Wednesday's Top 10 with NZ Mint: Why money printing isn't creating inflation; How Wall St rigged America's muni bond market; Audi a favourite with China's Communists; Dilbert

Here's my Top 10 links from around the Internet at 1.30 pm today in association with NZ Mint.

We welcome your additions in the comments below or via email to

See all previous Top 10s here.

My must read today is #9 on the problem with expecting a 'normal' economic recovery. A global balance sheet recession is an ugly thing, particularly when governments refuse to fill the hole left in spending by consumers repaying debt and corporates hoarding cash.

1. Why money printing isn't creating inflation - Economists Manmohan Singh and Peter Stella write at VoxEu about why all the money printing in recent years isn't actually turning into money supply growth.

It's a fascinating piece that is beginning to explain why, for example, the gold price is falling despite all these predictions of money printing causing inflation.

They essentially say the money multiplier theory (increases in central bank reserves multiplies into money circulating in the economy) isn't working because the shadow banking system built up before 2008 is deleveraging.

This makes sense.

All the quantitative easing since 2008 has done little to boost the economy or inflation.

Deleveraging is driving the global economy. We're now stuck in a balance sheet recession where only government spending on infrastructure from newly printed money will actually get fresh money and activity into the real economy. Eventually it will have to be done to offset deflation.

Here's Singh and Stella at VoxEU

So far, despite a several thousand fold increase in bank reserves, US inflation shows no sign of emerging from Pandora’s Box.

Those schooled in the conventional money multiplier approach are understandably worried about the potential impact on inflation of expanding bank reserves. Nevertheless, there is good reason not to fear the money multiplier. Post-war US credit expansion – and, by inference, inflation—has not been dependent on an expansion of bank reserves and there is no reason to expect there will arise now a causal impact of the latter on the former. The liquidity fulcrum of a modern financial system is more complex than the monetary base and its size is determined by market conditions which continue to show signs of strain despite comparatively massive central bank injections of bank reserves.

2. How Big US Banks victimise US democracy -  Here's Bill Moyers and guests in this video telling it how it really is in America's financial system.

3. Taibbi is back - Here's Matt Taibbi at Rolling Stone with another cracker on how Wall St banks rigged the municipal bond market in America.

This just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street. The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America.

The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.

4. Audi most popular car with China's communist leadership - Working in Herne Bay, sees its fair share of fancy cars driving the streets. Audis, BMWs and Mercedes are the most popular.

It turns out Audi is the most popular brand within Communist China's leadership cadres, particularly in local and central government circles.

One in five Audis in China are owned by government officials. I can't imagine Colin Giltrap putting that little factoid on his Audi ads.

Here's the FT on CNBC reporting on how many cash-strapped local governments are now selling their Audis. This speaks to the growing fears about the populace revolting over the corruption of officials and the fact that local governments may not be able to repeat the massive spending sprees on bridges, motorways, apartments, railways and airports in 2009/10.

Wenzhou, a south-eastern coastal city hit hard by the cooling economy, sold 215 cars at the weekend, fetching Rmb10.6 million ($1.7 million). It plans to sell 1,300 vehicles – 80 percent of the municipal fleet – by the end of the year.

Government revenues from tax and land sales in Wenzhou have been declining after years of heady growth. With the city’s risk-taking businesses struggling to pay back debts, the burden has fallen on the local government to turn things around. State media noted the auctions would directly boost the city’s coffers.

Wenzhou is not alone. Across the country, from Kunming in the south to Datong in the north, officials have been tightening their belts, paring back on banquets, curtailing travel and trimming the fleets of tinted-window luxury cars that have long been standard issue – even in the middle ranks of government. “It is a sign of the difficulties facing city finances,” said Tao Ran, a local government expert at People’s University in Beijing.

About one in every five Audis in China – the German car’s biggest market – is owned by the government, according to industry estimates. More egregious examples – of police driving Porsches, and even a Maserati with military plates – have also prompted Chinese citizens angry about official corruption to post pictures of the cars online.

5. More local government problems - Bloomberg reports China's central government has shelved plans that would have allowed local governments to issue bonds directly to roll over their currently unsustainable loans from state banks.

