<p>Because you can't push on a piece of string.</p>

<p>As in the Great Depression of the 1930s, we've collectively got massive personal debt, depressing demand, moving us towards deflation, which pushes up debt, and so it goes.</p>

<p>We've also known since the 1930s that monetary expansion in and of itself cannot stimulate demand under these conditions: it can only create space for demand to expand into.</p>

<p>Add in the international fashion for fiscal contraction, a demand-suppressant, and that's how we get QE without broad-money expansion and without inflation.</p>

<p>We do have <em>potential</em> inflation. And at some point that potential will be realised. But not while there's this huge overhang of personal debt. It might get worn down over a long period of deflation, through defaults. Some other inflationary shock might inflate some of the debt away. And enlightened policy-makers might engage in a large exercise in personal-debt cancellation.</p>

CC BY-SA 3.0
2015-11-12T11:32:32.357Z
2015-11-13T07:48:26.163Z
2015-11-13T07:48:26.163Z
410 gone
<p>It should be first clarified that the Fed doesn't print money, but actually fabricates the monetary base.  MB consists of paper dollars and electronic dollars (and coins and us notes).  </p>

<p>Now MB did explode in 2008.  A most enlightening graph:</p>

<p><a href="https://research.stlouisfed.org/fred2/graph/?g=2hIe" rel="nofollow">https://research.stlouisfed.org/fred2/graph/?g=2hIe</a></p>

<p>But it is also important to consider that MB is not the only source of money in the economy.  We also use bank deposits which are more than MB and more influential in determing inflation. Deposit money did not spike up like MB did which explains why we didn't have inflation.  </p>

<p>MB spiked, M1 and M2 rose a little, but M3 hardly did.  If goverment issues more MB (money) but the banks create less deposits (money) than they do counteract each other.</p>

<p><a href="http://www.shadowstats.com/charts/monetary-base-money-supply" rel="nofollow">http://www.shadowstats.com/charts/monetary-base-money-supply</a></p>

<p>Now granted their are non-monetary factors to inflation, but this is why the MB wasn't among them in 2008.</p>

CC BY-SA 3.0
2015-11-24T03:13:52.000Z
2015-11-24T03:13:52.000Z
user2662680
<p>So I think a particularly useful thing to discuss here is exactly what the interest rate is and why it's set at any given level. The theory is that there is a "natural" rate of interest, at which inflation is neither increasing nor decreasing. The natural rate varies based on the levels of savings, global demography and changes in productivity and technology.</p>

<p>Many economists would say that the natural rate of interest has (for a variety of reasons) simply been below zero ever since the financial crisis, and was unusually low even before that. In that context, "printing money" (which actually took the form of purchasing government and corporate assets) would just flow straight into savings, and not change the level of prices, i.e. inflation.</p>

<p>I would attach a whole load of links and maybe even a diagram but my internet is playing up sadly. Basically, the lack of inflation in response to fed policy in the wake of the crisis is very much in line with a lot of mainstream economic thought, not some unexpected aberration.</p>

CC BY-SA 3.0
2015-11-13T14:28:50.567Z
2015-11-13T14:28:50.567Z
globule
<p>There are many reasons why money printing does not lead to inflation, but the main one, according to the Fed themselves, is high unemployment. </p>

<p>As long as a large portion of population is out of work, they are not receiving salary and therefore not spending. If buyers don't spend or spend too little, the sellers are hesitant to raise prices.</p>

<p>There are several structural problems with employment in the US and the EU:</p>

<ol>
<li><p>Aging baby boomer population and declining working age population.</p></li>
<li><p>Transition into globalized knowledge-based high-tech economy makes many professions redundant and their workers long-term unemployed. </p></li>
<li><p>Pressure from developing countries, such as China, South-East Asia, India, Africa, etc. causes many jobs to be outsources overseas.</p></li>
</ol>

