A persistent phenomenon of the last couple of months has been the rise in inflation expectations, in particular market-based measures. The chart below (source: Bloomberg) shows that 10-year inflation swap quotes are now above 2% for the first time in over a year and up about 25-30bps since the end of summer.
The same chart shows that inflation expectations remain far below the levels of 2014, 2013, and…well, actually the levels since 2004, with the exception of the crisis. This is obviously not a surprise per se, since I’ve been beating the drum for months, nay quarters, that breakevens are too low and TIPS too cheap relative to nominals. But why is this happening now? I can think of five solid reasons that market-based measures of inflation expectations are rising, and likely will continue to rise for some time.
- Inflation itself is rising. What is really amazing to me – and I’ve written about it before! – is that 10-year inflation expectations can be so low when actual levels of inflation are considerably above 2%. While headline inflation oscillates all the time, thanks to volatile energy (and to a lesser extent, food) markets, the middle of the inflation distribution has been moving steadily higher. Median inflation (see chart, source Bloomberg) is over 2.5%. Core inflation is 2.2%. “Sticky” inflation is 2.6%.
Moreover, as has been exhaustively documented here and elsewhere, these slow-moving measures of persistent inflationary pressures have been rising for more than two years, and have been over the current 2% level of 10-year inflation swaps since 2011. At the same time inflation expectations have been declining. So why are inflation expectations rising? One answer is that investors are now recognizing the likelihood that the inflation dynamic has changed and inflation is not going to abruptly decelerate any time soon.
- It is also worth pointing out, as I did last December in this article, that the inflation markets overreact to energy price movements. Some of this recovery in inflation quotes is just unwinding the overreaction to the energy swoon, now that oil quotes are rising again. To be sure, I don’t think oil prices are going to continue to rise, but all they have to do is to level off and inflation swap quotes (and TIPS breakevens) will continue to recover.
- Inflation tail risk is coming back. This is a little technical, but bear with me. If your best-guess is that inflation over the next 10 years will average 2%, and the distribution of your expectations around that number is normal, then the fair value for the inflation swap is also 2%. But, if the length of the tail of “outliers” is longer to the high side than to the low side, then fair value will be above 2% even though you think 2% is the “most likely” figure. As it turns out, inflation outcomes are not at all normal, and in fact demonstrate long tails to the upside. The chart below is of the distribution of overlapping 1-year inflation rates going back 100 years. You can see the mode of the distribution is between 2%-4%…but there is a significant upper tail as well. The lower tail is constrained – deflation never goes to -12%; if you get deflation it’s a narrow thing. But the upper tail can go very high.
When inflation quotes were very low, it may have partly been because investors saw no chance of an inflationary accident. But it is hard to look at what has been happening to inflation over the last couple of years, and the extraordinary monetary policy actions of the last decade, and not conclude that there is a possibility – even a small possibility – of a long upside tail. As with options valuation, even an improbable event can have an important impact on the price, if the significance of the event is large. And any nonzero probability of double-digit inflation should raise the equilibrium price of inflation quotes.
- The prices that are changing the most right now are highly salient. Inflation expectations are inordinately influenced, as noted above, by the price of energy. This is not only true in the inflation markets, but in forming the expectations of individual consumers. Gasoline, while it is a relatively small part of the consumption basket, has high salience because it is a purchase that is made frequently, and as a purchase unto itself (rather than just one more item in the basket at the supermarket), and its price is in big numbers on every corner. But it is not just gasoline that is moving at the moment. Also having high salience, although it moves much less frequently for most consumers: medical care. No consumer can fail to notice the screams of his fellow consumers when the insurance letter shows up in the mail explaining how the increase in insurance premiums will be 20%, 40%, or more. While I do not believe that an “expectations anchoring” phenomenon is important to inflation dynamics, there are many who do. And those people must be very nervous because the movement of several very salient consumption items is exactly the sort of thing that might unanchor those expectations.
- Inflation markets were too low anyway. When 10-year inflation swaps dipped below 1.50% earlier this year, it was ridiculous. With actual inflation over 2% and rising, someone going short inflation markets at 1.50% had to assess a reasonable probability of an extended period of core-price disinflation taking hold after the first couple of years of inflation over 2%. By our proprietary measure, TIPS this year have persistently been 80-100bps too cheap (see chart, source Enduring Investments). This is a massive amount. The only times TIPS have been cheaper, relative to nominal bonds, were in the early days when institutions were not yet investing in TIPS, and in the teeth of the global financial crisis when one defaulting dealer was forced to blow out of a massive inventory of them. We have never seen TIPS as cheap as this in an environment of at least acceptable liquidity.
