This story was first published for subscribers only on November 5 but is now open to all readers.

By Greg Peel

If one looks up the real time US "debt clock", one sees a national debt in excess of seventeen trillion (US) dollars. It's not a number that means much to anyone, but if we note that gross domestic product (GDP) is approaching sixteen trillion the figures gain more context. The mind nevertheless starts to boggle again when one sees a US total debt figure in excess of sixty trillion dollars, and more so when one spies an unfunded liabilities total in excess of 126 trillion.

By the time the reader looks up the clock, all these numbers will have risen further.

It is a truth universally acknowledged that while many factors conspired to create the Global Financial Crisis, the US private sector was a fundamental culprit. In order to save the US economy, and by default the global economy, private debt was passed into public hands. That debt was then largely funded by the Federal Reserve, which in effect printed fresh money to lend to the US government and has been doing so ever since, most recently to the tune of US$85bn per month.

As the GFC spread across the globe, developed world economies from Japan to Europe and the UK followed suit and passed private debt into public hands, printing money to fund that debt. Japan, under a new government, has been the most recent convert to extraordinary monetary stimulus and is now making the Fed look like a pretender.

As soon as the Fed began its initial quantitative easing program in 2009, the naysayers began to scream hyperinflation. Yet four years on, not only has Weimar-style hyperinflation failed to manifest, the current US inflation rate is a mere 1.5%. And may yet fall further. The Fed knew it could print money with gay abandon immediately after the GFC, given global deleveraging of balance sheets would prove highly disinflationary. But it was always assumed the central bank would eventually have to wind back the QE once the US economy began to show signs of recovery, lest the inflation monster were to arise.

The primary driving force behind the Fed's initial QE program is illustrated in the following graph: