The Vast Majority (Not) Inflation Case

Global factors. Both for inflation as well as money, in fact, money therefore inflation. Only recently, yesterday, in fact, has the Federal Reserve pulled back the official curtain of silence and illiteracy if only a little to admit there’s so much more than what you’ve ever been told. Bank reserves aren’t the end of the story, especially in light of goings-on in repo and collateral.

Both those things have global components, too, which is already outside the Fed’s jurisdiction.

So, if bank reserves don’t actually sit as the lodestar of the monetary system, effective money in it being something more and so far unknown, what else is open for (renewed) questioning? Pretty much everything that follows, from finance into economy which only begin with interest rates and inflation.

No wonder policymakers have been so reluctant to acknowledge the mountain of evidence – including much gathered on their part – against QE and its misunderstood byproduct of bank reserves. Once you pry off the lid of this particular rabbit hole, sticking your head only partway inside, you quickly surmise an incomprehensible depth inside.

Back in 2018, Haruhiko Kuroda’s outfit, the Bank of Japan, was holding steady to his recovery/inflation gambit. On its last legs, in July that year the Japanese Governor sought to give it one final boost in the form of YCC, or yield curve control.

Invented two Septembers prior, in 2016, this alongside “overshooting” inflation targeting was supposed to raise inflation expectations via a combination of words and actions; the words being “overshooting”, as in the central bank claiming to tolerate higher and above-target inflation, whereby the actions would have been not “allowing” interest rates (bond yields) to rise prematurely thereby thwarting (in theory) the process.

All textbook stuff if being conducted using non-standard methods.

That never happened, of course. But, 2018’s last gasp, Kuroda’s Bank publicly declared how they’d let JGB’s go up more than previously; expanding the “limit” on the 10-year JGB to zero + or – 20 bps rather than the original 10. The vague idea practiced then was to signal – what monetary policy actually does – such central bank confidence that inflation and growth were so close and so near certain policymakers wouldn’t mind an extra 10 bps in yields.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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