The Paradox of Missing Inflation: Why Quantitative Easing Multiplied Money but Not Prices

The financial crises of 2008 and 2010, and the subsequent quantitative easing programs of the Federal Reserve (FED), the European Central Bank (ECB), the Bank of England (BoE), and the Bank of Japan (BoJ), expanded the monetary base as never before in recent history. According to the Quantity Theory of Money, such an expansion should have unleashed significant inflation. However, prices rose by only 12% between 2008 and 2015, while the velocity of money declined by 24%. This article examines the reasons behind this “missing inflation,” emphasizing the decisive role of globalization, digitalization, and exchange rates as structural forces that have reshaped inflation dynamics in the twenty-first century. The research proposes a reformulation of the monetarist framework to explain and anticipate economic outcomes in an interconnected world, in contrast to the simplistic interpretations of Modern Monetary Theory.

September15, 2025Reading time: 6.10min

Many years ago, I asked myself why inflation failed to appear despite the successive rounds of quantitative easing being carried out by all the major Western economies. According to the Quantity Theory of Money, such monetary expansions should have inevitably unleashed an inflationary crisis. Yet nothing of the sort happened.

Instead, we found that the far left in the West embraced Modern Monetary Theory, which, put simply, claimed that central banks had—and still have—the solution to all our problems. Once, and only according to them, Milton Friedman’s monetarist theory had been proven wrong, the solution was massive money creation. With this growth in the money supply, public debt would be paid off, unemployment eliminated, and global poverty eradicated. If creating money does not generate inflation, then let’s just print unlimited amounts of new money.

Populism has reached into the very heart of economics—monetary policy, the field of specialists.

Simple answers to complex problems have always struck me as the answers of the ignorant. Either they are hidden geniuses or the rest of us are monumental fools. And theories without a true intellectual father—this being one of them—seem to me nothing more than an exercise in populism, crafted for the ears of those who only care to hear what pleases them.

When it comes to criticism, the easy move is to argue that the expected phenomenon did not occur. Without explaining why it didn’t. All you have to do is observe. What’s difficult is figuring out where the error lies. Only then can you show that something is wrong—whether it’s a structural flaw or simple obsolescence.

But let’s go back to the beginning. Nobel laureate Milton Friedman said that money supply is, in all cases, the ultimate cause of inflation in the long run.

Friedman’s Monetarist Theory, formulated in 1963, was nothing more than the evolution of a theory developed by Irving Fisher in 1911, with roots going back to the School of Salamanca in the sixteenth century. According to this theory, inflation arises from three factors: the money supply in circulation, the creation of wealth, and the velocity of money—measured as the number of times a unit of currency changes hands in a given period.

This theory has proven effective in explaining inflationary crises, both high inflation and hyperinflation. All such crises share several common features, one of which is political motivation. In other words, the quick and easy solution of the politician in office: “cover fiscal deficits by printing money.” Instead of cutting spending, print money to pay the debt and let the next guy deal with the mess.

Who would ever want their country to “enjoy” the economy and policies of “fruitful Venezuela”?

This solution has, in every case, proven ineffective and highly damaging to the population. For example, Germany during the Weimar Republic, where it was cheaper to burn money than to buy firewood with it. Or Zimbabwe under dictator Mugabe, where the largest nominal banknote in world history was issued—100 trillion Zimbabwean dollars. Or Argentina in the 1970s, where people became expert economists without ever setting foot in a business school. Or today’s Venezuela under the usurper—and apparent drug trafficker—Maduro, where the “solution” is simply to remove zeros from the currency.

All these cases, and many others, share the same idea: covering fiscal deficits by printing new money. Exactly what Modern Monetary Theory proposes, only in different words.

When I wanted to figure out why there was no inflation in the crises of 2008 and 2010, the first thing I did was look for differences between modern economies and older ones, where monetary expansion had direct inflationary consequences. I quickly found two. The first was that this time, quantitative easing had not been carried out by a single economy in isolation, but simultaneously by all the major Western economies.

“Globalization has brought us advantages, which translate into deflationary factors, but also drawbacks transmitted through confidence in exchange rates.”

The second was that the level of interconnectedness among today’s economies is nothing like what existed during the twentieth century. Today, we know this interconnectedness as globalization.

