In 2014 the St. Louis Federal Reserve noted that despite a MASSIVE increase in money the expected 4 to 6% inflation did not materialize. The researchers suggest it was a "liquidity trap". Yes, and no. But mostly no.
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----EPISODE #66TOPICS----
00:05 In the pre-2007 period an increase in money supply lead to an increase inflation but...
02:59 ...the post-2007 period displayed a break in the relationship (or did it?!)
04:57 Possible causes include: labor slack, banks not lending, and 'too credible' central banks
06:59 Another cause (perhaps likely?) is the Liquidity Trap.
08:16 If the Fed controls interest rates, then a liquidity trap explanation sounds legitimate
10:58 If the Fed controls interest rates, then raising rates will unwind a liquidity trap
14:39 In 2005 Greenspan testified to Congress that a fundamental monetary assumption had failed
17:57 The Fed identified market desire for safe, liquid instruments but got the "why" wrong
19:39 The St. Louis Fed paper was published in April 2014, just as the third crisis had begun
--------REFERENCES--------
St. Louis Fed's "The Liquidity Trap": https://bit.ly/2Qc858Z
Alhambra Investments Blog: https://bit.ly/2VIC2wW
RealClear Markets Essays: https://bit.ly/38tL5a7
---------WHO-----------
Jeff Snider, Head of Global Investment Research for Alhambra Investments with
Emil Kalinowski. Art by
David Parkins. Podcast intro/outro is "
Amber Lights" by
Chill Cole at
Epidemic Sound.