Greg Ip´s “tantalizing signs” of a turn in the inflation cycle

GI writes “The Inflation Cycle May Have Turned”:

Central banks around the world have been alarmed at how inflation has plummeted in the last year, in many cases into negative territory. Though much of that is due to oil prices, core inflation, which excludes energy and food, has also been disturbingly low.

But there are tantalizing signs that the cycle has turned. In February, U.S. consumer prices rose 0.2% from January, which pulled the annual inflation rate out of negative territory; it’s now zero. More important, core prices rose 0.16%, which nudged the annual rate up to 1.7% from 1.6%. It was the second upside surprise to core inflation in a row. The driver in January was firmer service prices, this month it was goods.

Looking at the chart for short (1 yr), medium (5 yr) and long (10 yr) inflation expectations estimated by the Cleveland Fed, I couldn´t suppress a laugh!

Tantalizing Signs

Note the much higher volatility of short term expectations, very much influenced by oil price gyrations!

Keep on dreaming…

Clive Crook writes “Dreaming of ‘Normal’ Monetary Policy”:

The U.S. Federal Reserve wants to get monetary policy back to normal without scaring or surprising the financial markets. Now, try defining “normal,” and you can see it’s going to be difficult.

A vital instrument of abnormal monetary policy has been the promise to keep interest rates at (roughly) zero for an extended period. Once rates have been raised off that floor, this kind of time-based commitment no longer works.


In a previous post, I mentioned that a Taylor-type rule for monetary policy could help in presenting Fed decisions, even if it wasn’t used to dictate them. Taylor-type rules explicitly link interest rates to inflation and the amount of slack in the economy. Fischer and Haldane both touched on the idea.


Starting-point, baseline, whatever. Policy rules shouldn’t be followed slavishly. Nonetheless, taking them more seriously — and being seen to do so — would help to make markets more comfortable with data-driven policy.

With all the “dreaming” going on, I was reminded of this passage in an old Scott Sumner post:

[R]ecessions are predictions of bad policy.  That’s what Michael Woodford thinks, and I agree.  Not all recessions.  In 2001 economists didn’t even see a recession coming until about September, and the recession was over by November.  I’m talking about severe recessions, those where there is the feeling of going over the crest in a roller coaster, then that “uh-oh moment,” followed by a sickening plunge.  Like 1920-21, 1929-30, 1937-38, 1981-82, 2008-09.  Can policy address the problem once it has occurred?  Yes and no.  Technically it can, but it is very unlikely to work in practiceprecisely because it is very unlikely to be tried. 

So I hope Becky Hargrove´s “dream” one day will come true:

What are the chances for an NGDP level target to be adopted in the near future? It’s hard to say. But one thing is for certain: once this happens, it will be like a breath of fresh air. Everyone will finally be able to concentrate on the kinds of supply side reforms which mean real economic growth, for all concerned. Hey, it doesn’t hurt to dream a little. Here’s hoping that this week’s Cato event goes well.

Footnote: Why do journalists in general and Clive Crook in particular, have short memories? Almost 4 years ago he wrote: “Fed must fix on a fresh target”:

Move to a nominal GDP regime and let the markets know, in Fed-speak, that this is what the intention is.

Related: From the FT:

Britain’s monetary thought leaders have used the arrival of deflation as an excuse for a public argument about the next move in interest rates. Mark Carney, governor of the BoE, spoke of the foolishness of cutting rates, which inspired Andrew Haldane, his chief economist, to muse about that very possibility, a viewpoint latersquashed by his colleague David Miles.

These squabbles display a perverse ability to complicate what should be a simple matter. The real culprit, however, is the inflation target, which obliges the BoE to target something it only partially controls. Monetary policy more directly affects nominal spending, only bringing about a certain level of inflation after interacting with the supply side. On this measure, Mr Carney has performed admirably, keeping demand growing somewhat faster than before his arrival in 2012, albeit slower than what was normal before the crisis. Fluctuations in headline inflation stem from matters beyond his control, such as the recent sharp fall in the international oil price.

Remembering 1937

When the “Great Recession” hit, many comparisons were made with the “Great Depression” (see Eichengreen and O´Rourke Vox columns which according to the editor shattered all Vox readership records with over 450,000 views). Eight years after the 2007 peak, now there are “reminders” of 1937, also eight years after the 1929 peak!

