Honestly, my viewpoint is that you should try getting your news from different sources. Let’s start with quantitative easing and the fact that increasing the money supply does not mean that inflation will follow. Aside from my answer, you can read more about this at the following links: What is quantitative easing?, Does quantitative easing work?,ARE THE INFLATIONISTAS RIGHT?
Let’s start with the increase in the money supply.
Clik here to view.
The St. Louis Adjusted Monetary Base is defined as:
“The Adjusted Monetary Base is the sum of currency (including coin) in circulation outside Federal Reserve Banks and the U.S. Treasury, plus deposits held by depository institutions at Federal Reserve Banks. These data are adjusted for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. “
The first thing to take note of is that this includes all of the money in circulation and the deposits that banks keep at the Federal Reserve. The second point is to understand that QE is not the same thing as printing money. This money is not being created out of nowhere, QE is an asset swap where the bank exchanges either Treasuries or mortgage backed securities for deposits. Keep in mind that there are always two sides to every transaction, so if the Federal Reserve buys $1 million of Treasuries from a bank than they add $1 million to the bank’s account at the Federal Reserve. Therefore, this is not money printing in the sense that we usually think. Yes, money is being created, but it is created by removing an asset from the balance sheet of financial institutions.
This leads into my next argument, the deposits created by QE are not making their way into the economy. In other words, the money is sitting idle. Here is a chart of the St. Louis Adjusted Monetary Base and Currency in Circulation. Notice that the scale on the left is billions and on the right is millions and $1,000,000 millions is $1 trillion. Also, ignore the intersections, by definition the adjusted monetary base will always be larger than currency in circulation.
Clik here to view.
So we had the adjusted monetary base go from about $800 billion before QE to around $4 trillion today. Currency in circulation had a pre QE level of about $813 billion and is currently about $1.28 trillion. I don’t even think it’s worth debating the impact QE had on the currency in circulation because the overall trend doesn’t seem to be significantly changed. I would add that inflation has been very weak since the financial crisis as you can see in this chart.
Clik here to view.
I’m sure someone is going to bring this up so here is the disclaimer: Yes, I am aware that food and fuel are not included. Please submit proof that highly volatile food and fuel prices are now great indicators of hyperinflation and I’ll take it back. No, shadow stats does not count as proof. Moving on…
About other countries looking for alternatives to dollar, I don’t really find that surprising. Having the world reserve currency gives the US an enormous amount of influence. There is every possibility that at some point in the future the dollar will not be the world reserve currency. I’m not about to guess at what the world will look like when that happens because it doesn’t really matter what I think. In the short to intermediate term it is worth remembering that it is one thing for a country to say they want to replace the dollar, but it is entirely different to actually do that. Don’t be too quick to believe that China is about to pull that off until you take a closer look at their financial system. China still has a long way to go before the yuan replaces the dollar. The Euro doesn’t seem to be moving in that direction either. As for Russia, sorry but don’t make me laugh….not even in their dreams. Russia simply doesn’t have a diverse enough economy or a large enough financial system.
Unless you can provide evidence to the contrary, I don’t see signs of an “imminent breakdown of the current global economic order.” I really don’t see it. We got through the financial crisis and the Eurozone crisis and the subprime meltdown without anarchy. Even the federal deficit as a percentage of GDP is has been trending lower.
Clik here to view.
If you look at the worst possible measure of unemployment, it is bad; but it’s also moving in the right direction.
Clik here to view.
Overall, I think we will likely see this sort of slow recovery continue for the immediate future. I had a few other things I wanted to add but I don’t have time now. I may update this a bit later if I find the time. In any case, I think this answers your question.