Digging deeper, I realized that the common thread in these two differences was the importance of the exchange rate.

Take, for example, the inflationary crisis we experienced in Europe after Russia’s invasion of Ukraine. The sanctions—whether effective or not—imposed by the EU on Russia sent the price of gas and oil soaring. This damaged the health of the European economy and made the price of a barrel of oil and the MMBtu—the unit used for gas—into the main inflationary drivers.

At the same time, the U.S. dollar’s exchange rate against the euro, since most of these products are paid in dollars, became the second inflationary driver through its impact on prices.

The more globalized we are, the larger the share of foreign trade (imports and exports) in GDP. And as long as foreign trade is conducted in a currency other than one’s own, the exchange rate becomes increasingly important in determining whether inflation emerges.

We Europeans don’t need anyone to explain what a weak euro means in turbulent times—the impact on inflation was immediate.

As an example, Canada had a globalization index of 64.03 in 1970; by 2022 it was 80.5. In 1970, its foreign trade represented 33.12% of GDP, but by 2022 it had reached 67.26%. Since the vast majority of Canada’s international transactions are conducted in U.S. dollars, the more its trade balance deteriorates—if combined with currency depreciation—the faster inflation will follow.

But in the twenty-first century, it is not only globalization that has expanded, but also digitalization.

Both forces encourage the search for new trading opportunities, both domestic and foreign. In other words, globalization and digitalization force companies to become increasingly competitive, since they are just one click away from losing a customer or gaining a new supplier. Passing costs on to customers is no longer so easy, because customers can just as easily find a substitute. Thus, both act not as inflationary forces, but as deflationary ones.

It was said that the absence of inflation during the monetary expansions carried out from 2008 to 2015—under different names, in different countries or regions—was due to precautionary saving, that is, fear. Families and businesses preferred to save or deleverage—paying off loans—rather than spend and invest. And this, they argued, caused the drastic drop in the velocity of money. And indeed, this happened. In addition, commercial banks, acting as the transmission belt of central bank policy, used the opportunity to rebuild their reserves at almost no cost.

But none of these decisions explains why such an enormous amount of new money failed to generate substantial inflation.

Let’s look at the numbers. During this period, the Federal Reserve multiplied the monetary base by roughly five times, rising from $0.9 trillion to $4.5 trillion. There is no precedent for this in modern history. Over the same period, inflation rose by only 12%, that is, prices multiplied by just 1.12. During that same time, the velocity of money dropped by 24%, to 0.76 of its previous level.

The Fed’s balance sheet grew fivefold between 2008 and 2015. Five times more than necessary.

Could such explosive monetary growth have produced so little inflation solely because of a significant—but not catastrophic—decline in velocity? You’ll agree that this is at least suspicious. Because when we plug these numbers into the monetary equation, the expected results simply don’t add up.

Thus, the Quantity Theory of Money should not be discarded, but updated. To the established factors of money supply and velocity, we must add new variables that shape inflation in a twenty-first-century economy. Exchange rates, globalization, and digitalization must be considered as critical inflationary and deflationary forces in today’s world.

This extensive investigation has taken me many years, perhaps due to a lack of time, dedication, or who knows what else. I decided to give it the structure of a doctoral dissertation, which is now finished. And unlike my country’s prime minister, it is 100% original and mine. Copying insults those of us who put in the work. Copying degrades our effort. And copying is not copying 20% of a text, as he did—it is copying even a single sentence.

I will defend this dissertation, with greater or lesser success, when the university and the deadlines set by law permit. For those interested in the mathematical development of this new formulation, the article has now been published in a research journal, with the following

DOI:https://doi.org/10.4236/me.2025.169066

A research journal requires not only that the article be of interest to the editor, but also that your peers review your data and your methodology.

This article presents not only the new formula, but also the how and why behind it.

I hope this formulation will allow us to understand and anticipate the economic effects of monetary decisions with greater precision than ever before, by incorporating the interactions of twenty-first-century forces. And, of course, to refute the populist nonsense that repeatedly infects the minds of those all too willing to believe anything they’re told—so long as it benefits them—without asking whether it is true or false, possible or impossible, rational or irrational.