Robert Samuelson has a piece:

How fast should the Federal Reserve tighten monetary policy? Should it tighten at all? I recently wrote about these issues but didn’t have the space to explore a fascinating aspect of the debate: the mostly forgotten 1937-38 recession. To many, it’s a cautionary tale against adopting tighter policies too soon. The latest to sound the alarm is Ray Dalio, the respected founder of Bridgewater Associates, a huge hedge fund group. His recent memo to clients inspired a Page 1 story in the Financial Times, headlined “Dalio warns Fed of 1937-style rate risk.”

And goes on to discuss what may have “caused” that event. The “best” candidate:

A final explanation involves gold. Since 1934, the United States had been receiving large gold inflows — reflecting fears of political instability or war in Europe — that stimulated economic expansion. The reason was simple. When the gold arrived here, it had to be sold to the government for dollars. Those dollars were then spent or lent, giving the economy a boost. But in late 1936, the Treasury — again, to quash incipient inflation — decided to offset this boost by draining money from the economy. In economic jargon, the gold flows were “sterilized.”

This turned out to be a massive miscalculation. The sterilization created a “pronounced monetary shock,” argues a paper by Dartmouth economist Douglas Irwin. Growth in the money supply, which had been rapid, halted. Stock prices fell, and interest rates rose. After the Treasury reversed its policy on sterilization in 1938, the economy recovered.

A nominal visual of the period following the Depression trough in March 1933:





Footnote: Orphanides has an enlightening article on the Fed during the Great Depression. Following the downturn in 1937 we read:

Though the extent of the sharp decline in activity was not immediately evident, by Fall it became fully clear to the Committee that the economy was thrown back to a severe recession, once again.

The following evaluation of the situation by (John) Williams at the November 1937 meeting is informative, both for offering a frank admission that the FOMC apparently wished for a slowdown to occur and also for outlining the case that the recession, nonetheless, had nothing to do with the monetary tightening that preceded it.

Particularly enlightening is the reasoning offered by Williams as to why a reversal of the earlier tightening action would be ill advised. We all know how it developed. There was a feeling last spring that things were going pretty fast … we had about six months of incipient boom conditions with rapid rise of prices, price and wage spirals and forward buying and you will recall that last spring there were dangers of a run-away situation which would bring the recovery prematurely to a close. We all felt, as a result of that, that some recession was desirable … We have had continued ease of money all through the depression. We have never had a recovery like that. It follows from that that we can’t count upon a policy of monetary ease as a major corrective. …[Doesn´t that sound familiar?]

In response to an inquiry by Mr. Davis as to how the increase in reserve requirements has been in the picture, Mr. Williams stated that it was not the cause but rather the occasion for the change. … It is a coincidence in time. …

If action is taken now it will be rationalized that, in the event of recovery, the action was what was needed and the System was the cause of the downturn. It makes a bad record and confused thinking. I am convinced that the thing is primarily non-monetary and I would like to see it through on that ground. There is no good reason now for a major depression and that being the case there is a good chance of a non-monetary program working out and I would rather not muddy the record with action that might be misinterpreted. (FOMC Meeting, November 29, 1937. Transcript of notes taken on the statement by Mr. Williams.)

Coincidentally, at present there´s also a John Williams at the FOMC!

Looking At U.S. Unit Labor Costs

A Benjamin Cole post

From the fourth quarter of 2008 to the fourth quarter of 2014 (the last measure), unit labor costs in the United States have increased by 1.39%.

No, that is not annually compounded. That is it. In six years, unit labor costs have barely budged, while the monetary myrmidons moaned inflation every moment.

Yet, the St. Louis Fed informs us the nonfarm business unit labor cost index hiked from 103.479 to 104.913 in that time frame (no, I do not know why the St. Louis Fed publishes indices three places past the decimal point).

But is that six-year period a “cherry pick”? After all, it marks the worst recession in postwar history.

Okay, let go back a full 10 years. In that period, unit labor costs have increased by 11.4%, or a little more than 1% annually compounded.

Egads. Unit labor costs are dead. They are not contributing to overall price inflation, which is nearly dead.

The Fed

Yet we have Fed Chair Janet Yellen telling the world that the Fed is “highly accommodative.” We have pundits—and some FOMC members—in sweat-drenched hysterics about inflation or even hyperinflation.

The quiet observer must conclude monetary policy makes no sense.

By the lights of many, monetary policy was way too loose thus prompting the 2008 real estate boom-bust, and has been way-way too loose ever since. For a decade, monetary policy has been ultra-loose, hyper-accommodative—and yet unit labor costs are nearly dead flat for 10 years.