So, why did breakevens rally? Among the other reasons, they rallied because they were ridiculously too low. They’re still ridiculously too low, but not quite as ridiculously too low.
What happens next? Well, I look at that list and I see no reason that TIPS shouldn’t continue to outperform nominal bonds for a while since none of those factors looks to be exhauster. That doesn’t mean TIPS will rally – indeed, real yields are ridiculously low and I don’t love TIPS on their own. But, relative to nominal Treasuries (which impound the same real rate expectation), it’s not even a close call.
It has been a busy week, if short. We found out this week that there is pressure on the doves at the Federal Reserve, the biggest of which is Chairman Yellen, to raise interest rates. To some extent we already knew this, based on the dissents in favor of immediate hiking at the latest FOMC meeting. But the minutes this week provided evidence that the support for such a move is broadening, and even normally-dovish Fed speakers have lately been conceding the argument that it “may” soon be time to raise rates again. Notably, and critically, the Chairman is not among those turncoats. I continue to believe that Dr. Yellen will look for any and all excuses to skip a rate hike at coming meetings. Most observers don’t expect an increase to happen immediately before the US election, but the market is putting a pretty heavy weight on December. According to Bloomberg, Fed funds futures are implying a 2/3 chance of a hike at one of the next two meetings.
But lots can change before December 14th, and it will not take much to constitute an excuse to remain sidelined. It is an absurdly high hurdle that Yellen has set. But it makes sense if you remember that Yellen believes that monetary policy is an important and useful tool for increasing employment, that inflation has been so low for so long that it can run “a bit hot” for a while and not be worrisome, and that it can be reined back in at will.
Some of her insouciance is shared by many at the Fed (and described in this Bloomberg article from August). The article is delicious, because some of the quotes suggest confusion about certain notions that have been long held at the Fed but don’t seem to be working any more. They’re not working because they never did, but there was correlation without causation that confused them, and an embraced dogma about inflation that was simply wrong and ignored everything we had learned about inflation in the 1970s and early 1980s. For example, the Fed has long believed that inflation expectations play an important role in anchoring inflation. They have believed this since the 1990s, when a role for expectations was inserted in economists’ models to explain the break to low inflation around 1993. Now, however, “movements in inflation expectations now appear inconsequential since they no longer have any predictive content for subsequent inflation realizations.”
It isn’t clear why anyone ever believed that the shopkeeper will set his prices based on what his customers expect to pay, rather than on what his input costs are, but there was a lot of math and some spurious correlations and poof! let there be dogma.
So here’s a thought: maybe inflation is caused by changes in money float and money velocity? And maybe…just maybe…changing the amount of the measurement stick (money) in circulation doesn’t change the amount of stuff (real GDP) being measured? Call me crazy, but these ideas have worked for decades, and they might be useful even if there isn’t as much math.
For fun, I did the chart above with both US and Eurozone money supply growth, versus US inflation. Even though I am ignoring the things the orthodoxy considers causal, like unemployment rates and inflation expectations, the fit is pretty good. MV=PQ still outperforms the output-gap based models easily. Of course, now that the unemployment rate is back to being low, the rising inflation that we are seeing will be attributed by the economic high priests to the closing of the output gap, despite the fact that inflation started accelerating in earnest long before that gap closed. Dogma dies hard.
Ironically, Yellen has the right stance but for the wrong reason: higher rates will cause higher money velocity, which will cause higher inflation; without any attempt to restrain reserves money supply growth will not roll over and squelch that inflation. So, if rates start to rise – Fed induced, or not – in earnest, the vicious cycle (higher rates cause higher velocity, which causes higher inflation, which causes higher rates, etc…) is going to kick into gear and it could be a long decade ahead. Go to our website and play with the MVPQ calculator. Starting velocity is 1.45. Remember that is an all-time low, and that the average velocity for 1960-1990 was 1.72 (and the average for 1980-2010 was 1.94). Current M2 growth is about 7.5%. It’s October. Go scare yourself.