CC BY-SA 3.0
2015-11-13T05:28:10.337Z
Unemployment is not high today. Otherwise, the Fed will not be thinking of raising interest rates in Dec 15.
curious
CC BY-SA 3.0
2015-11-13T05:50:32.417Z
It is hard to say whether unemployment is still high or not in the US today, even for the Fed. The official U3 measure of unemployment, which has recently dropped to 5%, only shows people who are unemployed AND looking for job. It ignores part-time workers who want to work full time and those who gave up trying to find a job or simply not looking for one. A broader measure of unemployment (U6) is still very high at almost 10%: http://www.bls.gov/news.release/empsit.t15.htm  BLS itself acknowledges long-term unemployment problem: http://www.bls.gov/spotlight/2015/long-term-unemployment/
Arthur Tarasov
CC BY-SA 3.0
2015-11-13T16:22:52.993Z
As I note below there appears to be a complete class divide in price inflation. As long as labor is disaggregated, increases in money supply will not get locked into "sticky wages." I doubt that employment is as relevant a signal as wage stagnation, and an inverse, rapid growth of returns to the "shareholder" classes, where price inflation is rampant.
Nelson Alexander
CC BY-SA 3.0
2015-11-13T04:05:15.897Z
2015-11-13T04:05:15.897Z
Arthur Tarasov
<p>Let me offer a "class-based" answer. </p>

<p>Living in Manhattan, I see directly a phenomenon too little reported. There <em>is inflation,</em> enormous rapid inflation within the upper classes. Prices of luxury goods, multi-million dollar apartments, connoisseur items, first-class travel, artworks, ivy educations, rare wines, hedge-fund fees, high-tech medicine, philanthropic gestures, etc. </p>

<p>The annual percentage increases are staggering. It is truly as if the money being pumped into the "shareholder" classes is being burned up at a desperate rate.</p>

<p>Yet what is traditionally measured as "inflation" is sticky wage inflation. Only when wages begin to rise does the Fed slow the presses. High employment signaled by rising wages sounds the "inflation alarm" and a threat to the interests of the "shareholder" class. Credit flinches.</p>

<p>So I would suggest that in many institutional, political, and social ways, there has emerged a class-based solution to the 1970s problem of "inflation." As long as wages are disaggregated the old type of "inflation" does not apply. You can print as much money as you want, as long as it goes directly to a concentrated, limited cartel. </p>

<p>This, coupled with destabilization of the Middle East and military control of oil supplies, returned the U.S.from the 1970s "brink" to the sort of stable, wage-depressed, class-dominated economy favored by Andrew Mellon, Prescott Bush, and their ilk. As long as labor is disaggregated, it cannot democratize and "deteriorate" the value of increasing money supplies.</p>

