Why hasn't inflation accelerated?

[flow5]

The problem with William Barnett's divisia aggregates is that the non-banks are the customers of the commercial banks. Thus all demand drafts originating from the NBs clear through the CBs. Therefore bank debits are a much more accurate measure of the money stock & money flows.

[flow5]

Both QE2 & QE3 both produced negative real-gDp figures (1st qtr of 2011 & 1st qtr of 2014). The payment of interest on excess reserves is responsible. Shifts in savings/investment accounts from the non-banks to the commercial banks exacerbated the trend (impounding monetary savings, decreasing the supply of loan-funds, depressing economic activity, & counteracting the Fed's open market operations).

I.e., the expansion of Reserve bank credit during quantitative easing was inadequate to offset the slow growth in non-bank lending/investing (pre-Great Recession, 82% of the lending market).

The 24 month rate-of-change in proxy for money flows decelerated sharply after both QE2 & QE3.

Unless money (& money flows), expand at least at the rate prices are being pushed up, output can’t be sold and thus jobs will be cut (i.e., there is insufficient upward & downward price flexibility within our economy, e.g., “sticky wages” to counteract a contractionary money policy).

The problem is that the Fed has emasculated its “open market power”. Whereas between 1942 & 2008 the CBs minimized their non-earning assets by buying, e.g., T-bills, now the Fed accommodates the bankers with a remuneration rate that exceeds all money market rates (exceeds all returns in the wholesale funding market on the short-end segment of the yield curve).

So POMOs between the Reserve and commercial banks only affect excess reserves (become just asset swaps). Before the CBs would buy short-term securities (increasing their liquidity reserves & the money stock). After the introduction of the payment of interest on reserves the CBs now hold higher yielding IBDDs.

The Fed’s policy rate (credit control device), induces dis-intermediation among just the non-banks. It provides the CBs with the option to outbid the NBs for loan-funds (“specials”). This is exactly the same wholesale funding problem that existed with Reg Q ceilings: where in 1966 the CBs outbid the NBs for loan-funds).

Unless CB lending/investing offsets the decline in NB lending/investing - aggregate monetary purchasing power will be lost.

[bimetalaupt]

From all indications I see we have a world wide "bar-bell" economy.  Real growth is driven by low cost production not price rises. The effect has been a total reduction in the earning power of the producing class population of the world.  How many people does the world class on-line seller are need to process your order? How many bankers are needed to clear money from you to an seller on E-Bay?

Each saving means less wages and more Profits.  More sellers do not have costly retail space; central distribution reduces cost by elimination cost.  Then we are reducing inflation by reducing cost by personnel reduction: then unemployment increases!

Just a thought,

BNiMetalAuPt 

[bimetalaupt]

Flow5
inflation increased to 2.1% from 1.5% for the last reported Quarter.

BiMetalAuPt
www.usinflationcalculator.com/inflation/current-inflation-rates/