Inflation Indicators Suggest QE3 Less Likely

A short article published in The Atlantic yesterday suggests that, based on past decision-making and Federal Reserve press releases, the likelihood that a third round of quantitative easing will occur is relatively low.  The graph below shows the relationship between the Fed’s balance sheet (blue) and core inflation (red).

Core inflation dropped significantly in 2009, and the Fed subsequently expanded its balance sheet with QE1 to combat the specter of deflation.  It again engaged in a quantitative easing program, QE2, in late 2010 when the core inflation continued to drop.  Now, however, inflation seems stabilized around the 2 percent level.  According to the Fed:

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.”

It appears that, unless inflation drops below this 2 percent level for a prolonged period, a third round quantitative easing is unlikely.

Fed President Claims “Too Soon To Conclude” Whether Recovery is Sustainable

In a speech to the Long Island Association, Federal Reserve Bank of New York President William Dudley cautioned audience members against being overly optimistic regarding the economic recovery.  One of his main concerns was elevated gas prices,  stating that elevated commodity prices could have an adverse effect on already fickle consumer spending.  Additionally, he noted that recent gains in the overall employment rate cannot solely be contributed to the economic recovery, but also to a drop in the labor force participation rate, saying that “had the labor force participation rate not declined from around 66 percent in mid-2008 to under 64 percent in February, the unemployment rate would still be over 10 percent.”

Dudley also left the door open for expanded Federal Reserve intervention to inspire further economic growth, claiming “nothing has been decided” by the FOMC in terms of further bond-buying programs.  Dudley’s speech was not all pessimistic, however, as he highlighted his “cautious optimism” regarding the Eurozone crisis and his expectation that inflation will continue to “moderate”.  Though the speech was hardly an enthusiastic confirmation of sustained economic improvement, it appears that the major drags on the economic recovery are beginning to be resolved and the outlook can remain positive and hopeful moving forward.

Quantitative Easing, Pt. 6: Conclusion

Summary and prediction:

Since 2007, the United States Federal Reserve has implemented two rounds of quantitative easing, as well as “Operation Twist,” in an attempt to inject liquidity within the market and lower long-term interest rates in the hopes of pushing investors into riskier assets and increasing the demand for long-term investment.[1]  As the economy continues to drag, speeches by Fed Chairman Ben Bernanke regarding the Fed’s willingness to offer further economic assistance, combined with the predictions of many leading economists, seem to point towards a third round of quantitative easing on the way.  Unfortunately for the American people, should this QE3 program come to fruition, it is highly unlikely that it will sufficiently help encourage sustained economic growth within the marketplace.  Now that deflation is no longer a looming specter, further quantitative easing could very feasibly result in an inflation rate higher than ideal, especially in the commodities market.

The relative success of QE2, or lack thereof, made it evident that the Federal Reserve does not operate in isolation, and that issues, both domestically and abroad, can stifle the effectiveness of their programs.  Domestically, political turmoil has only continued to escalate as the conflict over the debt-ceiling was so severe that it raised uncertainty about the long term viability of the U.S. government’s ability to remain solvent to the point that it led to a downgrade of the U.S. debt.  Overseas, the Eurozone continues to face a debt crisis with no ideal or foreseeable resolution in sight.  Such factors have led to a heightened sense of uncertainty so severe that despite the credit easing and liquidity raising policies of the Fed, firms and investors still remain extremely risk-averse and prefer to hold lower risk assets despite the increasingly lower returns offered.  When considering the effect that this uncertainty had on the long term effectiveness of the QE2 program, it is difficult to imagine that yet another round of quantitative easing will have any more success.  While the Fed is intended to be a politically independent entity, when considering such a large scale program as QE3, it is important to address its prospects with a degree of political pragmatism and realistic expectations given the uncertainty of the economic and political environment.