CC BY-SA 3.0
2015-11-13T16:21:59.260Z
Wait, are you claiming that even though wages are near constant (there is no inflation) the prices of luxury goods are rising? Ergo we should feel sorry for our capitalist overlords?
Giskard
CC BY-SA 3.0
2015-11-13T16:27:25.150Z
That's what  I'm saying. But I did not say anything about "feeling sorry" for overlords.  We have plenty of WSJ pundits to do that. If Ms. Overlord can no longer afford her funder credits on PBS and Mr. Overlord can't afford that Modigliani...well, I'll save my tears for Bambi.
Nelson Alexander
CC BY-SA 3.0
2015-11-13T16:29:29.500Z
But you are also claiming that the printed money goes to some limited cartel. I am confused. Who are in this cartel? If its the rich, how do they get the money?
Giskard
CC BY-SA 3.0
2015-11-13T17:23:53.340Z
Money is signed by the Treasury and funded by the taxpayers, but issued to the private banking system based on how much they say  they can "loan out." The "rich" may get their money in all sort of ways. But at the highest levels, big money is practically free and you just have to figure out how to keep it from being taxed away. Such as taking out loans to pay stock dividends while parking profits overseas. As Picketty and others have shown modern wealth in the West is increasingly rentier wealth based on state bonds and credits. The "cartel" is loosely the financial-bond industry.
Nelson Alexander
CC BY-SA 3.0
2015-11-13T18:00:25.143Z
Always nice to hear why the down votes, but I realize this is not a debating forum. And I'm not an economist, obviously, so must development my sense of this stack. I'll try to rethink it in terms of a question.
Nelson Alexander
CC BY-SA 3.0
2015-11-13T19:01:54.757Z
One of them is from me. It seems to me that instead of offering a coherent self-contained explanation you always throw in some new phenomenon/reference that needs to be explained itself. I will of course reconsider if you edit your answer.
Giskard
CC BY-SA 3.0
2015-11-13T20:25:52.487Z
That's fine, but not sure I understand the criticism. Perhaps I'll try reposting as a question. If the Fed is pumping money into the economy (via the banks, financial system, bond market, etc.) why no "inflation?" Because it isn't going into wages, as it did in the 50s-70s. So it "inflates" tech bubbles, speculative wealth funds, dividends, high-end goods, political spending, art, foreign "hot money," etc. Wildly soaring prices in some sectors: Matisses, London townhouses, election campaigns. But no official "inflation" by the old wage-consumer-goods measures.
Nelson Alexander
CC BY-SA 3.0
2015-11-13T21:07:01.527Z
Be careful: if you post a question, don't post the answer within the question. You are free to answer your own question in an answer. That way people can vote and comment on your question and answer separately.
Giskard
CC BY-SA 3.0
2015-11-13T21:15:30.990Z
Already done, for better or worse. I believe it's a perfectly open question, though directed to my point. Happy to get down votes if I also get enlightening, nondogmatic answers.
Nelson Alexander
CC BY-SA 3.0
2015-11-13T16:15:31.917Z
2015-11-13T16:15:31.917Z
Nelson Alexander
<p>Consider Cagan's Model. Future inflation is not just based on money supply changes now, but expected money supply changes in the future. One of the major reasons inflation hasn't skyrocketed out of control despite the large amounts of quantitative easing going on is because people know the Federal Reserve is targeting a low rate of inflation.</p>

<p>As for interest rates, the Fed keeps their interest rate low to encourage banks to lend out more money. They can't offer a negative nominal interest rate for obvious reasons though, so you run into the zero interest floor problem, where it is hard to encourage institutions to borrow money and stimulate the economy, thus getting perpetually low inflation. No matter how much you try to stimulate the economy, as EnergyNumber's answer states, you can't push on a string; there's only so much conventional monetary policy can do.</p>

CC BY-SA 3.0
2015-11-24T03:43:56.880Z
2015-11-24T03:43:56.880Z
Kitsune Cavalry
<blockquote>
  <p>"Why has deflation prevailed despite money printing by central bankers?"</p>
</blockquote>

<p><strong>1) CPI</strong><br>
According to some pools in US, the number 1 concern for most Americans is the rising cost of living. Unfortunately, for political reasons, the official price index (CPI) doesn't capture properly most of such costs. There's an excellent video explaining that: <a href="https://www.youtube.com/watch?v=pwI3Nya5L9g" rel="nofollow">https://www.youtube.com/watch?v=pwI3Nya5L9g</a>   </p>

<p>So, if you go shopping in the supermarket, you will be seeing a rise in price. But, if you are a person that only deals with assets such as stocks and real estates, then you will be seeing a fall in prices.</p>

<p><strong>2) Reserve Currency</strong><br>
For historical reasons (gold standard) and also for political pressure, the US Dollar is still being used as a reserve currency. So, every time there is a worldwide crises, several investors flee their investments to US Dollar considering it as a safe haven. Which kick the can a little bit further down the road.</p>

<p>Unfortunately, since the beginning of FED in 1913, the US Dollar has devalued >95% and there is no reason to believe that this tendency will change in the foreseeable future. When the rest of the world realize that, probably it's gonna be the day of reckoning.</p>

CC BY-SA 3.0
2015-11-13T16:25:40.757Z
Could you please back this statement up with something: "the official price index (CPI) doesn't consider most of such costs " (costs of living)
Giskard
CC BY-SA 3.0
2015-11-13T18:02:25.447Z
Ok, I agree. Just edited the text.
Mark Messa
CC BY-SA 3.0
2015-11-13T14:38:48.713Z
2015-11-13T17:57:32.500Z
2015-11-13T17:57:32.500Z
Mark Messa
<p><a href="http://www.telegraph.co.uk/finance/comment/liamhalligan/8484530/Americas-reckless-money-printing-could-put-the-world-back-into-crisis.html" rel="noreferrer">http://www.telegraph.co.uk/finance/comment/liamhalligan/8484530/Americas-reckless-money-printing-could-put-the-world-back-into-crisis.html</a></p>

