to make up for it with even wronger explanations of what went wrong:
But accommodative policy has not been enough. The ultra-bearish argument is simple: deflation takes hold in developed economies, and no amount of central bank action can counter it, as Japan knows all too well. If central banks can’t reverse deflationary pressure and unlimited money printing is not enough, then the hard work is on commodities. Should industrial commodities perform well and increase in price, cost-push inflation could reverse disinflationary behavior.
No amount of action? As Japan knows too well? Ever hear of Abenomics? What about the sort of “action” we see in Argentina, Venezuela, India, Iran, Turkey, etc? Closer to home, isn’t Australia continuing to hit its (2% to 3%) inflation target?
I suppose you could argue that the eurozone is falling below its inflation target. But surely it must be doing all it can:
European Union statistics office Eurostat estimated on Friday that consumer prices in the 18 countries sharing the euro rose an annual 0.8 percent this month. That was the same rate as in January and December, after readings of 0.9 percent in November and 0.7 percent in October.
Economists polled by Reuters had forecast inflation would slow to 0.7 percent. Fears the bloc may be at risk of deflation as it struggles to recover from its debt crisis have raised expectations the ECB will use interest rates or other policy tools to give the economy further support.
“The higher than expected inflation numbers reduce the chances of an ECB rate cut at next week’s meeting, and we maintain the view that … the central bank will keep rates on hold,” said Nick Kounis, head of macro research at ABN AMRO.
So no rate cut in the eurozone. Even though unemployment is 12%, and even though inflation is 0.8%, and even though the inflation target is 1.9%, they decide current policy is just fine.
What about Germany? Wouldn’t monetary stimulus be bad for Germany?
Figures on Thursday showed annual inflation in Germany, the euro zone’s economic powerhouse, easing to its lowest level in 3-1/2 years in February at 1 percent.
But what about German unemployment, isn’t that quite low? Wait a minute, I thought you completely insane eurozone hawks told me unemployment doesn’t matter, and that the ECB should focus like a laser on 1.9% inflation. So doesn’t that mean money is too tight for even Germany? Make up your minds. If you are going to be crazy, at least be consistently crazy. No one likes an unpredictable crazy person.