In the end, I believe that a third round of quantitative easing will be implemented despite all the signs pointing towards its high potential for ineffectiveness.  It appears that Chairman Bernanke remains convinced that if he can further flatten the yield curve and inject more liquidity into the market, businesses and individuals will move into riskier assets and banks will have no choice but to lend.  QE3 will most plausibly use QE2 as a template for implementation, resulting in a purchase of longer-termed government debt and, like with QE2, this third round of quantitative easing will result in a hike in prices for riskier assets and for commodities, yet this effect will only be temporary.  As the Fed’s asset-purchases put inflationary pressure on commodity costs, consumption will decrease as consumers devote less of their money to non-energy assets.  Politically, the environment will remain hostile and the threat of more regulation, such as with the recent IMF proposal to hike BASEL surcharges on the world’s largest banks, will perpetuate a level of apprehension amongst potential lenders and borrowers that will largely negate the effect of the flatter yield curve.[2]  It remains uncertain as to how foreign governments will react to such a program, yet given the opposition to QE2’s dollar-weakening actions, one can surmise that another round of quantitative easing will only further antagonize them.  Given the evidence offered, however, it appears that the Federal Reserve will lack the foresight to weigh these external variables, along with the economic warning indicators, and engage in an economically and politically damaging third round of quantitative easing.

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[1] Censky, Annalyn. “Federal Reserve Launches Operation Twist.” CNNMoney. CNN, 21 Sept. 2011. Web. 5 Nov. 2011.

[2] Brunsden, Jim, and Rebecca Christie. “Citi, JPMorgan May Face Highest Basel Capital Surcharges.” Bloomberg, 8 Nov. 2011. Web. 8 Nov. 2011.

Quantitative Easing, Pt. 5: QE3

The implications of QEIII:

Since the conclusion of QE2, speculation has begun to intensify surrounding the potential of a third round of quantitative easing, as Chairman Bernanke said that the central bank was prepared to ease further “if economic growth and inflation falter again.”[1]  In August, Goldman Sachs economists released a report predicting a third round of easing, and in a CNBC poll from the same month, 46 percent of economists surveyed stated they believe that QE3 will occur, versus only 37 percent disagreeing.[2][3]  Yet while the specifics of the plan remain ambiguous, critics of such a move suggest that the consequences of such an action will have a similar effect to that of QE2, with unemployment remaining high and GDP growth low.  Whereas deflation was a primary concern when considering QE2, it now appears that inflation is a realistic possibility, as the CPI has increased 3.6 percent over the past year, compared with a rate of 1.1 percent the year before.[4]  Further damaging the hypothetical effect of QE3 is political and economic turmoil both domestically and abroad.  The S&P downgrade of U.S. debt, as well as the debt crisis in Europe, has added greatly to an already elevated level of uncertainty within the global marketplace.  As uncertainty was a major factor in limiting the impact of QE2, firms and individual consumers seem to be more nervous than ever, making them less likely to spend or invest due to the difficulty of measuring the riskiness of their future cash flows.  “Monetary policy should help economic activity, but right now it’s just not working,” states Guy LeBas of Janny Montgomery Scott, “banks are taking that cash and just re-depositing it with the Fed.  It’s not that banks don’t want to loan money, it’s because they can’t.  There’s very little loan demand out there from consumers and businesses”.[5]

Another cause for concern when considering the ramifications of a third round of quantitative easing is the impact it may have on the United States image and faith in the dollar abroad.  When word of QE2 first broke, many countries around the globe were already in strong opposition given the programs devaluing effect on the dollar.  A devalued dollar does not only damage emerging economies, however, as many developed nations have called the Fed’s weak dollar policies currency manipulation which gives the country an unfair advantage in exports.[6]  Such international hostility can not only undermine economic recovery efforts, but also threaten long term prospects for the United States as a global economic leader.  It is not unfeasible to believe that should the U.S. continue to antagonize countries abroad by weakening the dollar, the world’s leading economies may ultimately drop the dollar as the world’s reserve currency.  According to a recent poll of central bank managers, a majority believes that the U.S. will lose this privilege within the next 25 years and be replaced by a basket of currencies.[7]  China has already taken action to negotiate deals without the use of dollars, “China supported a Russian proposal to start direct trading using the yuan and the ruble rather than pricing their trade or taking payment in U.S. dollars or other foreign currencies. China then negotiated a similar deal with Brazil.”[8]  Many of those who believe a shift in the reserve currency is coming point directly to the Federal Reserve’s expanded balance sheet and inflationary actions as exacerbating a trend away from the dollar as reserve currency, especially as growing economic powers such as China and Russia hold increasing amounts of U.S. debt.