Judging from results, I guess the U.S. needs to go to a “ginormous super-duper king-size loose, XXXL” monetary growth model.

Long-term, the “hyper-accommodative” monetary stance is just too tight.

Well, judging from results. Maybe we should judge by a theory instead.

Crap from “FOMC´ers”

Scott Sumner is his diplomatic self:

Stanley Fischer is one of the world’s most thoughtful monetary economists. And now he is also vice chairman of the Federal Reserve Board. He recently gave a speech on monetary policy, which as you’d expect contained many wise observations. However I was also deeply troubled by some of his comments.

And than proceeds to “trash” him:

However, I was also deeply troubled by some of his comments.

One “troubling” comment:

For over six years, the federal funds rate has, effectively, been zero. However it is widely expected that the rate will lift off before the end of this year, as the normalization of monetary policy gets underway.

The approach of liftoff reflects the significant progress we have made toward our objectives of maximum employment and price stability. The extraordinary monetary policy accommodation that the Federal Reserve has undertaken in response to the crisis has contributed importantly to the economic recovery, though the recovery has taken longer than we expected. The unemployment rate, at 5.5 percent in February, is nearing estimates of its natural rate, and we expect that inflation will gradually rise toward the Fed’s target of 2 percent. Beginning the normalization of policy will be a significant step toward the restoration of the economy’s normal dynamics, allowing monetary policy to respond to shocks without recourse to unconventional tools.

Stanley Fischer has been the Governor of the Bank of Israel, a country that managed to altogether avoid a recession in 2008-09 for the simple reason that, just like Australia, it was following a de facto NGDP level target. But as I have argued here, that was “luck”! Just before stepping down from the BoI Fischer made a speech:

In my work as a central banker, I have made much use of my knowledge of central banking history around the world. Many of the events that are taking place today remind me of events from the past, and knowing the lessons from the past helps us develop policy in the present.

A prominent example of this is that of Ben Bernanke, who learned the lessons and the mistakes in handling the Great Depression of the 1930s during his research, and knew how to deal with the most recent financial crisis differently and more efficiently than how they tried to handle the situation in the 1930s.

We, the central bankers, thought at the outset of the crisis that we were about to experience another great depression like in the 1930s, when the unemployment rate in the US reached 25 percent. I am not here to claim that the current situation is good, but during the current crisis, US unemployment rate hit 10 percent and then began to decline, and I am sure that the situation would have been very different had Bernanke not acted according to the knowledge that he acquired in the course of his research.

Apparently, learning was only partial and selective because he also said:

There are those who support setting a nominal GDP target. I think that this is very impractical. The data that we receive on nominal GDP are very unstable.  There are changes of whole percentage points between the various estimates of GDP. For this reason, I think that there is no reason to use nominal GDP as a target.

Maybe he thinks inflation, output gaps and natural rates are precisely defined and known!

So much for the Fed´s Vice-Chairman monetary policy “abilities”.

Another voting member this year is also “dying” to vote for a rate rise. This is SF Fed president John Williams:

NEW YORK–Federal Reserve Bank of San Francisco President John Williams reiterated on Monday his belief that central bankers should consider raising rates some time this summer.

Things are looking better–in fact, they’re looking downright good,” the official said in a speech to be delivered to an audience in Sydney and Melbourne via video.

Given how much the economy has improved and is likely to continue to gain ground, “I think that by mid-year it will be the time to have a discussion about starting to raise rates,” Mr. Williams said.

The strength of the U.S. dollar against a “broad index” of currencies is not an impediment to the U.S. economy reaching real GDP growth of 2.5% this year, he said .

“The U.S. economy has good momentum…even with what is a rather large appreciation of the U.S. dollar,” Mr. Williams said.

Fischer wants to raise rates to “restore(!) the economy´s normal dynamics”. Williams thinks things are looking “downright good”! So much crap with a straight face. Only FOMCers can do that and get away with it!

The charts illustrate what “significant progress”, “extraordinary monetary accommodation” “economy looking downright good” and “gradual climb of inflation to 2%” looks like.

