Posted on 09/04/2014 12:10:11 AM PDT by Citizen Zed
One of the great mysteries of the post-financial crisis world is why the U.S. has lacked inflation despite all the money being pumped into the economy.
The St. Louis Federal Reserve thinks it has the answer: A paper the central bank branch published this week blames the low level of money movement in large part on consumers and their "willingness to hoard money."
The paper also cites the Fed's own policies as a reason for consumers' unwillingness to spend.
Though American consumers might dispute the notion that inflation has been low, the indicators the Fed follows show it to be running well below the target rate of 2 percent that would have to come before interest rates would get pushed higher. That has happened despite nearly six years of a zero interest rate policy and as the Fed has pushed its balance sheet to nearly $4.5 trillion.
Much of that liquidity, however, has sat fallow. Banks have put away close to $2.8 trillion in reserves, and households are sitting on $2.15 trillion in savings -- about a 50 percent increase over the past five years.
"So why did the monetary base increase not cause a proportionate increase in either the general price level or (gross domestic product)?" economist Yi Wen and associate Maria A. Arias asked in the St. Louis Fed paper. "The answer lies in the private sector's dramatic increase in their willingness to hoard money instead of spend it. Such an unprecedented increase in money demand has slowed down the velocity of money."
(Excerpt) Read more at money.msn.com ...
“Most people that I know are NOT saving ... they are paying off debt if they can.”
So, they are betting that the balloon won’t go up, are they?
I’m betting that it will.
The writer has missed the key point. There IS inflation. The government is cooking the books to hide it. See the scam of 'chained CPI' for the most blatant example; they are usually more subtle in the 'book cooking'.
We are paying off our two credit cards and should be debt free in the New Year.
Praise the Lord! We will do cash only living from now on, just as our parents did.
The credit economy is a bubble that this government is trying to re-inflate, but smart people won’t fall for that again.
Hoarding is a particularly damning word. The implications are that people are being evil by holding onto the money they have rather than spending it. The Fed dumped trillions into the economy to grow a number (GDP) to prove a political point that Obama was good for the economy. But let’s say GDP was measured in washing machines. In 2008, say, 1,000 washing machines were sold for $500 each. By the logic they’re using although the economy is currently only producing 800 washing machines the cost of those sold is now $1,000 each, therefore the GDP has gone up.
The economy is being manipulated for political gain not to help the citizens, but to help Obama. They’re screwing us and our grandchildren so Obama can look good. They’re mad it isn’t working and are thus accusing us of sabotaging their plan by “hoarding.”
He isn’t working for the economy or for anything else. Be interesting to see the reaction from more than just the Fed as they realize this. Probably more of what the Fed is doing, blaming others.
It's stunning the primitive state of economics. We spend a Manhattan Project amount each year on global warming computer models that can't explain the lack of any warming. Imagine if that money was spent on one working computer model of the economy. The model would show that big government spending, meddling, and over-regulation destroy prosperity and happiness every time.
when the stock market became an obvious ponzi game stacked by and for the 1%, it became a less interesting to investors then to gamblers
There are fewer and fewer gamblers as baby boomers realize what they are going to need to retire
curb your exuberance!
LOL!
If you have money, you know that you need more than the standard 3-6 month emergency fund in case you get laid off.
Even Suze Orman changed her tune from 3-6 month reserved like Dave Ramsey to an 8-12 month emergency fund.
If you save more, you do.
Awh, come on, I heard on der radio, that “consumer spending was up,” and we should be celebrating these ‘good times,’ and all of the “experts” are positive this is a continuing trend and so on and so on....
“The credit economy is a bubble that this government is trying to re-inflate, but smart people won’t fall for that again.”
Yep, I understand car loans are pretty tough to get turned down for these days, hence the record car sales. I suspect Repo Company’s will be doing brisk business in the next few years.
The writer doesn't miss the key point, they completely dismiss it.
Cooking the books is exactly right. Another BS crisis for a select agenda (for one, they bemoan low energy prices and the failure of the green energy sector and non-passage of carbon legislation despite all but killing coal).
“The economy is being manipulated for political gain not to help the citizens, but to help Obama. They’re screwing us and our grandchildren so Obama can look good. They’re mad it isn’t working and are thus accusing us of sabotaging their plan by “hoarding.”
I believe you nailed it........as for me, all I’m hoarding is ammo.
What??
What an outright lie!
I’m not hoarding cash. I’m using it to hoard things that are valuable.
Exactly. I see article after article how most Americans are going into debt to maintain their standard of living. Not even to buy expensive toys anymore, just to pay basic living expenses. Or that 76% of people are living paycheck to paycheck and that 25% have no emergency savings.
To them, you are “hoarding” unless you are in debt up to your eyeballs.
Don’t think the statement makes any sense. Given the amount the treasury is printing, citizens would have to have closets full of the stuff.
On the other hand, the feds might want to consider how many other countries are using US dollars for their own currency, either openly or via the black market.
Hubby is retired and we’re living off his pension and SS.
Our home business had tanked since The Won got in.
We don’t even have a month’s savings and never will.
I was not kidding.
The only “extras” we ever have is the dogs’ food.
Obeyme has destroyed us.
The lights and dogs’ food is paid for, first.
We live on what’s left.
Before the demon ascended the throne, we had a fairly comfortable middle class life.
I’m sitting here right now with an annoying fan blowing on me because I can’t spare $200 for a new AC.
I am gobsmacked when liberals tell me how much better life is, now that he’s on his throne.
I don’t have any to stash!
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