<blockquote>
  <p>America's reckless money-printing could put the world back into crisis
  Last week, Ben Bernanke suggested that the US base interest rate will
  stay close to zero for an "extended period". It's been there since
  December 2008.</p>
</blockquote>

<p>Today, the opposite has happened. Deflationary forces are strong in the U.S. Europe is even worse given the negative yield. Why has deflation prevailed despite money printing by central bankers?</p>

CC BY-SA 3.0
2015-11-24T08:19:52.703Z
It's to do with "velocity of money". See [this answer](http://economics.stackexchange.com/questions/9154/can-absence-of-inflation-be-accounted-for-by-a-reconfigured-class-structure/9212#9212)
paj28
CC BY-SA 4.0
2021-10-27T15:33:21.487Z
This will answer your question: http://mickanomics.blogspot.com/2021/03/what-people-still-get-wrong-about-qe.html
Mick
<macroeconomics><monetary-policy><inflation><central-banking><deflation>
Why didn't the money printing by the US Federal Reserve since 2008 lead to inflation?
curious
# Why didn't the money printing by the US Federal Reserve since 2008 lead to inflation?

(Asked by: username_0 on 2015-11-12)

<http://www.telegraph.co.uk/finance/comment/liamhalligan/8484530/Americas-reckless-money-printing-could-put-the-world-back-into-crisis.html>

> America's reckless money-printing could put the world back into crisis
> Last week, Ben Bernanke suggested that the US base interest rate will
> stay close to zero for an "extended period". It's been there since
> December 2008.

Today, the opposite has happened. Deflationary forces are strong in the U.S. Europe is even worse given the negative yield. Why has deflation prevailed despite money printing by central bankers?

**Tags:** macroeconomics, monetary-policy, inflation, central-banking, deflation

> **Comments:**
> **username_1**: It's to do with "velocity of money". See [this answer](http://economics.stackexchange.com/questions/9154/can-absence-of-inflation-be-accounted-for-by-a-reconfigured-class-structure/9212#9212)  
> **username_2**: This will answer your question: http://mickanomics.blogspot.com/2021/03/what-people-still-get-wrong-about-qe.html  

---

## 7 answers

### Answer by username_3 on 2015-11-12. Score: 1 | Accepted answer

Because you can't push on a piece of string.

As in the Great Depression of the 1930s, we've collectively got massive personal debt, depressing demand, moving us towards deflation, which pushes up debt, and so it goes.

We've also known since the 1930s that monetary expansion in and of itself cannot stimulate demand under these conditions: it can only create space for demand to expand into.

Add in the international fashion for fiscal contraction, a demand-suppressant, and that's how we get QE without broad-money expansion and without inflation.

We do have *potential* inflation. And at some point that potential will be realised. But not while there's this huge overhang of personal debt. It might get worn down over a long period of deflation, through defaults. Some other inflationary shock might inflate some of the debt away. And enlightened policy-makers might engage in a large exercise in personal-debt cancellation.


---

### Answer by username_4 on 2015-11-24. Score: 2

It should be first clarified that the Fed doesn't print money, but actually fabricates the monetary base. MB consists of paper dollars and electronic dollars (and coins and us notes).

Now MB did explode in 2008. A most enlightening graph:

<https://research.stlouisfed.org/fred2/graph/?g=2hIe>

But it is also important to consider that MB is not the only source of money in the economy. We also use bank deposits which are more than MB and more influential in determing inflation. Deposit money did not spike up like MB did which explains why we didn't have inflation.

MB spiked, M1 and M2 rose a little, but M3 hardly did. If goverment issues more MB (money) but the banks create less deposits (money) than they do counteract each other.

<http://www.shadowstats.com/charts/monetary-base-money-supply>

Now granted their are non-monetary factors to inflation, but this is why the MB wasn't among them in 2008.


