Friday, 1 January 2016

Why didn’t QE money printing cause inflation?

When QE was first suggested a few years ago, the doomsayers and inflation-phobes predicted hyperinflation would result from the large amount of money printing involved in QE. One reason inflation didn’t increase was as follows.

As Joseph Huber and James Robertson explain in their work “Creating New Money”, the freedom that private banks have to create money from thin air and lend it out means that those banks can undercut existing savers. As Huber & Robertson put it:

“Allowing banks to create new money out of nothing enables them to cream off a special profit. They lend the money to their customers at the full rate of interest, without having to pay any interest on it themselves. So their profit on this part of their business is not, say, 9% credit-interest less 4% debit-interest = 5% normal profit; it is 9% credit-interest less 0% debit-interest = 9% profit = 5% normal profit plus 4% additional special profit.”

But if the existing rate for a zero or near zero risk loan is about 0%, then the scope for the above undercutting is much reduced! Huber and Robertson’s “creaming off” becomes much less profitable.

Put another way, the excess amount of base money currently sloshing around at the start of 2016 will not be inflationary until central banks attempt to impose a significant rise in interest rates. And at that point they may well find their efforts thwarted by the “Huber & Robertson” phenomenon.

A recent article by Christopher Phelan of the Minneapolis Fed deals with the potential for that excess supply of reserves to be inflationary. 

George Selgin also wrote an article about the “excess reserves” scenario. He actually considered what would happen if there was an economy where the only form of money was central bank money and privately issued money (i.e. fractional reserve banking) was then allowed. But that comes to the same thing as the above “excess reserves” scenario. Selgin’s conclusion was that there’d be excess inflation for a while – until the stock of reserves (in real terms) was down to the minimum that private banks needed.

One solution to the latter form of inflation would be to force private banks to hold a larger stock of reserves. 


  1. QE is a *consequence* of our problem, not a cause of our problems. QE is inevitable under banking, because if they do not manage to replenish the circulation, circulatory deflation will bring the whole "economy" down as a house of cards, with the blink of an eye. This maneuver made by Central Banks is what we call *Artificial Sustention*, it is an attempt to postpone the general failure of all industry and commerce.

    But you need to understand what leads to the desperate maneuver of QE perpetrated by banking, in order to comprehend why it is necessary under banking.

    As we so often explain to people, the money created under banking is a further representation of our promissory obligations to each other, it is a further representation of our promissory notes. When we enter a bank and apply for a mortgage, for instance, we sign a document called promissory note. And our signature on this piece of paper triggers the creation of the money we will use to pay for the house we will take possession.

    So, banking takes our promissory obligation to the ex-owner of the house, and convert that promissory note into a bank note. The sum of principal of that "debt" is created and automatically laundered into the unjustified possession of the banking system, which will charge interest when it never risked anything of value of it's own commensurable to the falsified debt it publishes to itself.

    1. “QE is a *consequence* of our problem, not a cause of our problems.” Don’t think I said it was a “cause” of problems, did I?

      Re the idea in your last para that the private bank system necessarily charges interest (as opposed to administration costs), I dealt with that idea at the link below, and showed that in a hypothetical economy where people wanted a form of money, but no one wanted to go into debt, the existing bank system could provide what people wanted. I.e. interest arises because there are would be borrowers and would be savers: banks intermediate between the two (in addition to creating money out of thin air). Put another way, if there were no would be savers and borrowers, banks would charge for administration costs, but not interest.

    2. "interest arises because there are would be borrowers and would be savers: banks intermediate between the two" FIRST you have prove that the bank is actually risking anything in the first place. To the readers, this is called lawful consideration in contract law. Seeing as banks merely republish our promissory notes and not "out of thin air" hopefully the people can see that the bank shows no commensurable consideration and hence is committing contract fraud on every mortgage on the planet.

    3. “FIRST you have prove that the bank is actually risking anything..” Given the hundreds of banks that have gone bust thru history, that shouldn’t be difficult.

    4. I see you ignored the consideration issue, just like every other so called "economist" out there. When a person takes out a "loan" does the banks ledger decrease? we know this answer is a categoric NO!!. This is where people like you confuse the readers by coming out with "out of thin air" line rather than telling them that it is their PROMISE which is the actual value which the bank is stealing from the get go.

    5. When a bank grants a loan, obviously the bank’s assets and liabilities increase. I never said otherwise, and I’ve never come across anyone who said otherwise.

      Re your claim that banks “steal a promise”, you’ll have to expand on that: I’m not sure what you’re saying. What banks DO DO is to take some non-bank entity’s promise to pay (e.g. a person or non-bank firm’s promise) and give it enough credibility to turn it into a form of money, i.e. make it generally accepted.