On Tuesday, we will get another CPI and another chance to turn up the heat on the doves. In three of the last eight months, core CPI has been above 0.25%. If that happens again, then the year-over-year figure will rise to 2.4%. The Cleveland Fed’s Median CPI is already at 2.6%; the Atlanta Fed’s “Sticky” CPI is 2.72%. After the report, at 9am ET I will be doing a (free) live interactive virtual video event; you can sign up at this link. I will summarize what the inflation report said and what effect it should have on Fed and markets, and I will take audience questions. You need to RSVP, so get in there while you can!
Recently I’ve been thinking a lot about what might happen in the event of a banking crisis redux. While I’m not very concerned about US banks these days, there is a ‘developing situation’ in China that could well eventually lead to crisis (although the state might prevent outright collapses), and of course ongoing gnashing of teeth over Deutsche Bank’s capital situation if it is fined as heavily as some have suggested they will be.
I am not yet really worried about the banking side of things. But there are plenty of sovereign issuers who are clearly heading down unsustainable paths (not least of these is the US, especially if either of the leading Presidential candidates really implements the high-cost programs they are declaring they will), and when sovereigns tremble it is often banks that bear the direct brunt. After all, you can’t form a line outside of the sovereign to withdraw your money.
But, in a spirit of looking forward to anticipate potential crises, let us pretend we are confronting another banking crisis. The question I often hear next is, “how deflationary would it be to have another crisis when inflation is already low?”
Unpeeling the onion, there are several reasons this doesn’t concern me much. First, inflation is stable or rising in most developed nations. Yes, headline inflation is still sagging due to energy prices, but median inflation is 2.6% in the US and core inflation is 0.8% in Europe and 1.3% in the UK. To be sure, all of those are lower than they were in mid-2008. But remember that in 2009 and 2010, median (or core) inflation never got below 0.5% in the US, 0.8% in Europe, and 2.7% in the UK. Japan of course experienced deflation, but that wasn’t the fault of the crisis – as I’ve pointed out before, Japan has been in long-running deflation due to the BOJ’s inability or unwillingness to grow the money supply.
So, if the worst crisis in 100 years didn’t take core inflation negative – a major, major failure of Keynesian predictions – then I’m not aflutter about it happening this time. Heck, in 2009 and 2010 core inflation wouldn’t even have been as low as it was, had the cause of the crisis not been the bursting of the housing bubble. The chart below (source: Bloomberg) shows the Atlanta Fed’s “sticky” CPI (another way to measure the underlying inflation trend) ex-shelter. Note that in 2010, the low in this measure was about 1.25%…it was actually lower in 2014 and 2015.
But we can go further than that. One reason that inflation decelerated in 2009 and 2010 was because money velocity dropped sharply. As I’ve shown before, and argued in my book, the decline in money velocity was not particularly unusual given the decline in interest rates. That is, if you had known what was going to happen to interest rates, you would have had a very good forecast of money velocity and, hence, core inflation.
Back in 2008, I never dreamed that interest rates would go so low, or stay so low for so long. Few of us did! But the outcome, in the event, was consistent with the monetarist model while being completely inconsistent with the Keynesian model. And here’s the point, when thinking about the next crisis: interest rates are already at incredibly low levels, lower even than the 36-year downtrend channel would have them (see chart, source Bloomberg).
With the wisdom of experience, I would never be so cavalier as to say that interest rates cannot go lower from here! But in 2008, 10-year rates were around 3.80% and they’re 1.60% now (in the US, and lower elsewhere). Real rates were around 2% at the 10-year point; they are at 0% now. It is difficult to imagine how rates can have another dramatic move as they did in 2008-09.
It is important to understand, that is, just why inflation tends to fall in recessions. It is not, as the Keynesians would have it, that a growing “output gap” reduces the pressure on resources and relieves price increases. It is because slack demand for credit causes interest rates to decline, which leads to lower money velocity and hence, lower inflation. If the central bank responds in a timely manner to increase money supply growth by increasing reserves, then inflation doesn’t fall very far. In the last crisis, the Fed and other central banks added enough liquidity to ramp up M2 growth, and that kept the decline in money velocity from causing outright deflation (then, they kept adding reserves for a few more years, which led to the situation we are in now – too many reserves in the system, so that central banks no longer control the marginal dollar that goes into the money supply).
So, in the next crisis I expect central banks will add still more reserves to the pile of excess reserves, which will be meaningless but will make them feel better. Interest rates will decline, but not by as much as they did in the last crisis, and money velocity will fall. So, in a real serious crisis, inflation will decline – however, it will not decline very much.
