I found this Richard Koo article on Macrobusiness. http://macrobusiness.com.au/2011/05/richard-koo-on-qe3/ I was definitely one who assumed that QE2 had led to an increase in money supply and am trying to get my head around what this means. Does this mean that inflation is less likely? Do you think that the monetary base will eventually leak through to supply? If the monetary base flatlines (i.e. Fed maintains but doesn't increase its balance sheet), could money supply collapse? Does anyone have any links to articles that discuss deflation scenarios? Just trying to increase my knowledge of what is likely to happen at the end of QE2.
Max Keiser recently pointed out that less than 5% of the money supply is hard cash. And while the QE strategy is more than just cash printing, (which technically is increasing the money supply no matter how you look at it, and is by definition inflation) it is the private sector's creation of cash everytime a credit card is swiped or house loan approved that is the major cause of inflation/ increase in the money supply. So the arguement that both QE1&2 have not increased the money supply has some merit...but only in comparison to the contribution from fractional reserve banking.
The problem with QE the damage it does to the economy on medium long term. The government saves money on interest payment, but the banks have no incentive to lend below inflation rate. This is reducing velocity and slowing down growth. The real problem comes when the free market is allowed to function again. With the added debt the government won't be able to pay free market dictated interest rate and they will print more money again until total confidence is lost in the dollar and the system collapse.
ask yourself what the real inflation figures are likely to be in the US and then ask the average US citizen about gas prices, inflation is rampant and the lead cause is quantitative easing in many guises
Of course not the printing of more money has caused over supply. The oversupply was caused by spending that exact money did not existed before the crisis and the US printing right now. Banks are not stupid to waist there own money. They did it only because of the government guarantee to back them up, so the printed money is manly used to pay off that cooperate debt, but these big banks still insolvent and the general population still has the same debt with no savings. This is the new form of capitalism privatise profit and socialise risk. Everything is working on non existing borrowed money in the current system. So we have a situation now, that insolvent banks don't lend not existing money to a debt riddled consumers, because the insolvent government no longer can guarantee it.
I am sure I can eat you alive faster than a can of tuna if dare to put same fact behind your counter argument mate. Call you famous mentor for help if you needed do it that way
ok, calling.....briiing briiing........briiing briing.... no answer? He must be in the mountains. reeling him in boys.... I wonder how much money there is in the entire world??
Very true. Base money in the US is up a huge amount and they can't withdraw that without crashing the economy. When western economies start recover they will have to let inflation run or bankrupt the government with high interest rates it can manage. UK inflation is pushing up to the 5% with no sign of withdrawing liquidity. http://research.stlouisfed.org/fred2/series/BASE
Not a big call at all I think, the US has hit the debt ceiling and they are already raping government pension funds to keep running. If the Fed wasn't buying these Gov't bonds at a super low rate (suppressing the price/yield) then what do you think the free market would be willing to buy them at? When you have a democrat president on T.V. talking about(not actually doing) how there is an inherent need to reign in the deficit then you know the USA has some serious serious debt problems. This may drag out as long as the USD is the worlds reserve currency but the date of destiny for both the USD and it's status as the reserve currency is fast approaching. They will both happen sooner or later which comes first is anyones guess (Chicken and the Egg).
Arrow points to the beginning for QE2 in Nov 2010. You can see a contraction of the money supply since Q1 2009 ... this is monetary deflation: However, what is the overall trend?