  2. In other words, *WE* create the sum of principal we allegedly "borrow" from the banking system, and that sum of principal will be deposited in the account of the ex-owner of the related home. That means that the money which enters into circulation will represent a falsified debt to the banking system subject to interest.

    The obligor will be forced to pay principal and interest to banking in order to keep the house. So, the actual issuer of that money, the party which signed the promissory note, will need to end up paying the monetary equivalent of 3 homes to keep 1.

    But, only the sum of principal is ever created, and only some remaining principal, therefore, can possibly remain in circulation at all times. And the victims of the obfuscation are forced to pay 3 times the amount in circulation, they are forced to 3 times the circulating principal, due to interest, where there are only some remaining principal at most circulating.

    So, the circulation needs to be deflated not only of principal, but principal plus principal plus principal, when it can only be comprised of some remaining principal at most.

  3. So, the circulation needs to be replenished of those sums, in order to maintain a vital circulation and allow the original obligors to pay their falsified debts to banking. But, how can you replenish the circulation, to maintain the vital circulation, under banking? You need to incur in new falsified debts to banking, which are equally subject to interest, and these new falsified debts must be equal to the former sums of falsified debts, which lack circulating money to be fulfilled.

    And these new falsified debts only replenish the circulation of principal at most, again, while they are equally subject to interest which will compel the subjects of the obfuscation to escalate the faux borrowing to survive and keep their properties for themselves. This process makes it impossible to pay down any former sum of, otherwise, falsified debts to banking. It generates inevitable usurious sums of insoluble falsified debts.

    The obfuscation and consequent usury inevitably multiplies the sum of falsified debts in proportion to the capacity to pay, and even at an inherently escalating rate we succumb under monumental sums of faux debts. Our creditworthiness is compromised and destroyed along the way, as the subjects of usury dedicate ever more of the circulation comprised of only some remaining principal, to service the ever escalating sums of faux debt. And our capacity to produce and to generate value which would allow us to keep our properties is devastated, because all our properties and wealth are virtually owned by banking, through the spiral of circulatory deflation.

    All the subjects of the obfuscation are forced to increase the prices of their production as an attempt to service the escalation of falsified debts, but this desperate and inevitable consequence can't suffice, because the money is being sucked into the banking vaults.

    There are just a few ways under banking to replenish the massively deflated circulation, and pretend we can survive the obfuscation.

    1) Escalation of faux borrowing - which precipitates in inevitable failure, as explained above;

    2) Issuance of government bonds - to reflate the circulation with the laundered money from banks, which are also mathematically impossible to be paid down, because these are also subject to interest;

    3) Absorption of our production by the banking system - which will use the laundered money of the obfuscation to acquire our properties. This can't avoid the collapse either, because banking cannot reintroduce all it launders into it unjustifiable possession to absorb our production, let alone the fact that it can't reintroduce mirrored sums related to the interest the slaves of banking owe to banking, at the same rate of the escalation of falsified debts to itself. This makes impossible that the unwarranted absorption of our production will reflate the circulation avoiding the collapse.

    4) Quantitative Easing - which is a ramification of the former point, being a massive dumping of laundered money into the markets, to acquire putrefied debts, and attempt to make that money to circulate further, by acquiring our production and make the slaves a bit more solvent. QE cannot avoid the inevitable failure either, because it would be required to be exponentially perpetrated to keep up with the pace of the escalation of the service of falsified indebtedness to banking.

    1. Debt is not needed in order to create money. See:


    A contradictory idea raised perhaps in misunderstandings of this material, is that debt itself as a monetary basis is to be eradicated.

    A debt under mathematically perfected economy™ however is a far different thing than a debt under usury; and there is a concrete reason that money must come into circulation as a debt.

    The reason that new money must come into circulation as a debt is simply that 1) we need further circulation to sustain the trade and payment for new production; and 2) that the juncture of newly introduced production is the opportunity to introduce that currency in a way which allows for its retraction from circulation in accord with the payment of the resultant obligation.

    Debt itself is not injurious. The obligations of mathematically perfected economy™ allow us to produce wealth for markets which can pay for the wealth only as they consume of it. Thus the ability to take on debt for which we can be responsible is an advantage: the producers of the wealth can be paid for production we could not distribute otherwise; and the consumers of the wealth can pay for the wealth as they consume of it with an equal measure of their eventual production.

    The evil of debts under usury on the other hand is the multiplication of the original obligation; and thereafter, the perpetual further multiplication of the debt in the course of merely maintaining a circulation which is vital to servicing the original debt.

    The debts of usury therefore are not merely debts; they are processes which perpetually multiply the original principal.

    The evil is not the debt however; it is the process of interest."


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