That is the world we are now living in: higher highs to inflation on each subsequent peak, and higher lows in each subsequent trough. The vicious cycle counterpart to the virtuous cycle we have enjoyed for 35 years. This is true, I think, whether or not we get a crisis or just a garden-variety recession.
I should be clear that I think that such a crisis would be horrible for growth. That is, our current weak growth in global GDP would turn negative again, and possibly even more painful. And times would be truly bad in the stock market. But inflation will not follow, just as it didn’t follow in 2009-2010, and turn into deflation.
Japan is doomed. Again.
A couple of years ago, the Bank of Japan began to pursue QE, with the intention of doubling its money supply. While this is a bad plan for almost every country, it was exactly the right plan for Japan, whose economy had been mired in deflation from 1999 until this policy began (see chart, source Bloomberg).
To a monetarist, it was no surprise that Japan was experiencing deflation. Since the early 1990s, annual money supply growth in Japan has been below 4% (see chart, source Bloomberg). It averaged 2.4% from 1992-2012. (The new policy pushed M2 growth above 4% for the first time since the 1990s, albeit briefly as it turned out).
Remember, the monetarist equation says MV≡PQ. With unchanged money velocity and an economy with, say, a 3% potential growth rate in GDP, a 2.4% growth in M2 should result in deflation. And, in fact, just as in the US lower interest rates in Japan produced lower monetary velocity.
Quantitative easing does nothing to help economic growth, and so QE was the wrong prescription for most of the world after 2010. But if deflation is your disease, QE is your cure and that is Japan’s situation. When the BOJ decided to start QE, money supply growth moved above 4% for the first time in years, and “miraculously” core inflation moved above zero as the first chart above illustrates. (Abstract from the spike over 2%, which was due to a one-time consumption tax effect; but core inflation in Japan was over 1% even excluding that spike). When that happened, I wrote in our Quarterly Inflation Outlook that Japan was no longer the poster child for inept central banking; that award had been moved to the European Central Bank.
Unfortunately, even though QE did exactly what it was supposed to do, to Japanese policymakers it seemed to have failed because their intention had been to raise real growth. So, since the hammer they were using did not function very well as a saw, they discarded the tool.
Japan’s problems with growth are structural. There’s not a lot that can be done, and nothing that can be done in the short run and with monetary policy, about the demographic train wreck they are experiencing. But the problem with inflation was, and is, fixable. But only if the Bank of Japan does QE, and a lot of it, and keeps doing it. As they shifted from straight QE to targeting negative interest rates, money supply growth began to ebb (now back to 3.3% y/y) and inflation began to roll over (now 0.3% ex-food-and-energy). Indeed, with lower rates the BOJ is making it worse by helping to push money velocity even lower.
There had been hope that the BOJ might abandon the NIRP experiment, which was clearly not working by every metric you can use to measure it, and go back to the policy that had been working at least with respect to the fixable problem. But instead, last night the Bank of Japan “shifted the policy framework” to targeting the yield curve. According to the Bloomberg story, the Bank is moving away from a “rigid target for expanding the money supply, while seeking to control bond yields across different maturities.”
So money? The heck with that. We just want to make sure that prices are at the “right” levels. Clearly, the BOJ thinks the market is totally failing when it comes to setting the interest rate correctly (to be fair, all central banks seem to now view interest rates as a tool rather than an indicator, as they used to), and so it is assuming control of that job. Clearly, only the wise policymakers at the BOJ can divine the right level for interest rates: the one which leads to great growth and moderate inflation for the country. Sure.
Japan had a chance. Whether by design or pure chance, they had stumbled on the policy that was able to banish the deflation that had plagued them, and perverted decision-making, for two decades. But because they are pursuing a pot of gold at the end of the rainbow – growth springing from monetary policy in the same way that you can plant olive trees and harvest carrots – they abandoned the working policy to pursue one that has no chance of success.
Japan is back in its comfort zone: the developed world’s basket case. Congratulations to the Bank of Japan.
It is rare that I write early on a Monday morning, but today there is this. A story on Bloomberg highlighted the pressure that the IMF is putting on Japan to institute an “incomes policy” designed to nudge (and force, if necessary) companies to increase wages. IMF mission chief for Japan told reporters a couple of weeks ago that “we need policies to support wage increases in Japan;” the Bloomberg article also names a former IMF chief economist and the current president of the Peterson Institute for International Economics as proposing an immediate boost of salaries of 5-10% for unionized workers.