“The central government now is quite concerned about the debt at the local-government level,” said Ivan Chung, an analyst at Moody’s Investors Service in Hong Kong. “They worry that if they give the green light now, probably the local governments have less incentive to deal with their debt problems, because they understand they are allowed to refinance.”

A 1994 ban on regions issuing notes directly led to the creation of more than 10,000 local-government financing vehicles, which increased borrowing as part of stimulus spending designed to cushion the economy during the global financial crisis. As of the end of 2010 they had debts of 10.7 trillion yuan ($1.7 trillion), 27 percent of China’s gross domestic product, according to a June 2011 official audit.

6. Will ECB cut its rate to a negative rate? - Bloomberg looks at the European Central Bank's options for boosting the European economy, including cut interest rates to negative rates, where banks pay the ECB to look after their money.


“The European recession is worsening, the ECB has to do more,” said Julian Callow, chief European economist at Barclays Capital in London, who forecasts rates will be cut at the ECB’s next policy meeting on July 5. “A negative deposit rate is something they need to consider but taking it to zero as a first step is more likely.”

Should Draghi elect to cut the deposit rate to zero or lower, he’ll be entering territory few policy makers have dared to venture. Sweden’s Riksbank in July 2009 became the world’s first central bank to charge financial institutions for the money they deposited with it overnight. The Fed rejected cutting its deposit rate from 0.25 percent last year. With Europe’s debt crisis damping inflation pressures and curbing growth, the ECB may feel the benefits outweigh the negatives.

7. 'Quitaly' - There's been some great tabloidesque names for possible exits from the euro-zone, including 'Grexit', 'Spaxit' and 'Drachmafication'.

Now Nouriel 'Dr Doom' Roubini has suggested that other countries in Europe could actually leave the euro zone before Greece. His names for these possibilities are 'QuItaly,' 'Fixit' (Finland) Going Dutch (the Netherlands) and the D-Euro (Germany).

It remains likely that Greece will be first out the door; but there are forces in both the core andperiphery pushing for an early exit of other EZ countries. In Italy, Berlusconi and those close to him explicitly favor Italy’s return to the lira. Italian businesses with euro assets abroad and domestic debts in euro would vastly benefit from the conversion — upon exit — of such liabilities into new depreciated liras. In core economies — especially Finland, but also the Netherlands — concerns about the increasing losses attached to EZ membership deriving from implicit and explicit liabilities are mounting, whilethe benefits appear smaller and smaller.

Consider the existing potential losses from the EFSF, theESM, the Target 2 balances; and then add to them the potentially larger ones deriving from a fiscal union with debt monetization, a transfer fiscal union for the poorest members of the EZ and the risk of guaranteeing, at the EZ- wide level, all of the EZ’s bank deposits, including those of the periphery.

8. 'Liquidation is vital' - This argument from John Aziz about letting the banks fail in an almighty crash and then rebuilding captures the mood at the moment. I don't have an immediate counter argument. But who would be the one to pull the trigger?

In light of the zombification that now exists in Japan and also America (and coming soon to every single QE and bailout-heavy Western economy) — zombie companies, poorly managed, making all the same mistakes as before, rudderless, and yet still in business thanks to government intervention  — it is clear that the liquidationists grasped something that Keynesians are still missing. Markets are largely no longer trading fundamentals; they are just trading state intervention and money printing. Why debate earnings when instead you can debate the prospects of QE3? Why invest in profitable companies and ventures when instead you can pay yourself a fat bonus cheque out of monetary stimulus? Why exercise caution and consideration when you can just gamble and get a bailout?

Liquidation is not merely some abstract policy directive, or government function. It is an organic function of the market. As the stunning bounce-back from the Panic of 1907 shows — especially when contrasted against the 1930s — a  market liquidation on the back of a panic avoids a depression. Prices fall as far as the market deems necessary, before market participants quickly come back in into the frame, setting the market on a new trail toward growth. For without a central bank, asset-holders who want to maintain a strong economy and growth (in 2008, that probably would have meant sovereigns like China and Arabia) have to come in and pick up falling masonry as lenders of last resort.

Under a central banking regime (especially a Bernankean or Krugmanite one committed to Rooseveltian Resolve) all expectations fall onto the central bank.

