How Globalization Enabled Money Printing without Consumer Price Inflation

Establishment economists, both in the Keynesian and Modern Monetary schools, argue that increasing the money supply is not the cause of consumer price inflation. As Figure 1 and Figure 2 show, the broad money supply has increased by 345% from 2000 to 2024, while the Consumer Price Index has only increased by 83% in the same period. This analysis obscures the fact that the ascension of China into the World Trade Organization (WTO) in December of 2021 put significant downward pressure on prices of many consumer goods.

Figure 1: M2 Money Supply from 2000 to 2024

Figure 2: CPI from 2000 to 2024

As goods production moves from a location with a high cost of labor to another location with a low cost of labor, one would assume that the price of final products would fall. This is what would happen in an economy with sound money, where efficiencies in production result in lower prices. However, we live in an economy where Central Bankers have the power to increase the money supply to achieve “price stability” which they define as a steady (usually 2%) increase in year-over-year prices of a basked of consumer goods.

The once in a lifetime transition of Western manufacturing offshore (particularly to China) resulted in a “problem” for central bankers. They must adjust monetary policy to counteract the falling price of consumer goods, which we saw in the “too low” inflation rates of the 2000s and 2010s decades. In fact, Central Bankers were forced to increase the money supply enough that final prices went up despite the rapidly falling actual prices of goods.

Figure 3: Consumer Electronics Prices from 2000 to 2024

This brings us to our conclusion: the disconnect between the increase of the money supply and consumer price inflation was due to the rapid fall in actual cost of consumer goods caused by the one-time movement of supply chains through globalization. This price cannot be repeated in the future. The true relationship between money supply and consumer prices is going to be re-established and cannot be denied by the establishment anymore.