It is truly appalling that global economic policymakers are essentially illiterate when it comes to economic history. The IMF suggestion to institute wage hikes as part of triggering inflation is not a question of misunderstanding macroeconomic models (although it manages to do this as well, since wages follow prices and thus increasing wages won’t cause inflation unless other conditions obtain). At some level, it is a question of ignorance of history. After the stock market crash in 1929, President Hoover persuaded major industrial firms (such as GM, U.S. Steel, and the like) to hold wages constant or raise them. Since prices were falling generally, this had the effect of raising the real cost of production, which of course worsened the subsequent Depression. According to one analysis, this single decision caused GDP loss in the Great Depression to be triple what it otherwise would have been if wages were allowed to adjust (because, again, wages follow prices and are the main mechanism by which a surplus or shortage of labor is cleared). It wasn’t just Hoover, of course: later, FDR established the National Recovery Administration to administer codes of “fair competition” for every industry that established minimum wages and prices. The NRA was struck down in large part by the Supreme Court, but the notion of arresting deflation by adjusting wages was quickly reintroduced in the National Labor Relations Act of 1935.
There is wide agreement, although I am sure it is not universal, that preventing markets from adjusting is a big part of what made the Great Depression so Great. And this isn’t theory…it’s history. There is no excuse, other than ignorance, for policymakers to whiff on this one.
Deflation can be bad, but it doesn’t need to come with massive unemployment. In Japan, it has not: the unemployment rate is 3.1%, the lowest it has been since 1995. But push wages higher artificially, and Japan can have the massive unemployment as well. Thanks, IMF.
I really don’t like August. It’s nothing about the weather, or the fact that the kids are really ready to be back in school (but aren’t). I just really can’t stand the monkey business. August is, after December, probably the month in which liquidity is the thinnest; in a world with thousands of hedge funds this means that if there is any new information the market tends to have dramatic swings. More to the point, it means that if there is not any new information, the speculators make their own swings. A case in point today was the massive 5% rally in energy futures from their lows of the day back to the recent highs. There was no news of note – the IEA said that demand will balance the oil market later this year, but they have said that in each of the last couple of months too. And the move was linear, as if there had been news.
Don’t get me wrong, I don’t care if traders monkey around with prices in the short run. They can’t change the underlying supply and demand imbalance and so it’s just noise trading for noise trading’s sake. What bothers me is that I have to take time out of my day to go and try to find out whether there is news that I should know. And that’s annoying.
But my whining is not the main reason for this column today. I am overdue to write about some of the inflation-related developments that bear comment. I’ll address one of them today. (Next week, I will probably tackle another – but Tuesday is also CPI day, so I’ll post my usual tweet summary. Incidentally, I’m scheduled to be on What Did You Miss? on Bloomberg TV at 4pm ET on Tuesday – check your local listings).
I don’t spend a lot of time worrying about productivity (other than my own, and that of my employees). We are so bad at measuring productivity that the official data are revised for many years after their release. For example, the “productivity miracle” of the late 1990s, which drove the Internet bubble and the equity boom into the end of the century, was eventually revised away almost completely. It never happened.
The problem that a lot of people have with thinking about productivity is that they confuse the level of productivity with its pace of increase. So someone will say “of course the Internet changed everything and we got more productive,” when the real question is whether the pace of productivity increase accelerated. We are always getting more productive over time. There are always new innovations. What we need to know is whether those innovations and cost savings are happening more quickly than they used to, or more slowly. And, since the national accounts are exquisitely bad at picking up new forms of economic activity, and at measuring things like intellectual property development, it is always almost impossible to reject in real time the hypothesis that “nothing is changing about the rate of productivity growth.” Therefore, I don’t spend much time worrying about it.
But, that being said, we should realize that if there is a change in the rate of productivity growth it has implications for growth, but also for inflation. And recent productivity numbers, combined with the a priori predictions in some quarters that the global economy is entering a slow-productivity phase, have started to draw attention.
Most of that attention is focused on the fact that poor productivity growth lowers overall real output. The mechanism there is straightforward: productivity growth plus population growth equals real economic output growth. (Technically, more than just population growth it is working-age population growth times labor force participation, but the point is that it’s an increase in the number of workers, compounded by the increase in each worker’s productivity, that increases real output). Especially if a populist backlash in the US against immigration causes labor force growth to slow, a slower rate of productivity growth would compound the problem of how to grow real economic growth at anything like the rate necessary to support equity markets or, for that matter, the national debt.