My own view is not just that liquidation is vital. It is that the market mechanism is vital. Without their own capital as skin in the game, central bankers are playing blind. The pace of the liquidation and the pace of the recovery should be dictated by market participants — in other words, by society at large — not by the whims of distant technocrats. Society has more skin in the game. The Great Depression was not a crisis of too little intervention — it was a crisis of too much well-intentioned intervention.

As we are learning in our own zombie depression, a central bank doing the opposite of the 1930s Fed and reinflating may solve the problem of debt-deflation, but it causes many of its own problems — zombie banks, zombie corporations, zombie markets, corporate welfarism, and the destruction of the market mechanism.

9. The problem in the global economy - Gluskin Sheff's contrarian economist David Rosenberg talks on Bloomberg about the balance sheet recession globally. He's not a happy bunny. HT Zerohedge.

Well I think there are two different shocks simultaneously. The first is that we're seeing the impact of Europe hit Asia and then the U.S. trade channels on top of that. There's the fiscal cliff. Bernanke has talked about the fiscal cliff, but it hasn't happened yet, but what is happening is that households and businesses have no clue what their tax rate is going to look like next year. So when you model fiscal uncertainty into any sort of economic scenario in the U.S. what it means is that businesses raise their liquidity ratios, and households build up their savings rates. This comes out of spending growth. And that's the problem you've got - the fiscal uncertainty coupled with the trade shock.

And there's this fascinating line:

Most economists were looking at this through the prism of a classic business cycle, a plain vanilla recession recovery. They didn't look at it through the prism of a wealth destruction credit contraction, asset deflation cycle which generates completely different results in the recovery phase.



10. Here's Jon Stewart on a 'Mittful' of dollars


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Bernard one could also argue that inflation has indeed reared its ugly head in everything we need. There is plenty of commodity price evidence that the USD has lost its purchasing power over the last 10+ years. Also US wages have stagnated for 40+ years. However the only reason why Hyperinflation hasn’t reared its evil head is because there is deflation in everything we own and:

  1. Banks are hoarding the cash created
  2. The US has reserve currency status
  3. Oil is still mostly sold in USD.

The above is creating a stable financial tripod of temporary confidence. Hyperinflation needs a full confidence brake down in the currency and we are not there yet.

Troy, just spent an hour with the local bankmanager, She told me that cost of living in Nth California has rocketed. Its the biggest problem for their clients especially small businesses.
  So it is happening just not being recorded. Stockton down the road is about to go bankrupt and there's lots to follow. She asked me where all the industry has gone, she said, the sawmills have gone the machinery shops have gone, where are the jobs that herald a recovery going to come from, she was pessimistic about the future. She agreed when the only hope for the economy is for people to start borrowing again then things are not looking good.

Having grown up in Northern California it was a hole then and tis a hole now.  You have to ask yourself why 4 of California’s notorious prisons are all 2 hours away from each other. As for inflation, I completely agree that real “boots-on-the-ground” inflation is underreported, which is why it’s rearing its head in commodities, gold, oil, etc. Take oil, if you look at real inflation the price of Oil is just as cheap today then it was at the turn of the century.  So the price of oil and gold are not rising but the USD is deflating.  It’s also a major factor why the NZD will never see 0.60 USD again the new paradigm support level for the NZD is 0.70. Once Germany levels the EU the euro will plummet to parity with the USD. That will make European exports will become really competitive and NZ will have to cut rates to stay competitive.

Have to agree with Troy, Bernard.....the can kicking has not produced growth or nation has the umph to kick off world growth...all are bust.
Look to see endless BS streaming from liars in govts everywhere and from the banks.
Do not expect real growth. You are likely to see spurts in commodities as the Fed BoE BoJ and ECB along with the BoC all print and print again....but no real growth.
The smart money is heading to quality property in most western failed economies.
Then one day the Bond mart will collapse.....bye bye

The Californian city of Stockton looks set to become the largest US city to declare bankruptcy, after a deadline to make a deal with its creditors passed.

