"Yes, Virginia, all that money printing did show up as inflation"

Red line: S and P. Blue line: Fed Funds rate. "Tightening" means Fed raises the Funds rate. See why we'll never see the Fed raise rates? (Source) [Click to enlarge.]

by Gaius Publius

Nice catch by Ian Welsh. Start here, then think about it:

One of the great “mysteries” of the last 7 years or so is why all the  money from unconventional monetary policy hasn’t shown up as inflation. Many analysts thought that printing that much money must surely increase prices, but inflation indices in most of the developed world are barely up, and in many cases are flirting with deflation.

The answer is obvious, but you’ll hardly see anyone point it out.

My inner Modern Monetary Theorist says, an expanded money supply can't show up as inflation until there's way too much, which there isn't yet. That's the nature of fiat money systems, which we have, especially at zero interest rates.

But Welsh is onto something. There is way too much, but only for some people — our "billionaire overlords," as Digby is wont to say. Welsh completes the thought:

First, who was the money given to?

Rich people and corporations.

Ok then, what do rich people and corporations spend their money on? Stocks, and real estate—high end real estate.

In America as a whole, let alone New York, housing prices have not returned to pre-financial crisis values. But luxury apartment prices now exceed pre-financial crisis prices. Real estate prices, period, in London, are now higher than pre-financial collapse.

Meanwhile, the Dow Jones Industrial Index is up about 175% off its lows of 2009.  The annualized gain is therefore about 29% a year. GDP has not risen anything like that, neither have wages. Corporations, however, are flush with money, and they have spent a great deal of it on stock buy-backs, while rich people, of course, have bought stocks.

Inflation has, then, shown up exactly where one would expect, in the assets bought by the people who were given money.

Welsh has more to say, but I'd like to end here, with one more instance of what I've been calling the invisible obvious:

This is not hard, this is not difficult, this is not complex. The fact that mainstream analysts and pundits do not connect the dots on this is because they do not want to.

Too right.

By the way, if you think that asset inflation is a problem or an error, think again. Assets are where the global wealthy have parked their money; their piggy bank. If Fed governors don't keep those values high, they'd be replaced by governors who will.

GP

Cross-posted with permission from Digby's Hullabaloo.

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