The results of a shift from using the dollar as the world’s reserve currency in favor of a basket of currencies would be, by all indications, catastrophic for the United States economy.  The United States has been the world’s reserve currency since the Bretton Woods Conference in 1944, when the world’s leading economies established a system where international currencies tied their monetary policy to an exchange rate with the dollar.[9]  Since then, the dollar has maintained this status due to the ease and tools through which foreign countries could convert their currencies into dollars as, being as reserve currency, the dollar is held in large amounts by governments and other institutions around the world.  Another benefit of holding reserve currency status is that many commodity prices, such as oil and gold, are currently priced in terms of dollars, giving U.S. consumers the advantage of not incurring the cost and time of converting currencies to purchase such commodities.  If dollar reserve status was to shift, prices would inflate drastically in the U.S., hiking up energy costs for both firms and individuals.  General inflation within the economy stands to escalate as well given the drastic increase in dollar supply during the Fed’s first two rounds of quantitative easing.

Should such inflation occur, the Fed could hypothetically sell bonds on the open market to lower money supply, yet with the loss of reserve currency status, demand for U.S. bonds will drop drastically and the cost of financing debt will skyrocket.  In terms of competitiveness for American businesses, the effect of losing reserve status could be severely debilitating.  Since many international contracts are valued in dollars, American firms benefit from a competitive ease over international competition similar to the one held with commodities.  Should the dollar lose reserve status, these advantages would immediately disappear, and while a weaker dollar generally makes American exports more attractive due to their relative cheapness compared to foreign prices, firms would be operating on much thinner margins due to the increased cost of converting currencies and faced with the threat of increased federal taxes as the deficit grows.  Ultimately, the loss of reserve currency status for the greenback would severely undermine U.S. economic prospects by depressing consumption and investment levels, weakening U.S. competitiveness in the international market, and rendering monetary actions typically taken by the Federal Reserve to inject liquidity into the market less in an economic downturn less effective and much more expensive to finance, thus further increasing the federal deficit.

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[1] See Waki.

[2] Handley, Meg. “Could QE3 Help the Economy?” Business News and Financial News. US News and World Report, 11 Aug. 2011. Web. 5 Nov. 2011.

[3] Washington, Jason Lange. “Federal Reserve Might Not Undertake QE3, And It Might Not Help If They Do.” Breaking News and Opinion on The Huffington Post. The Huffington Post, 13 Aug. 2011. Web. 9 Nov. 2011.

[4] See Handley.

[5] See Handley.

[6] See Washington.

[7] Furchy, Jack. “Dollar Seen Losing Global Reserve Status.” Financial Times. 27 June 2011. Web. 2 Nov. 2011.

[8] Hudson, Michael. “U.S. Quantitative Easing Is Fracturing the Global Economy.” The Market Oracle. 1 Nov. 2010. Web. 7 Nov. 2011.

[9] “The Rise of Bretton Woods | The Economist.” The Economist. 23 Oct. 2008. Web. 8 Nov. 2011.

Quantitative Easing, Pt. 4: QE in the United States

Current use of Q.E. in U.S. and the decision to implement QEII:

Whereas the decision of the Bank of Japan to implement their quantitative easing policy was more a result of fundamental problems which had afflicted the Japanese economy for an extended period of time, the decision by the United States Federal Reserve to undertake similar policy actions was motivated by rapid global economic decline.  For the United States, the implementation of the Federal Reserve’s quantitative easing programs occurred during two distinctive periods, known as “QE1” and “QE2”.  The first round of quantitative easing, QE1, lasted from December 2008 until March 2010, and employed a three point attack on the stagnant economy which focused on increasing liquidity both inside and outside of the banking sector, as well as easing economy wide credit by lowering a wide range of interest rates.

To fulfill their first objective, the Fed established the Term Auction Facility, or TAF, in an effort to expand access to money in their lender of last resort role.  TAF worked by using an anonymous auction system to lend funds to banks, domestic only at first, and then to international banks as well later on.[1]  To increase liquidity outside the banking sector, the Fed was authorized to purchase up to $200 billion of asset-backed securities.  Finally, to impact the yield on longer-term assets, the Fed bought $600 billion of debt and mortgage-backed paper held by federal agencies as well as long-term Treasuries.  By the end of the program, the Fed purchased $1.7 trillion of Treasury and mortgage-backed securities.  Economists at the Federal Reserve Bank of New York estimate that these Treasury purchases resulted in a drop of half a percentage point on longer-term Treasury yields.[2]  Yet despite the progress made on Treasury yields, mortgages and loans remained difficult to qualify for and expensive to obtain, and the benchmarks of the Fed’s dual mandate targeting unemployment and inflation both lagged, with unemployment around 9.6% for the period and the inflation rate lower than the generally accepted target between 1.7% and 2%.[3]