Regarding #1
I brought this up in a different context a couple of weeks ago and was dumped on by various regular luminaries who reminded me of Zimbabwe, Argentina, The Weimar Republic or what ever.
It make sense that if you borrow or create a bunch of money to build something which is not inflationary, or in an environment where you're already squawking that your currency is over-valued, surely the inflationary effect is containable.
What do I know. I'm an engineer.
But I look at economists like Krugman and Keen, with Ph.D.s running out their ears and both of whose opinions I respect, but who're in violent disagreement over basic principles. Leads me to suspect that the bloke who said:
"If all the economists in the world were laid end to end it would be a very good thing."
was spot on.

An engineer eh, then you'll get this.  The money system is like a pressure system and pressure isn't only about volume it's also about velocity.

Ralph - that's wrong. Money is actually spun into existence as debt.
That would equate to a vacuum. Not pressure.
Which would explain the folk who are sucked in.....

You're as lost as I am Ralph!
Pressure is about volume and temperature. Not velocity. But I'll give you the benefit of the doubt and assume that you're talking about Brownian motion.

Across the ditch it's OZmosis.

I was thinking in terms of the atomic theory where temperature is a measure of atoms in motion and used the word velocity to describe that motion.

Yep. Brownian motion. Read your mind. :)

Ah, so I'm off to Wikipedia then.  That's not a phrase I have been familiar in.

Nothing esoteric. Robert Brown noticed pollen grains being nudged about when floating about on water. Figured they were being whacked by molecules in agitated motion. Pretty good intuitive leap. 

Yep. Brownian motion. Read your mind. :)

We think we're so smart - but look what those greeks had worked out!

Have listened to and watched recorded interviews of both Krugman and Keen. Both can, and do articulate the economic issues facing the global economy very well. They're entertaining, interesting, cogent, realistic, etc etc etc. Everything they say makes sense. Their reasoning is plausible. Difficult to argue with their inputs. They agree on many things. But, crikey, do they differ in their solutions. They're on different planets. Never been a fan of Keen, but prefer his solutions over Krugmans

But isn't it hard to deny Paul Krugman's long-time assertion that Obama should have fought harder to prime the pump with goverment spending on infrastructure? Rehire the people they fired.
They can borrow at 1% and get people into jobs. Worked before. Look at Britain. Put every bugger out of work and wonder why it all implodes.

I do not agree.

Somewhere here on I am on the record as having advocated the "best" solution should have been to force the "too big to fail" merchant banks to eat 50% of the losses on underwater-mortgages and CDOs, rebate that 50% back to the mortgagees, reduce the balance of the home-owners mortgage by that 50% and keep them in their homes. All that unfolded on Bushmans watch. O'bama got the tap on the shoulder from the "Brotherhood" early in his presidency.

Some conspiracy theorists, of whom I'm becoming rapidly less sceptical, say that when the Bilderberg Group were meeting in Washington before the last election, both Barack and Hills disappeared for a few hours. 
Next day Hillary conceded. 
Yes we can. 
Until we can't.
It's back to Steve Keen. The money should have gone to the people with the debt and some compensation to the people with savings. Not the people who caused, and continue to exacerbate, the bloody problem.
Bit of a worry.

correct ... The money should have gone to the people with the debt and some compensation to the people with savings. Not the people who caused ...

Okay so a fair proposal for a solution do you still think that is feasible now? But the real question is what do you think WILL happen as opposed to what should happen. ;-)

Feasible now? - NO
What will happpen?
In the short term crisis, crunch, and capitulation
In the long term - Hyperinflation
What should happen?
PUT the toxic assets back to the merchanteers - unwind the bailouts - bring it on - they've had 4 years - QE1 and QE2 havent worked.

Probably worth writing down somewhere it is not the scholars of economics that dictate policy...they ,like science observe and try to rationaise or explain the world about them. In doing so will arrive at plausable conclusions that appear to be remedies, but for the factor of  what or who dictates the policy that determines the environment.
I noted your post here on the too big to fail ,and agree it was one of your shining moments, that said I go back here a long way on the subject of economists having brilliantly thought out theory of how things should function ( economically speaking ) but largely have little understanding of the dsyfuntional forces that drive economic policy.
It's a tiny bit like why "geek specialists can tend to be socially awkward".....
 The concepts of Krugman vs Keen...Keynes...Vs.... Hayek ...Andrew Weiss...vs The Whole Shooting Box etc.....where, in the interest of science, economies become Lab rats to be explained for their deficiencies or something less than perfect , all the while the subject in question somehow continues to function imperfectly ,proliferating imperfection in an imperfect environment.
None of what  I posted above is to suggest  a lack of worth on the part of the economists in question , as it is when the science of the observer becomes noticeably part of the environment, the subjects in question will ,...alter behavior...? reduction in dysfunction...?..........remain unaffected by the introduction to their environment....
Everything  ends in the interests of who....?  