---

### Answer by username_5 on 2015-11-13. Score: 1

So I think a particularly useful thing to discuss here is exactly what the interest rate is and why it's set at any given level. The theory is that there is a "natural" rate of interest, at which inflation is neither increasing nor decreasing. The natural rate varies based on the levels of savings, global demography and changes in productivity and technology.

Many economists would say that the natural rate of interest has (for a variety of reasons) simply been below zero ever since the financial crisis, and was unusually low even before that. In that context, "printing money" (which actually took the form of purchasing government and corporate assets) would just flow straight into savings, and not change the level of prices, i.e. inflation.

I would attach a whole load of links and maybe even a diagram but my internet is playing up sadly. Basically, the lack of inflation in response to fed policy in the wake of the crisis is very much in line with a lot of mainstream economic thought, not some unexpected aberration.


---

### Answer by username_6 on 2015-11-13. Score: 1

There are many reasons why money printing does not lead to inflation, but the main one, according to the Fed themselves, is high unemployment.

As long as a large portion of population is out of work, they are not receiving salary and therefore not spending. If buyers don't spend or spend too little, the sellers are hesitant to raise prices.

There are several structural problems with employment in the US and the EU:

1. Aging baby boomer population and declining working age population.
2. Transition into globalized knowledge-based high-tech economy makes many professions redundant and their workers long-term unemployed.
3. Pressure from developing countries, such as China, South-East Asia, India, Africa, etc. causes many jobs to be outsources overseas.

> **Comments:**
> **username_0**: Unemployment is not high today. Otherwise, the Fed will not be thinking of raising interest rates in Dec 15.  
> **username_6**: It is hard to say whether unemployment is still high or not in the US today, even for the Fed. The official U3 measure of unemployment, which has recently dropped to 5%, only shows people who are unemployed AND looking for job. It ignores part-time workers who want to work full time and those who gave up trying to find a job or simply not looking for one. A broader measure of unemployment (U6) is still very high at almost 10%: http://www.bls.gov/news.release/empsit.t15.htm  BLS itself acknowledges long-term unemployment problem: http://www.bls.gov/spotlight/2015/long-term-unemployment/  
> **username_7**: As I note below there appears to be a complete class divide in price inflation. As long as labor is disaggregated, increases in money supply will not get locked into "sticky wages." I doubt that employment is as relevant a signal as wage stagnation, and an inverse, rapid growth of returns to the "shareholder" classes, where price inflation is rampant.  

---

### Answer by username_7 on 2015-11-13. Score: 0

Let me offer a "class-based" answer.

Living in Manhattan, I see directly a phenomenon too little reported. There *is inflation,* enormous rapid inflation within the upper classes. Prices of luxury goods, multi-million dollar apartments, connoisseur items, first-class travel, artworks, ivy educations, rare wines, hedge-fund fees, high-tech medicine, philanthropic gestures, etc.

The annual percentage increases are staggering. It is truly as if the money being pumped into the "shareholder" classes is being burned up at a desperate rate.

Yet what is traditionally measured as "inflation" is sticky wage inflation. Only when wages begin to rise does the Fed slow the presses. High employment signaled by rising wages sounds the "inflation alarm" and a threat to the interests of the "shareholder" class. Credit flinches.

So I would suggest that in many institutional, political, and social ways, there has emerged a class-based solution to the 1970s problem of "inflation." As long as wages are disaggregated the old type of "inflation" does not apply. You can print as much money as you want, as long as it goes directly to a concentrated, limited cartel.

This, coupled with destabilization of the Middle East and military control of oil supplies, returned the U.S.from the 1970s "brink" to the sort of stable, wage-depressed, class-dominated economy favored by Andrew Mellon, Prescott Bush, and their ilk. As long as labor is disaggregated, it cannot democratize and "deteriorate" the value of increasing money supplies.

