Why We Have to Talk About a Bubble

Back in November, former Fed chief Janet Yellen described the current low level of inflation as a "mystery." Despite a small pickup in prices, Europe has the same mystery to solve: Economic confidence in the euro area is at its highest point for a decade, according to the European Commission's measure, released this week. But there's no sign of the inflation that you'd normally expect with that kind of economic upsurge. The European Central Bank minutes from December, released Thursday, show some in the ECB are similarly baffled by what they call a "disconnect" between the real economy and prices.

With QE having multiplied the amount of fiat money issued by central banks in just a few years, it's fair to wonder: How come it didn't trigger much higher levels of inflation than what we now see? The technical answer is that the money created has ended up full circle -- on the books of the central banks.