FOMC Crap_1

FOMC Crap_2

Now, think for a moment while contemplating the charts above and the next one. If the Fed managed to keep NGDP growing at such a stable (3.95%) rate for the past five years, after the economy “lifted-off” from the depths of the “Great Recession”, don´t you think it would also be capable (if it wanted) to:

1. Give nominal spending an initial boost (6%-7%) for it to regain “height” and

2. Then “levelled ” it off at a 5% growth rate (or 4% if you prefer)?

FOMC Crap_3

Ask yourselves:

1. Would inflation be closer to target?

2. Would RGDP growth be closer to 3+%?

3. Would employment be so “structurally” constrained?

The dollar back in vogue

Every time the dollar makes “Strong” moves, up or down, there are “lamentations” and “concerns”. Take, for example, this post from 2011 “The myth of the strong dollar”, where I discussed the “debate” that was generated by a David Malpass piece in the WSJ “Weak Dollar, Weak Economy”:

The combination of super-low interest rates and trillions in leveraged Federal Reserve debt constitutes a semi-official weak-dollar policy. It has driven gold to a record high and made the dollar one of the world’s weakest currencies. The dollar index has fallen 38% since 2002 (to 75 from 120) despite cynical statements by officials that a “strong dollar is in our national interest.” To protect themselves from the weakening dollar, investors and corporations are shifting growth capital from U.S. businesses into foreign infrastructure and jobs, a process that is dismantling decades of U.S. wealth creation.

My conclusion then:

The last figure “proves” the myth of the “strong” dollar. It shows the real trade weighted exchange rate of the major currencies against the dollar. At present, in real terms, the dollar trades at levels that correspond to the minimum over the floating exchange rate history. Anybody cares to take a guess of its future direction? Will it turn up in “typical” cyclical fashion or will it brake through its “historic” floor?

The dollar_1

Fast forward almost four years and the dollar is being “debated” again. The NYT did a “foursome” with Desmond Lachman, Jeffrey Frankel, Scott Sumner and Erin Nakamura:

Desmond Lachman:

Among the more striking international economic developments over the past six months has been the 15 percent appreciation of the U.S. dollar. U.S. policymakers would be ignoring this development at their peril.

Jeffrey Frankel:

Any movement in the exchange rate has pros and cons. When the dollar appreciates as much as it has over the last year, the obvious disadvantage is that the loss in competitiveness by U.S. producers hits exports and the trade balance. But if the dollar had fallen by a similar amount, there would be lamentations over the debasing of the currency.

Scott Sumner:

In the past few months, the euro has fallen from roughly $1.35 to $1.08, triggering concern that the dollar is becoming overvalued. Some economists have suggested that the Fed should ease monetary policy by printing money or holding down interest rates, in order to weaken the dollar in the foreign exchange markets.

Emi Nakamura:

It may not actually be bad news that the dollar is strengthening. The dollar tends to strengthen when the U.S. economy is doing well. The last two times when the U.S. real exchange rate reached comparable levels were the late-1990s and the mid-1980s. Those were good times for the U.S. economy.

The chart shows what transpired in the intervening period. The dollar turned back in “typical” cyclical fashion. It may still climb, but the real question is: So what?

The dollar_2

Again: Never reason from a price change

Fed: “limited and tentative”

Robert Samuelson writes “Where is the Federal Reserve headed?”:

Yellen recognizes the dismal choices and strives to cultivate confidence as a way of blunting the conflicts. At her recent news conference, she emphasized that the Fed, though it wants the freedom to tighten policy, will not be hurried into premature or sharp rate increases. Even after the initial change, she said, “our policy is likely to remain highly accommodative.” Money will continue to be cheap. Investors need not make market-disruptive changes in their portfolios.

So far, this soothing strategy has succeeded. Whatever happens, there remains a larger historic question: How did an agency that seemed so powerful and commanding in one era become so limited and tentative in the next?

I not only liked but also loved the “limited and tentative” description.

I believe Samuelson´s question has a simple and straightforward answer. It happened when the Fed, after the change of guard from Greenspan to Bernanke, forsook nominal stability to pray at the altar of inflation targeting.

That this would happen if Bernanke got the job was inevitable. In January 2000, long before even becoming a Fed Governor, let alone its Chairman, Bernanke wrote (with Mishkin and Posen) an op-ed in the WSJ titled “What happens when Greenspan is gone?”:

U .S. monetary policy has been remarkably successful during Alan Greenspan’s 121/2 years as Federal Reserve chairman. But although President Clinton yesterday reappointed the 73-year-old Mr. Greenspan to a new term ending in 2004, the chairman will not be around forever. To ensure that monetary policy stays on track after Mr. Greenspan, the Fed should be thinking through its approach to monetary policy now. The Fed needs an approach that consolidates the gains of the Greenspan years and ensures that those successful policies will continue; even if future Fed chairmen are less skillful or less committed to price stability than Mr. Greenspan has been.

