The only hope was that real prices would bring real money, allowing supply and demand to meet each other.
What do you get when you mix negative real interest rates with stimulative money supply efforts by global central banks?
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Negative real interest rates and strong money supply growth are two key factors of what I refer to as the Fear Trade.
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Fractional reserve banking expands the money supply without regard to real wealth, and this is inflation, resulting in price increases.
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What ties all of this together is the desperate need for growth in the real economy, and not simply in the money supply.
Last year, America's broad money supply grew at its fastest in real terms for a quarter-century.
Given a constant money supply, nominal wage rates fall, but real wage rates rise because total output has gone up.
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They have allowed the money supply to grow by half since January 2009, real interest rates to plunge and bank lending to breach government quotas.
To get a read on whether these measures have made any dent in the real factors driving inflation in China, I'll be looking at net new bank lending and the money supply figures for December and the first couple of months this year.
After the credit crisis set in and the healing aspects of deflation began to take hold, central banks rapidly expanded the supply of base money in an effort to quickly erode the purchasing power of their currencies and bring real estate prices higher.
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