26/03/2011 – Quantitative Easing: Why It Has NOT Brought Back Inflation

Enjoy this short excerpt — and for details on how to read
this eBook in full, free, look below.

Club EWI’s Free Independent Investor eBook 2011 (excerpt)
Chapter 1: Quantitative Easing Has Not Brought
Back the Old Inflationary Trend
(From Prechter’s January 2011 Elliott Wave Theorist)

While long terms rates are rising, Treasury bill rates are
stuck near zero. How is it possible?

… During hyperinflation, rates typically rise to double
digits per month. Inflationists find it difficult
to reconcile the Fed’s massive balance sheet growth over
three years beginning in August 2008 with short term rates
at zero and long term rates only in the 2-5% range.

Deflationists (all ten of us) understand why investors are
willing to hold government paper at such low returns: The total
supply of debt is contracting. Most bonds won’t survive.
The federal government’s bonds will survive the longest.

Figure 10 shows that the total supply of “money” plus
debt (all of which is in fact debt) peaked in 2008. This decline
in overall money and credit is the first on an annual basis
since 1929-1933. It is a big deal.

… This graph explains why gold in 2010 was so much lonelier
in making an all-time high than stocks, commodities and real
estate were in 2006, when everything was making an all-time
high simultaneously: The total money + credit supply is down
and cannot support new highs in all markets at once.

The Fed’s QE programs are failing to re-ignite inflation.
By mid-2011, the Fed will have monetized just over $2 trillion
worth of debt since 2008 to bring the value of its total assets
to about $3t. This does represent a huge amount of fiat money.
But the overall debt load is $65 trillion. Thus, the Fed will
have monetized only 5% of the total, meaning that 95% of the
outstanding debt is still suffocating the economy like a giant
pool of sludge. …The Fed’s degree of monetization
in light of these debts is very small.

For more of Robert Prechter’s insights on the markets,
including why QE2 was a major tactical error, why rising oil
prices are not bearish for stock, and why earnings don’t
drive stock prices, read the rest of this FREE
51-page Independent Investor eBook. Download your free eBook
NOW.