Christov: sometimes I shoot my mouth off, but I try to be either constructive or informative. It is some time since I declared my economics background, wherein I also claimed that the field is good for explaining the past and not the future. (you will note I never bite into the Keynes versus whoever debate) I shouldn't bag Keen or Krugman. As the above post is now set in concrete I will recant and confess to showing prejudice. I (tried) following Keen for about 2 years on Business Spectator. His thesis type articles were always too long and detailed and invariably gave up (my concentration span is too short). In the end I renounced him for being a member of the "church of the squiggly line". My post to which you reply was merely intended to express satisfaction in the common-sense views of both Keen and Krugman but utter surprise at the complete dis-similarities in their solutions. How two experts in the same discipline can have the same analytical views and conclusions but offer up such different proposals beats me.

Not a worry iconoclast...I tend to favor most of your observations on things around here in me anyhoo.. your doing just fine matey.

If it makes you feel better, whenever I champion the idea of money printing by NZ, it also usually either gets dumped on; or at best at least noone likes the idea- even if very few reasons are given not to; other than the Zimbabwe analogy, or that only desperate countries do it. (even if no more desperate than us, as scored by the respective current accounts)
My take from this paper and study quoted by Bernard, is that the effects on the economy may be minimal (in that banks will only now lend for reasonable collateral, and people will only now borrow what they can comfortably pay back, regardless of how much extra government money is put into the system). The effects on domestic inflation are therefore limited, especially in the US, which is a largely self contained market, compared to NZ.
I advocate some NZ money printing for a couple of reasons- it should reduce the value of the NZ$; as it has for the US$, Sterling, the Swiss franc, the Yuan and the Yen, among others; and so our relative competitiveness would get back to at least where it was 4 years ago. The IMF suggests a devaluation of 15-20% would likely work to get the current account back in balance; and their number feels about right. (I note that this devaluation would likely cause some inflation in imported costs- but in my opinion these would be important price signals to encourage local manufacturing, services, tourism etc. In the UK inflation plateaued at close to 5% before dropping down again, pending more printing).
The second reason is that our own money can replace Swiss bonds, Uridashi bonds, and other similar foreign financing of our banks for largely domestic needs. We are just needlessly giving margin to the banks and to foreigners for money that is not required, and in fact that only makes the exchange rate and current account worse. We could for example certainly refiniance our power companies with local money- they are 98% local companies.

"in that banks will only now lend for reasonable collateral"
Yes, in idlebumski's link below it's pointed out that the lenders only want to lend when assets are rising.
Had me confused until I started lurking here. Couldn't understand what the banks gained from sitting on vast amounts of cash. Didn't think about bonds, oil speculation and the like. Wish I'd learned this stuff 50 years ago. Would have been more a little more useful than workshop technology and singing lessons.

That's true. And it's also an indication of where the whole system has gone wrong. Capitalism has got a bad rap, but the problem isn't capitalism per se, it's unregulated capitalism.

  • Capital gains tax would be a good place to start. 
  • Stopping the crazy business of allowing retailers to give 5 years, no deposit, no interest hire purchase.
  • Time we went back to requiring 20% deposit for house buyers.
  • And so on.... 
  • :)

in Auckland we have a housing shortage which has pushed up prices to all time highs despite a bloody great recession and low interest rates - well, relatively low.
And then there's Christchurch. 
I think it's time for some creative thinking.

Deleveraging is inevitable and a good thing.  So there is going to be less consumerism.  Well - get used to it.  the new normal etc etc.
More borrowing and financial smoke and mirrors is just perpetuating the illusions that got us here in the first place.

QE1 and QE2 took toxic (seriously impaired) assets off the balance sheets of the merchant banks at 100 cents in the $ thus putting in place a massive cushion or safety-net under those asset-holders and thus postpone the day of reckoning in the "hope" prices recover and the Central Banks can PUT the assets back to those beneficiary banks.
All they have done is postponed the day of reckoning because prices haven't recovered.
While the Federal Reserve continues to hold $ Trillions of toxic assets, deleveraging hasn't begun.

