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The Fed Can Do a Lot of Things; Inflation-on-Demand Isn’t One of Them

Daily Reckoning  ( Original )
MAR 7, 2018

The Fed’s oft-stated target of 2% inflation means, mathematically, that they target a 50% devaluation of the dollar over 35 years.

If you find yourself shaking your head right now, you’re not alone. When the best-case, ideal scenario is to eventually devalue a fiat currency into oblivion, what happens when things don’t go according to plan?

And even as the Fed has tried to engineer inflation, they’ve failed to hit their 2% mark, as all their printed money has been plowed into stocks instead of goods and commodities.

The Fed can raise rates all they want, but they can’t produce inflation. Inflation depends on consumer psychology. We have not had much consumer price inflation, but we have had huge asset price inflation. The printed money has to go somewhere. Instead of chasing goods, investors have been chasing yield.

In a recent article, Yale scholar Stephen Roach points out that between 2008 and 2017 the combined balance sheets of the central banks of the U.S., Japan and the eurozone expanded by $8.3 trillion, while nominal GDP in those same economies expanded $2.1 trillion.

What happens when you print $8.3 trillion in money and only get $2.1 trillion of growth? What happened to the extra $6.2 trillion of printed money?

The answer is that it went into assets. Stocks, bonds and real estate have all been pumped up by central bank money printing.

ORIGINAL SOURCE: The Fed Must Have Inflation. Failure Is Not an Option by Jim Rickards at Daily Reckoning on 3/6/18