Nonsensical Global Worries Over Subdued Inflation: Yellen, Draghi, Kuroda

Central bank presidents at the Fed, the ECB, and Bank of Japan are all concerned over low inflation. The Fed wants to hike anyway, but the Bank of Japan will keep pursuing aggressive monetary easing. Meanwhile, asset prices are in the biggest ever bubble.

Bank of Japan

Bank of Japan Governor, Haruhiko Kuroda, says the BOJ Will Keep Pursuing Aggressive Monetary Easing.

“The Bank of Japan will consistently pursue aggressive monetary easing with a view to achieving the price stability target at the earliest possible time,” Mr. Kuroda said at a meeting of the Group of 30 in Washington.“Achieving the 2% target is still a long way off,” Mr. Kuroda said.“Once price increases become widespread, medium- to long-term inflation expectations for firms and households are expected to rise gradually and actual inflation will increase toward 2%,” he said.

ECB

‘It’s going to take time. We have got to be persistent with our monetary policy,” Draghi said on the sidelines of the meetings of the International Monetary Fund and World Bank in Washington, reported The Wall Street Journal.Draghi gave an upbeat outlook on the 19-nation eurozone economy, but said inflation remains too weak, possibly due to subpar wage growth, he said. The ECB’s program of buying 60 billion euros ($70.9 billion) of bonds a month is set to expire in December. Policy makers are expected at a meeting on Oct. 26 to announce plans to begin scaling down the monthly purchases next year, but Draghi suggested the decision could be delayed again, the report said.

Fed

“We will be paying close attention to the inflation data in the months ahead,” Yellen said in prepared remarks at an international banking seminar in Washington. “My best guess is that these soft readings will not persist.”Minutes from the meeting, released last Wednesday, showed policymakers had a broad debate about recent soft inflation and the impact on interest rates if it fails to rebound.However, Yellen and some other key policymakers have also made plain they expect to continue to gradually raise interest rates given the strength of the overall economy and continued tightening of the labor market.“We continue to expect that the ongoing strength of the recovery will warrant gradual increases in that rate to sustain a healthy labor market and stabilize inflation around our 2 percent longer-run objective.”

Something In Common

What do all three have in common?

None of them has the faintest idea where inflation is, or even what inflation is. Not a one of them understands debt deflation or asset bubble forces.

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

Deflation Benefit

The BIS did a study and found routine deflation was not any problem at all.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.

It’s asset bubble deflation that is damaging.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Meanwhile economically illiterate writers bemoan deflation, as do most economists and central banks. The final irony in this ridiculous mix is central bank policies stimulate massive wealth inequality fueled by soaring stock prices.

Nonsensical Battle

In their nonsensical battle against routine price inflation, the Fed, the ECB, and the Bank of Japan (central banks in general) have all collaborated to build the biggest global asset bubble in history.

When that bubble bursts, debt deflation will smack them in the face like a tomato flying at 500 miles per hour.

I expect another round of price deflation will accompany the asset bubble bust.

What the central bankers do then remains to be seen, but history suggests they will keep doubling down as they did when Long term Capital Management blew up, when the dotcom bubble blew up, and when the housing bubble blew up.

But this time the central banks will be starting with negative interest rates in Japan and Europe,low interest rates in the US, and imploding junk bond bubbles everywhere.

Got Gold?

Mike "Mish" Shedlock

Just purchased trash bags. Old box: 100 count. New box: 70 count. New box has slightly larger capacity bags which serve no purpose for me, but which the Fed may count as a hedonic improvement. Price per box is also 10% higher. Overall, new box is effectively 47% more expensive per bag. No inflation?? They are looking in the wrong places.

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Local car mechanic also recently raised prices.

The lunatics have taken over the asylum. Explains everything, but how long will they be allowed to rampage?

Yet no one wants to become a car mechanic. And no one wants to work in the trash bag manufacturing business.

Instead, everyone wants to be in Private Equity or in a Hedge Fund. Where they can sit and collect billions in welfare checks straight from the Fed. Then use that loot to engage in value destroying makework like doing things they are too dumb to understand even the meaning of, like “consolidate”, to entities they are way too dumb to have any hope of ever understand how to operate, like auto repair shops and manufacturing companies.

Then double down on dumb, by pretending that, when the Fed and regulations combine to pump up what they are dumb enough to believe is the “value” of the organizations their make work has rendered less competitive and useful, this somehow validates them as being some sort of useful life form.

Or, if they don’t want to do that, they instead want to believe that the shack they live in, somehow magically adds any kind of value, by sitting there decaying year after year. While pumping their dumb little fists, cheering for government to ban anyone else from demonstrating just how dumb they really are, by building a massively improved version of their roach motel across the street, for 1/10th the cost of what they think theirs is “worth.”

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