Given the Fed printed the money to buy those assets, what is the real cost to the Fed; or the US, if in fact they are worth less than the 100 cents in the dollar? Potentially presumably the potential inflation (which hasn't happened); and some moral hazard- non trivial I accept, but considerably better in my opinion than the counter factual, which could have been full blown disinflation and depression, massive bank failures, foreclosures etc; as well as a considerable loss of market share from the US to elsewhere ( a problem we seem to be ignoring in NZ). Its a genuine question, and you may know the answer better then me; as money printing does seem too easy a solution if you are sovereign, and have the right to do so.

There is a guy from Colorado who posts at under the moniker rocksolidtruth. Apparently he's ex-musician, now professional bond trader and has publicly made lots of righteous calls regarding; deflation, money velocity, ineterest rates, QE, etc. Typically this is all quite complicated stuff, but he has insight and seems able every time to make it understandable.

Yep Troy and wolly have got it right, troys point about banks hoarding is the real sleeping giant, once that wakes up inflation is gonna rocket. Real assets are the word.

Excellent link , thanks for that , Hugh ...... one ponders that the rest of the world will eventually just move on , despite the basket-case that Europe has created for itself ......
..... we'll simply give up on waiting for them to get their sh*t together ......
..... soon after Hollande won the French presidency race , he opted to lower the retirement age in France ...... these socialists will not learn  the basics of fiscal responsibility ....... and the voters keep falling for the bribe of someone elses' money .....luckily it's a different world in New Zealand ........ aha ha de haaaaaaaaaaaaaaa !

Ah yes, the rest of the world will move.....on what?
We will be able to tell when they try to move, though - oil will shoot back up to $120plus. Then they'll stop moving.
Wonder if Hugh watched that Albert Bartlett video? I've got money on 'not'.

His head is so far buried in the sand that even his ass wont get a tan....

I think in 2008 when oil was $147 it was something like 6%~8% of US GDP, correcting for inflation at 2% in 4 years thats something like $159USD today....If you ignore WTI as being surpressed by canadian tar sand production having no where to go then Brent was a true peak at $120USD.  Not sure if that was 6% again? Tends to indicate that if 6% or so is the trigger point that the US economy is weaker and will get weaker again still this time around...
Guess Im trying to say Im not sure it will get as high as $120USD next time before things stop. It might be <$100 in which case thats so close to marginal oil field costs that its game over I suspect everyone will stop drilling and its bye bye world we wont see a 4th "recovery".
Thats assuming this time they can halt this nose dive and I think they dont have the wish to do so, ie spend 2+Trillion on real work....say building a Natioal grid. The GOP want Obama out no matter what, Im thinking its probably the best the GOP needs to be destroyed so we can get on with adjusting....that will take the 2nd Great Depression to achieve.

Did you forget to read half the article, before endoursing it? I swear he said democracy should dictate policy before finance.
Personally, I don't approve of Labour's stance on these matters either, or not at least in current circumstances, but if that's what the public vote for, that's what they should get.

#1 Occam's Razor!!!!
Impressively intellectual but unnecessarily complicated.
My high school (1970's) economics text told me inflation is caused by too much money chasing too few goods. So the simple version is that the printed money is in the hands of those who aren't spending it ( the banks); in theory it should be being lent to businesses (who are cashed up and don't need it); it isn't in the hands of those who would spend it (the 99%). Therefore no inflation.
What is much more significant is that Singh and Stella are clearly "freshwater" economists and expending much effort to dress up Keynes as Friedman (who was way more Keynes-ian than these guys care to admit) or Lucas. Couple this with Cameron's UK u-ish turn on austerity and we are certainly starting to see the cracks in the world-view of the elite.

I am suspicious of the argument that the shadow banking system is de-leveraging as well, it sounds rather too convenient. Its much more clear that the non-shadow banking system is de-leveraging in NZ.