We think the best bet lies in a framework known as inflation targeting, which has been employed with great success in recent years by most of the world’s biggest economies, except for Japan. Inflation targeting is a monetary-policy framework that commits the central bank to a forward-looking pursuit of low inflation; the source of the Fed’s current great performance; but also promotes a more open and accountable policy-making process. More transparency and accountability would help keep the Fed on track, and a more open Fed would be good for financial markets and more consistent with our democratic political system.

On the last sentence on “transparency and accountability”, one would think exactly the opposite happened from reading this op-ed at the WSJ today:

The calls in Washington to “audit” the Federal Reserve are not for a narrow, bean-counting review of the institution’s financial statements. The audit’s goal is more fundamental: to assure that the checks and balances in a democratic government also apply to central bankers. It means figuring out how our elected representatives can effectively oversee unelected monetary “experts.”

If Bernanke had only understood that Greenspan in practice had been (more or less) committed to nominal stability, understanding that real, or supply, shocks should be treated carefully, he wouldn´t have let nominal spending tank in 2008.

However, Bernanke should have understood because in a 1997 paper with Mark Gertler and Mark Watson, they concluded:

Substantively, our results suggest that an important part of the effect of oil price shocks on the economy results not from the change in oil prices, per se, but from the resulting tightening of monetary policy. This finding may help to explain the apparently large effects of oil price changes found by Hamilton and many others.

Bernanke mentions Japan as an exception to the success of inflation targeting. He missed an important lesson there because Japan was, in fact, the first victim of an “no holds barred” IT regime. To make a long story short, after the inflation explosion in Japan in the mid-1970s (when inflation reached 25%), inflation became Japan´s public enemy #1. An inflation target was never made explicit but every housewife in the land new that the BoJ pursued “price stability”.

With that background, in 1989, when the Ministry of Finance introduced the first installment of the consumption tax, prices jumped. Immediately the BoJ clamped nominal spending. This was repeated after the second installment in 1997, with even more dire consequences!

In short, Bernanke´s “best bet” was the wrong bet. Instead of “powerful and commanding” the Fed became “limited and tentative”. But the solution presents itself clearly. Have the Fed pursue an explicit NGDP Level Target. Very quickly it will once again become “powerful and commanding” and the “instrument rules” advocates like John Taylor will have to change their tune! More significantly still, Krugman´s “liquidity trap” meme will fade!

The SOMC speaks!

The Shadow Open Market Committee met and said:

The economy is growing, labor markets have improved dramatically, and inflation is forecast to return to two percent over the intermediate term. However, the Fed still expresses extreme caution about normalizing monetary policy, citing myriad concerns, ranging from sluggish wage growth and low inflation to foreign economic and political risks, which might delay the date at which interest rates finally lift off their zero lower bound. This creates the potential for an erosion of the FOMC’s credibility and suggests the Fed lacks a clear strategy for getting monetary policy back on track.

Departing from the consensus that prevailed throughout the Volcker and Greenspan Fed Chairmanships, which held that a commitment to low and stable inflation is the best contribution that monetary policy can make to sustained economic growth, FOMC officials in recent years have relied on a shifting array of ad hoc labor market indicators to guide their policy actions. Not surprisingly, these labor market measures have proven unreliable and unpredictable, and have led the Fed through a series of awkward policy target changes that have added uncertainty and reduced the credibility of FOMC members’ interest rate forecasts.


Within such a rules-based system, several very specific points of guidance for monetary policymakers become clear. First, historical experience tells us that whenever interest rates are too low for too long, financial markets become distorted and inflation begins to rise. After an extended period of exceptionally low policy rates, three rounds of quantitative easing that have substantially expanded the Fed’s balance sheet, and four full years of robust M2 growth, there is already enough stimulus flowing through the economy to lift inflation back to the Fed’s two percent long-run target. In light of the present size of the Fed’s balance sheet, interest rate increases without further delay are necessary to avoid an even more costly overshooting of that inflation target down the road.

It´s very true that Fed credibility has been “shot to pieces”. But the rest of the argument is far off the mark:

Inflation instead of rising has been falling (and that long precedes the more recent fall in oil prices). The cost of an eventual overshooting in inflation are much lower than the costs of further restraining the economy to avoid that unlikely “accident”.


Money growth, more adequately measured by Divisia broad money (M4) has, if anything, grown very slowly over the past four years (2.7% on average)


Interest rate increases without further delay would only make a bad situation worse.