While the first round of quantitative easing worked toward accomplishing a number of goals set by the Fed, such as the lowering of longer-term yields, in the face of heightened unemployment levels, as well as the fear of persistent deflation, the Federal Reserve announced in November 2010 a second round of easing, or “QE2.”  In contrast to the more expansive and diverse actions taken by the Fed during QE1, the QE2 program focused solely on the purchase of longer-termed government securities, much like the Bank of England’s program.  Over an eight month period ending in June 2011, the Federal Reserve committed to purchasing $75 billion of Treasury securities, primarily ones with maturities of two to ten years, averaging to around five or six years.[4]  By June of 2011, the Fed had bought $600 billion worth of Treasuries in an effort continue the downward pressure on longer-termed yields.  After the initial announcement of QE2, riskier and higher-yielding assets experienced an upward jolt as the lower yields on longer-term securities pushed investors into riskier assets with the promise of higher returns.  Yet while this initial surge in prices seemed to signify the success of QE2, the true impact on the U.S. economy remains questionable, especially regarding employment levels.

As commodity, specifically energy, prices shot up, consumers spent less on non-energy expenditures and firms, which would hypothetically be more willing to undertake long-term investment projects due to the ease in credit, were faced with higher production costs.  The result has been a significant slowdown within the economy as the previously spiked asset prices have retreated.[5]  Stephen Jen, partner at the SLJ Partners hedge fund, reasoned that there would “be a few weeks of positive reaction, followed by a sell-off, as investors realize the circular and pointless logic of the argument that QE2 could lead to permanent increases in economic activities”.[6]  Daniel Thornton, Vice President of the Federal Reserve Bank of St. Louis, predicted the fact “that analysis suggested several reasons why QE2 might have little or no effect on output, or employment,” as well as cautioning that further Treasury purchases could cause “unprofitable lending due to interest rates at or below the cost of capital, thereby encouraging banks to hold excess reserves rather than make loans”.[7]

While in the short term it appeared that the program of Treasury purchases proscribed by QE2 would have a positive impact on the economy, it now appears that the gains in asset prices were artificially inflated, and eventually undermined by high commodity prices.  Additionally, given the role the dollar has in emerging economies where currencies are largely pegged to the dollar or held to a tight exchange rate, QE2 not only risked inflating commodity prices, but prices in emerging economies as well.[8]  Though a primary cause of concern within the United States, deflation, seems to no longer to be a major possibility, the inflationary pressures caused by this second round of quantitative easing on both commodity prices and within the emerging economies, as well as the continued stagnancy of the economy, suggests that the program cannot be qualified as successful.  Even the effect the program had on flattening the yield curve has done little to improve overall investment levels and lending and borrowing remains tight within the economy.  This lack of response amongst lenders and borrowers seems to signify that given the general uncertainty experienced by businesses, both from future growth prospects as well as regulatory increases, lowering the cost of long-term debt financing alone will not stimulate economic investment.  In this way, Federal Reserve action can have a positive impact on the economic recovery, yet the complexity of the economic and political issues within the country can greatly mitigate the impact of policy actions.  By realizing these limitations and potential obstacles in policy effectiveness, along with the negative effects on consumption due to the inflated prices of commodities, it becomes apparent that despite the fact that this round of quantitative easing properly targeted the fundamental issues of the economy, the real results of the policy illustrates that it was not a good decision.

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[1] See Klyuev et al.

[2] See Reddy.

[3] See Reddy

[4] See Reddy.

[5] Waki, Natsuko. “Analysis: QE3 May Do More Harm than Good| Reuters.” Business & Financial News. Reuters, 27 July 2011. Web. 8 Nov. 2011.

[6] See Waki.

[7] Thornton, Daniel L. “The Downside of Quantitative Easing.” Economic Synopses. Federal Reserve Bank of St. Louis, 10 Nov. 2010. Web. 30 Oct. 2011.

[8] See Waki.

