Why didn't the money printing by the US Federal Reserve since 2008 lead to inflation? 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?
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.