Krugman is frequently inconsistent

Krugman misses a step in “Democratic Booms

But does this say anything about the presidents in question? Both the Reagan expansion and the Clinton expansion had much more to do with Federal Reserve policy than anything coming from the White House, and Obama’s macroeconomic policy has been hamstrung by GOP opposition almost from the beginning. There are presidents, and sometimes there are job booms when they are president, but the booms aren’t their doing.

If the Reagan and Clinton expansions had much more to do with Volcker and Greenspan, why not conclude that the dismal Obama economy has much more to do with Bernanke and Yellen than with “Obama´s macroeconomic policy being hamstrung by the GOP opposition”?

Update: Krugman´s “inconsistency” derives from the fact that he believes in a ‘liquidity trap’ which makes monetary policy impotent. So it would be up to Obama and fiscal policy. But that´s “hamstrung by GOP opposition”

With QE, The Fed Digitized $12,539 For Every U.S. Resident

A Benjamin Cole post

Of late, certain economists and observers have described central bank quantitative easing as, and only as, “a swap of bank reserves for bonds.”

Thus we have University of Chicago light John Cochrane expressly delimiting his description of the Federal Reserves $4 trillion QE program to a “swap,” and George Mason scholar and blogger-titan Tyler Cowen calling the European Central Bank’s QE efforts “an asset swap.”

In the old days, when central banks conducted conventional open market operations, this limited definition may have been mostly true. Before 2008, the Fed tried to stimulate the economy by buying bonds, and then automatically placing an equal amount of reserves into the commercial bank accounts of the 22 primary dealers—the Morgan Stanleys, the Cantor Fitzgeralds, the Nomura securities—the only entities from which the Fed buys bonds.

As commercial banks can lend vast multiples of reserves—from 10 to 30 times—the Fed boost of commercial bank reserves helped allow bank new lending, and added much more money to circulation.

After 2008

But the world has changed. As we know, banks are sitting on reserves. So, from the old perspective, post-2008 QE was inert. Some scholars insist so today.

But the scope and scale of QE after 2008 dwarfed any open market operations the Fed had ever attempted pre-2008, when the Fed might buy or sell in the tens of billions of dollars from time to time.

With QE, the Fed bought $4 trillion in bonds, in a space of five years.

Post-2008, the stimulus comes from the fact that bond sellers have been given $4 trillion in cash, where before they had $4 trillion in inert bonds. A bond-owner cannot spend or re-invest the cash locked-up in a bond.

By the way, $4 trillion means about $12,539 in new digitized cash for every U.S. resident, under QE. Bank reserves swelled by an equal amount. And the Fed had $4 trillion in bonds.

(To understand QE please read this Fed-approved  QE CHART)

The Unanswered Questions

In a remarkable riddle, no one seems to really know what the bond-sellers did with their $4 trillion, and I have queried Fed representatives on this point. (If any readers have a clue, tell us!)

No doubt, some who sold bonds to the primary dealers (who sold to the Fed) deposited their share of the $4 trillion of newly digitized cash into commercial banks, where it might be considered inert. Other bond-sellers re-invested into other bonds, stocks or property, a process the Fed describes in the most ascetic, neutral terms possible, as “portfolio rebalancing.” The U.S. did have stock, bond and property rallies alongside QE—you think $4 trillion of new demand might have played a role?

Some bond-sellers might have simply spent their money.

Another riddle is that since QE, about $500 billion in paper U.S. cash has entered circulation, bringing the paper-cash total to $1.34 trillion, as I addressed in my last post. No one knows how much of this cash circulates domestically, or in the overseas underworld briefcases that figure in so many celluloid storylines. The serious cash-scholar Edgar Feige, University of Wisconsin prof, says 75% of U.S. cash stays onshore, probably in U.S. grey markets.

This topic of cash is resolutely ignored by most economists—an ostrich-pose that becomes increasingly untenable. With $4,200 in paper money circulating per U.S. resident, the role of cash must be growing, not shrinking. The fact that there is a huge schism between the lives of sinecured academics and grey marketeers in the U.S. does not mean there are no grey markets.


The Fed’s QE program was modestly successful, limited only by its scale—too small—and the Fed’s penchant for obscurantism, and possibly its political instinct to avoid any description of QE as “printing money.”

But the Fed did print (digitize) $4 trillion, and they even monetized U.S. debt, when they bought U.S. Treasuries. Heresy, upon heresy. I mean, printing $12,539 for every U.S. resident is some serious money printing (digitizing).

Would that the Fed had printed up a few trillion dollars more.