The shadow banking system is about making huge profits at crazy risks? (to my mind anyway)  So if the en-mass buying of US bonds is anything to go by then the "switched on" ppl are running for or are in cover....hence the de-leveraging seems to make some sense....whats left is the canon fodder and the crazies...
Not sure what you read in the NZ graph? I read that with interest rates low the cost of servicing is dropping.....there doesnt seem to be that much deleveraging, ie paying down the borrowed kind of makes sense, if everyone is debt saturated and no one is making profits then money is in tight supply so there isnt the money to pay down the debt.....I really wonder if this breaks and badly just how many bankruptcies we will be seeing in short order....
Oh and of course the CEOs etc who have put their companies in such a position are so worth thier salaries!!!!
I wonder what the NZX share market will look like, care to place guess? my one is <20% of its present value....

If the 'shadow banking system' is deleveraging then I agree this can cause issues particularly in financial institutions. The thing is, we don't know anything about it anyway, how do you possibly know what state its in? Its just speculation and frankly if its a problem why not look at the non-shadow banking system which is also de-leveraging. Maybe, just maybe, that explains a lot about why the economy is not functioning 'normally'. 
The NZ graph shows clearly households getting out of debt, incidentally about as fast as they put it on before 2007. While its absolutely true that nominal debt may not be shrinking if some inflation has happened then there is still real de-leveraging. Of course this also applies if the interest rate drops but repayments don't fall as far. Percentage of disposable income is a nice clear real indicator of the drag that household debt places on their finances. The bar graph shows real leveraging or de-leveraging. Basically thats a hearty congratulations to everybody who says that NZ household sector spends beyond means, now households are doing something about it, though many of them now seem to be complaining that the hangover is worse than the binge. Of course the analogy behind this is a pretty missleading one, households can all be borrowing only what they can repay on present income and that overhang can still exist (a single households finances don't work the same way as the finances of the aggregate household sector, because you can't control what your neighbours are doing, but your best strategy depends on this).
Of course we can't be too sure about risks flooding over to the sharemarket, what is clear is most NZers didn't invest there so I think there is limited exposure to household de-leveraging. To me this appears more dependent on international money.

Is the 'shadow banking system' is deleveraging or just transfering the debt on to the back of the US tax payer.
"The bastions of capitalism on Wall Street have dumped $3.4 trillion of their toxic debt and $1 trillion of mortgage and credit card debt onto the backs of middle class taxpayers and future unborn generations. They did this under the auspices of saving the economic system. Their sole purpose has been to save themselves from becoming part of the middle class. The transfer of wealth from the quarry (middle class) to the predators (moneyed interests) continues unabated."

Hugh - Nobody is unaware that there's been a 'housing bubble'. Nobody is unaware that Europe is in trouble.
Some of us understand that the underlying (and lying has a lot to do with it) problem is the need for 'growth'. Which you champion.
Growth is expressed in (yawn) terms of doubling time. Can you comprehend that? China's 7% 'doubles' in 10 years. Even 3% doubled in 24, quadruples in 48. Where do you think this exponential consumption comes from? The finite planet can't supply that rate of resources, and hasn't. So it was artificial, virtual.
You call it a bubble, fair enough. The problems are that every rev-up has to be artificial from here on (there's not enough planet to 'double' from here), and that a growth-requiring monitoring system cannot be applied any more. How, for instance, can you have a 'productive economy', if it isn't selling to someone? Where are these folk going to store the stuff? In and as part of housing, is where/what. They have no physical choice. Your 'productive economy' then, requires a collective increase in the 'value' of real estate/houses.
You keep complaining about the cost of the boots, but refuse to investigate the fact that you're holding onto the bootlaces. Go watch that Bartlett vid clip - tell me you did......

In china 7% is classed as a recession, I think they expect 10%, which is every 7 years and we are 4 years into the next doubling.....I dont think myself it has been occuring (seling to who as you say, double the exporting to where FFS). That leaves a combination of lies and trickery in creating non-useful GDP......from the reports it looks like they created a bubble in the last double and have tried to keep doing it.....its now bursting on them......and in turn us.  I really think Foss is right, its going to be a financial armageddon to start with and a resulting depression and then lots of things wont be available.
Hugh is a non-event...a snake oil salesman / fraudster and I believe an outcome for those in the wild west was a lynching party....todays equiv hopefully wont be that bad...