Goldman Economists Suggest Targeting GDP to Bolster Economy

While the Federal Reserve’s policy decisions for the dragging economy will become more explicitly defined in the coming weeks as leaders of the central bank make key speeches, economists at Goldman Sachs have suggested a new strategy for combating the persistent unemployment and slow growth within the economy: targeting the nominal GDP level.  Essentially, the strategy would maintain the tenets of the Federal Reserve’s dual mandate, focusing on limiting inflation and unemployment, by purchasing more assets to increase nominal GDP, the measure of gross domestic product adjusted for price levels within the economy.  Proponents of the strategy believe that by using the nominal GDP as a barometer, they can more effectively adjust to under or overshooting their inflationary targets as well as improve overall employment due to real GDP’s relationship with employment levels.  As the Economist points out, however, the theory is not without shortcomings.  The success of inflationary-targeting similar to that of the U.S. is in the policy’s ability to temper the inflationary expectations of both firms and households, a relationship which is generally only effective when both the firms and households remain confident in the credibility and resolve of the central bank’s policy.  To switch the targeting goal so drastically could have indefinite effects on this relationship as well as the credibility of the Federal Reserve and, given its past success with monetary policy decisions in the current recession, this is a dangerous proposition.

Maintaining Economic Stability after Japanese Disasters

Japan’s past struggles with managing inflation is well documented. The Japanese central bank now faces a different problem; managing the economic aftershocks of the massive earthquake, tsunami, and nuclear radiation. In the wake of these catastrophic events, the Bank of Japan has provided a massive injection of liquidity, roughly 15,000 billion Yen ($186 billion US), into the economy. Many notable economists are unsure of the danger to global economic stability.

At this stage, it’s too early to come up with meaningful estimates of the overall impact of the terrible events in Japan. And, in economic and financial terms, the effects may be dominated by other challenges facing the global economy, including still elevated oil prices and rising interest rates. And much still hinges on the radioactive threat to Japan’s more urbanised areas: if that threat fails to transpire, the Kobe quake provides a useful framework but if the worst happens, all bets are off.

–Stephen King, Chief Economist for HSBC

Federal Reserve Beige Book Report

The Federal Reserve released its Beige Book report today, the bi-quarterly report on the economic conditions of their 12 district banks.  While the report indicates “modest to moderate” growth within the economy, its assessment of prices, hiring, housing conditions and even bank lending, proved more dismal.  Though Fed Chairman Ben Bernanke called inflation risk “modest” in his testimony to Congress Tuesday, the report’s evidence shows that the increased costs of production and commodities are already being passed down from producers to consumers.  Much of this recent increase has been blamed on the unrest in the Middle East and North African region, especially in Libya.  Given that a swift or definitive result to these conflicts is unlikely anytime soon, many analysts do not anticipate that oil prices, and subsequently investor confidence, will stabilize anytime soon.  It will be interesting to see what the next Beige Book report indicates these fluctuations will have done to the recovery once the brunt of their effect is more completely felt across the economic board.

The Rise in Global Inflation: An International Collaboration

As the global economy continues to recover from the recession following the crash of 2007, a troublesome trend of rising in inflation has begun to concern world economic leaders, especially given its timing with unemployment remaining at elevated levels.  The root cause of this problem was a major subject of debate amongst the world’s largest economic countries at the most recent G-20 summit in Paris.  Many foreign countries pointed the finger for this rise at the United States for the interventionist programs the Federal Reserve has recently enacted, most specifically their quantitative easing program or “QE2.”  Federal Reserve Chairman Ben Bernanke countered this point at the meeting by arguing that in fact the elevation in global prices is a result of growth within developing countries and currency manipulation by countries such as China.  The disagreement surrounding this global issue is indicative of the uncertain nature of economic forums, such as the G-20, and their inability to directly influence countries’ economic policies.  Whether the rise in global inflation is more a result of Chinese currency manipulation or U.S. Central Bank policy, the increase in prices is cause for concern in a global economy which remains highly vulnerable given its unemployment levels.

