Why Isn’t Massive Money Creation Stimulating Higher Prices?


Despite trillions upon trillions of dollars and dollar-equivalent currencies created out of thin air since the 2008-09, since prices of commodities peaked in 2011 the global stock prices have been peaking and now finally they are breaking down. And as you can see from the chart on your left, my IDW continues to roll over. Over the past three weeks it tested but did not rise above the five-year IDW average. Why so much price weakness when so many trillions of dollars have been created?

One Keynesian concept that I believe has some validity is the notion of propensity to consume based on levels of income. These days, a family of four, living even in less expensive areas of the U.S., with an annual income of $50,000 is going to have to spend all of that $50,000 if not more every

year just to pay for the basic necessities of life. But someone making $1 million or more could, if they chose, easily live on $200,000 per year and save 80%, or $800,000 of their income. Of course, most people making larger incomes spend on conspicuous consumption or pleasures of life way beyond necessity. Even so, in the aggregate, high-income people will spend less and save more than the masses.


And so, with income distribution now massively moving toward the top 1% and even more to the 1/10 of 1%, is it any wonder that retail sales are declining massively? In addition, the real incomes of middle-class families have been declining since 2000. More than likely, the real incomes are even overstated by the U.S. Government because of understating inflation. And then there is a gigantic debt albatross around the necks of America’s middle class, and that is debt. Two areas that are especially problematic are student loans and auto loans. In fact, the only way car sales can be kept at current levels is to offer zero interest rates, small down payments, and long terms. The average amount financed per car is $27,000 and the average term is 65 months. Both are at record highs. If you removed those easy financing terms, car sales would be way below where they are. And if you look at retail sales excluding autos, they are negative year over year. That is the stuff from which recessions are manufactured.

Propaganda from the Fed will keep investors off balance by continuing to falsely proclaim that the economy is better than it actually is and that the next interest rate rise is right around the corner. But lying about an economy’s strength will eventually fail, and when the con game from the Fed is over, that is when stocks will crash and when gold and silver will rise to unfathomable levels. Over the past three weeks, propaganda-driven short covering has driven my IDW back up to, but not above, the five-year moving average. I see no reason to think this most recent rise in stock prices is anything but a temporary bounce. And then, perhaps very soon, we start a major decline in equity prices and confidence on the part of the American people. It’s not what I want. But it is what is inevitable.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.