Must Read Article by Daniel Amerman - QE2 different from QE1
ksammut
Posts: 1,074 ✭✭✭
QE 2 is much different from QE 1
This is about "stimulating" the economy, not sterilizing the hidden bailout funds. "Stimulating" means the money reaches the economy.
In other words, this money goes directly into the general money supply at a rate of about $110 billion per month through at least June, (the money is the sum of the to-be-created $600 billion, and the cash flow from the Fed's mortgage security portfolio that was purchased with created money). This adds up to lots more newly created government dollars chasing the same goods and services, and competing with savings earned over a lifetime.
There are about 111 million US households, so $110 billion per month in government spending funded by direct monetary creation is equal to about $1,000 a month per household in new money that is competing with our salaries and savings. And add another $1,000 in government money the next month. And so forth.
Another way of looking at this is that with an annual economy of a little over $14 trillion, total private and government spending runs about $1.2 trillion per month. Creating $110 billion a month in new money for the government to spend, means that about 9% of the economy will be purchased by newly created dollars. So 9% of purchases in this new economy would be made by brand new dollars, competing with and just as good as yours and mine, being spent for whatever purposes the government desires.
This is about "stimulating" the economy, not sterilizing the hidden bailout funds. "Stimulating" means the money reaches the economy.
In other words, this money goes directly into the general money supply at a rate of about $110 billion per month through at least June, (the money is the sum of the to-be-created $600 billion, and the cash flow from the Fed's mortgage security portfolio that was purchased with created money). This adds up to lots more newly created government dollars chasing the same goods and services, and competing with savings earned over a lifetime.
There are about 111 million US households, so $110 billion per month in government spending funded by direct monetary creation is equal to about $1,000 a month per household in new money that is competing with our salaries and savings. And add another $1,000 in government money the next month. And so forth.
Another way of looking at this is that with an annual economy of a little over $14 trillion, total private and government spending runs about $1.2 trillion per month. Creating $110 billion a month in new money for the government to spend, means that about 9% of the economy will be purchased by newly created dollars. So 9% of purchases in this new economy would be made by brand new dollars, competing with and just as good as yours and mine, being spent for whatever purposes the government desires.
American Numismatic Association Governor 2023 to 2025 - My posts reflect my own thoughts and are not those of the ANA.My Numismatics with Kenny Twitter Page
Instagram - numismatistkenny
My Numismatics with Kenny Blog Page Best viewed on a laptop or monitor.
ANA Life Member & Volunteer District Representative
2019 ANA Young Numismatist of the Year
Doing my best to introduce Young Numismatists and Young Adults into the hobby.
0
Comments
Two things that expecially concerned me in Bernanke's explanation of the policy:
(1) He referred to inflation being too low, as opposed to risk of deflation. This may seem like a small point, but there is a big policy difference between trying to avoid deflation, and trying to increase inflation.
(2) He very specifically referred to the benefit of rising equity prices. The Fed policy is specifially aimed at increasing stock prices. This is stunningly inappropriate, yet has not received a tremendous amount of critique.