The Federal Reserve monetized debt. It took existing debt and swapped it for Federal Reserve notes. The effect was not a resumption of credit growth to pre-crisis levels because banks create new money when they create new credit. Even with massive federal deficits in the wake of the 2008 crisis, deflation in the financial and household sector overwhelmed credit growth. As the federal government eased its credit growth, the economy barely picked up the slack. Credit growth remains at levels associated with recessions prior to 2008.
The Federal Reserve did achieve a transformation of debt into equity. Instead of making new loans, money flowed into stocks. The wealth effect caused by rising stock prices is a fraction of the wealth generated by productive credit creation. How much money flowed into stocks? Until the 2016 presidential election, the U.S. stock market moved in lock-step with the Federal Reserve's balance sheet, so much so that the chart below only has one axis. The percentage changes in the Fed balance sheet and S&P 500 Index are too close to be a coincidence.
How did market participants behave in response to Fed policies? First they expected hyperinflation. Commodities ran up into the first inflation hysteria of 2011. Then it all fell apart. Inflation was forecast again in 2014. Then it all fell apart. Inflation was forecast again in 2017/8 and we don't have the full results yet, but the gold market is telling me it's all falling apart again.
Aside from betting on inflation, hot money poured into emerging markets. Money flowed into China. The Chinese growth story fell apart in 2011, 2014 and again in 2018. Resource exporter Brazil saw its currency tumble and it may be headed lower still as another EM crisis forms.
Most importantly, emerging markets inflated like crazy and in countries such as China, if the private economy wasn't willing to lend and borrow, the government forced state-owned banks and companies to do it. China's M2 money supply growth matches that of Turkey. The first chart shows GDP + CPI growth in Turkey along with M2.
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