But there hasn’t been as much focus on the other problem of low productivity growth, if indeed we are entering into that sort of era. The other problem is that low productivity growth causes higher prices, all else equal. That mechanism is also straightforward. We know that money growth plus the change in money velocity equals real output growth plus an increase in prices: that is, MV≡PQ. If velocity is mean-reverting, then the decline in real growth precipitated by a decline in labor productivity, in the context of an unchanged rate of increase in the money supply, implies higher prices. That is, if ΔM is constant and ΔV is zero and ΔQ declines, then ΔP must increase.
One partial offset to this is the fact that a permanent decline in productivity growth rates would lower the equilibrium real interest rate, which would lower the equilibrium money velocity. But that is a one-time shift while the change in trend output would be lasting.
In fact, it wouldn’t be unreasonable to suppose that the change in interest rates we have seen in the last few years is mostly cyclical but may also be partly secular. This would imply a lower equilibrium level of interest rates (although I don’t mean to imply that anything is near equilibrium these days), and a lower equilibrium level of monetary velocity. But there are a lot of “ifs” in that statement.
The biggest “if” of all, of course, is whether there really is a permanent or semi-permanent down-shift in long-term productivity growth. I don’t have a strong opinion on that, although I suspect it’s more likely true that the current angst over low productivity growth rates is just the flip side of the 1990s ebullience about productivity. We’ll know for sure…in about a decade.
Almost eight years after the bankruptcy filing of Lehman Brothers and the first of many central bank quantitative easing programs, it appears the expansion – the weakest on record by several measures – is petering out. The Q2 growth rate of GDP was 1.2% annualized, meaning that the last three quarters were +0.9%, +0.8%, +1.2%. That’s not a recession, but it’s also not an expansion to write home about.
But why? Why after all of the quantitative easing? Is the effectiveness waning? Is it time for more?
I read recently about how many economists are expecting the Bank of England to increase asset purchases (QE) this Thursday in an attempt to counteract the depressing effects of Brexit on growth. Some think the increase will be as much as £150 billion. That’s impressive, but will it help?
I also read recently about how the Bank of Japan “disappointed investors” by not increasing asset purchases except incrementally. The analysts said this was disappointing because the BOJ’s action was “not enough to cause growth.”
That’s because no amount of money printing is enough to cause growth. No amount.
It seems like people get confused with this concept, including many economists, because we use units of currency. So let’s try illustrating the point a different way. Suppose I pay you in candy bars for the widgets you produce. Suppose I pay you 10 candy bars, each of which is 10 ounces, for each widget. Now, if I start paying you 11 candy bars instead of 10, then the price has risen and you want to produce more widgets, right? This, indirectly, is what economists are thinking when they think about the effect of monetary policy.
But suppose that I pay you 11 candy bars, but now each candy bar is 9.1 ounces instead of 10 ounces? I suspect you will not be fooled into producing more widgets. You will realize that I am still paying you 100 ounces of candy per widget. You are not fooled by the fact that the unit of account changed in intrinsic value.
Now, when the central bank adds to the money supply, but doesn’t change the amount of stuff the economy produces (they don’t have the power to direct production!), then all that changes is the size of the unit of account – the candy bar, or in this case the dollar – and the number of dollars you need to buy a widget goes up. That’s called inflation. And the only way that printing more money can cause production to increase is if you don’t notice that the value of any given unit of currency has declined. That is, only if I say I’m paying you 11 candy bars – but you haven’t noticed they are smaller – will you respond to the change in terms. This is called “money illusion,” and it is why money printing does not cause growth in theory…and, as it turns out, in practice.
There is nothing terribly strange or unpredictable about what is going on in global growth in terms of the response to monetary policy. The only thing strange is that eight years on, with numerous observations on which to evaluate the efficacy of quantitative easing, the conclusion appears to be that it might not be quite as effective as policymakers had thought. And therefore, we need to do lots more of it, the thought process seems to go. But anything times zero is zero. Central banks are not shooting an inaccurate, awkward weapon in the fight to stimulate growth, which just needs to be fired a lot more so that something eventually hits. They are shooting blanks. And no amount of shooting blanks will bring down the bad guy.
 I address this aspect of money, and other aspects that affect inflation, in my book What’s Wrong With Money: The Biggest Bubble of All.