> **Comments:**
> **username_8**: Wait, are you claiming that even though wages are near constant (there is no inflation) the prices of luxury goods are rising? Ergo we should feel sorry for our capitalist overlords?  
> **username_7**: That's what  I'm saying. But I did not say anything about "feeling sorry" for overlords.  We have plenty of WSJ pundits to do that. If Ms. Overlord can no longer afford her funder credits on PBS and Mr. Overlord can't afford that Modigliani...well, I'll save my tears for Bambi.  
> **username_8**: But you are also claiming that the printed money goes to some limited cartel. I am confused. Who are in this cartel? If its the rich, how do they get the money?  
> **username_7**: Money is signed by the Treasury and funded by the taxpayers, but issued to the private banking system based on how much they say  they can "loan out." The "rich" may get their money in all sort of ways. But at the highest levels, big money is practically free and you just have to figure out how to keep it from being taxed away. Such as taking out loans to pay stock dividends while parking profits overseas. As Picketty and others have shown modern wealth in the West is increasingly rentier wealth based on state bonds and credits. The "cartel" is loosely the financial-bond industry.  
> **username_7**: Always nice to hear why the down votes, but I realize this is not a debating forum. And I'm not an economist, obviously, so must development my sense of this stack. I'll try to rethink it in terms of a question.  
> **username_8**: One of them is from me. It seems to me that instead of offering a coherent self-contained explanation you always throw in some new phenomenon/reference that needs to be explained itself. I will of course reconsider if you edit your answer.  
> **username_7**: That's fine, but not sure I understand the criticism. Perhaps I'll try reposting as a question. If the Fed is pumping money into the economy (via the banks, financial system, bond market, etc.) why no "inflation?" Because it isn't going into wages, as it did in the 50s-70s. So it "inflates" tech bubbles, speculative wealth funds, dividends, high-end goods, political spending, art, foreign "hot money," etc. Wildly soaring prices in some sectors: Matisses, London townhouses, election campaigns. But no official "inflation" by the old wage-consumer-goods measures.  
> **username_8**: Be careful: if you post a question, don't post the answer within the question. You are free to answer your own question in an answer. That way people can vote and comment on your question and answer separately.  
> **username_7**: Already done, for better or worse. I believe it's a perfectly open question, though directed to my point. Happy to get down votes if I also get enlightening, nondogmatic answers.  

---

### Answer by username_9 on 2015-11-24. Score: 0

Consider Cagan's Model. Future inflation is not just based on money supply changes now, but expected money supply changes in the future. One of the major reasons inflation hasn't skyrocketed out of control despite the large amounts of quantitative easing going on is because people know the Federal Reserve is targeting a low rate of inflation.

As for interest rates, the Fed keeps their interest rate low to encourage banks to lend out more money. They can't offer a negative nominal interest rate for obvious reasons though, so you run into the zero interest floor problem, where it is hard to encourage institutions to borrow money and stimulate the economy, thus getting perpetually low inflation. No matter how much you try to stimulate the economy, as EnergyNumber's answer states, you can't push on a string; there's only so much conventional monetary policy can do.


---

### Answer by username_10 on 2015-11-13. Score: -1

> "Why has deflation prevailed despite money printing by central bankers?"

**1) CPI**  
According to some pools in US, the number 1 concern for most Americans is the rising cost of living. Unfortunately, for political reasons, the official price index (CPI) doesn't capture properly most of such costs. There's an excellent video explaining that: <https://www.youtube.com/watch?v=pwI3Nya5L9g>

So, if you go shopping in the supermarket, you will be seeing a rise in price. But, if you are a person that only deals with assets such as stocks and real estates, then you will be seeing a fall in prices.

**2) Reserve Currency**  
For historical reasons (gold standard) and also for political pressure, the US Dollar is still being used as a reserve currency. So, every time there is a worldwide crises, several investors flee their investments to US Dollar considering it as a safe haven. Which kick the can a little bit further down the road.

Unfortunately, since the beginning of FED in 1913, the US Dollar has devalued >95% and there is no reason to believe that this tendency will change in the foreseeable future. When the rest of the world realize that, probably it's gonna be the day of reckoning.

> **Comments:**
> **username_8**: Could you please back this statement up with something: "the official price index (CPI) doesn't consider most of such costs " (costs of living)  
> **username_10**: Ok, I agree. Just edited the text.  

---