Germany and China are among a number of countries that have been highly critical of the Federal Reserve in recent months, a trend evident at the November meeting of the G-20 held in South Korea.  That meeting came days after the Fed had announced its second round of quantitative easing, a program which was especially criticized given its size and history of debatable success.  In theory, “QE2” was initiated in hopes of keeping interest rates lowered in the long-term to stimulate investment and growth by using a strategy which had been used by the Fed earlier in the U.S. stimulus package.  For this second round of quantitative easing, the Federal Reserve announced that it would again purchase Treasury bonds, this time in an amount of $600 billion.  While proponents of the plan heralded the Fed’s initiative and the merits of low-interest rates to stimulating growth, the program also garnered much opposition both domestically and internationally, a fact that was apparent at the November G-20 meeting.  There, countries accused the Fed of significantly contributing to global inflation and of attempting to lower the value of the dollar in hopes of making American products more attractively priced within the international market.  Yet the criticism of U.S. monetary policies, along with the accusation of currency manipulation as a root cause of increased global prices, were points Chairman Bernanke’s vehemently questioned in his rebuttal to critics of the recovery plan.  Rather than finding the United States’ policies as a direct source of international problems, he instead placed the blame upon overheating within developing economies and deliberate currency devaluation in countries such as China.

Since the announcement of QE2 and subsequent criticism at the November G-20 meeting, Federal Reserve Chairman Ben Bernanke has actively defended and argued against the belief that increased inflation globally is directly linked to this initiative.  “Spillovers can go both ways,” he stated at the most recent summit, “resurgent demand in the emerging markets has contributed significantly to the sharp recent run-up in global commodity prices.”  Additionally, he has indirectly referenced China’s monetary manipulation as an integral piece of the increase, saying “the maintenance of undervalued currencies by some countries has contributed to a pattern of global spending that is unbalanced and unsustainable.”  China’s monetary policy has been greatly challenged in the past due to their strategy of pegging their currency to the United States dollar in an effort to ensure their exports remain competitively priced within the global market.  The recent global downturn and ensuing rise in inflation has only exacerbated the calls for Chinese reform and the U.S. is hardly alone in their criticism of the practice.  While China has loosened their policy recently and allowed their domestic currency the yuan to gain value, it is still viewed as being artificially devalued.  Bernanke, along with numerous other G-20 members, have continued to call for the Chinese to allow their currency to “better reflect market fundamentals” in an effort to transition from an economy based extensively on international demand into one more centered on their own domestic demand.  Yet despite the significant rise in the domestic buying power of the Chinese consumer, China’s reluctance to allow their currency to directly reflect international market valuation has continued to increase trade imbalances and promote and unsustainable economic relationship between China and the world.

Though fervent in his defense of Federal Reserve initiatives, Chairman Ben Bernanke did not attempt to completely clear the United States from blame in the recent inflationary developments.  While criticizing countries which manipulated their currency for increasing trade imbalances and international cash flow, he also called for countries such as the U.S., which are large next importers, to increase domestic saving and balance budget deficits.  Unfortunately, the G-20 countries as a group lack any official ability to sanction or influence an individual country’s economic policy decisions.  Instead, the group must rely on the voluntary agreement of a country to submit and adhere to a G-20 policy or decision.  This is particularly significant when considering Bernanke and many countries’ desire to see countries like China loosen their monetary policy, and countries such as the U.S. to be more responsible and restrictive in their spending.  These idealistic desires, if followed, would certainly promote growth, stability and lower inflation within the international economy, yet the lack of leverage within groups like the G-20 to directly facilitate implementation of such policy means that world powers can continue to remain self-interested first and globally conscience second.  While this may seem more appealing domestically, ultimately, it also works to perpetuate issues such as the current inflationary problem dragging on global recovery efforts.

Global inflation, which has increased prices in places like China over 5% in the last year, is becoming increasingly disconcerting for the economic leaders of the world.  As exhibited especially at the two most recent G-20 summits, the cause of this rise is both uncertain and highly contentious.  Many countries feel that the United States’ domestic bond-buying programs, such as the second round of quantitative easing, have directly influenced the elevation of global prices, a claim which is far from unanimously agreed upon.  Others, such as Federal Reserve Chairman Ben Bernanke, argue that the problem is hardly a result of a single country’s actions but rather a result of the rise in demand within developing economies instigated by currency manipulation and fiscal irresponsibility amongst global economies.  While Bernanke’s calls for an increase in global consideration and cooperation amongst the G-20 members are admirable, the group’s lack of tangible power to implement these policies has continued to make international agreements frustrating and difficult to enforce.  Ultimately, this reality means that finding a solution to international economic problems within the tentative global recovery remains difficult, a fact illustrated by the current issue of global price inflation.

The Inflation Monster

This is a video created by the European Central Bank to teach kids about the importance of price stability. It’s actually quite amusing.