Alt-M And Deflationist-Statist Fiat-Money Central Banks

A Benjamin Cole post

There is a still-popular framework in some monetary circles (including parts of the Alt-M crowd) that fiat-money central banks are statist-inflationist redoubts, despite the last 35 years of global disinflation and then deflation, along with falling interest rates.

The track record of the last few decades suggests that major fiat-money central banks are actually disinflationist and then deflationist, and appear unwilling to alter course.

The old argument was that nations want to pay off debts with cheap money. So nations deploy central banks to print money—the word “debauchery” and “theft” are often used—and pay off bondholders with devalued currency, cheating the lenders of their just due.


Of course, today we see Europe and Japan in quicksand-deflation and ZLB, and the U.S. perhaps but one recession away from a similar fate.

The sinister statist-inflationist central banks are proving themselves incompetent at printing up cheap money. How can this be?

The Answer

What if the statist central banks are actually very clever? They have figured out that if they can engineer deflation, then nations can borrow in perpetuity for something close to free. Japan, for example, is floating the idea of perma-bonds that pay no interest.

And through quantitative easing, nations are paying off national debt without inflationary consequence, as long as central banks can keep deflation as the norm. In Japan, for example, the Bank of Japan owns one-third of that nation’s national debt.

Central banks, by keeping interest rates artificially high—remember, with ZLB rates have a floor, despite some negative-interest rates here and there—they can use QE to pay off national IOUs forever.

The long road to deflation and ZLB has also resulted in incredible riches for bondholders, who saw their holdings soar in value. Far from being robbed, bondholders have effectively enjoyed three decades of Fat City Boom Days thanks to central banks.

Just by chance, I am sure.


A good cabal theory is that wealthy and politically influential bondholders, through captive central banks, have engineered an economy-sapping long disinflation and then deflation, extorting rising real rents along the way on soaring bond values.

Well, as cabal theories go, it holds more water than the inflation-statist fiat money central banks tale.