MUST READ: why QE is NOT money printing and is NOT hyperinflationary.

MsMorrisine

A FRB Speech

Monetary Policy, Money and Inflation


PS: I note that M2 grew ~6% for the 4 years of QE covered by the speech, and despite claims of commodities' prices being transitory & no one trusts the CPI-- Inflation is probably higher. Still, evidence indicates no correlation to QE and wild amts. of lending and wild amts. of money in the hands of people.

A technical read on why increased QE(reserves and reserve balances) does not equate to more loans and more money creation

daOnlyBG

I'm going to read this on the flight that I'm taking in a couple hours. Thanks for sharing!

roadrunner

No one ever said QE was going to get in the hands of the people. If anything it was designed not to find it's way to the people where it can't be monitored. It's gone to the
bankers and high powered money interests. QE is probably worse than money printing since it is used directly by the major banks and their associates to fund their
leveraged bets in financial markets (stocks, bonds, currencies, commodities). No room for J6P there. The nearly $2.2 TRILL rise in bank reserves (ie M0) since 4th qtr of
2008 has been used to fund banker speculation. Reserves are in essence a no fee margin account for the banks to use to place leveraged bets on the flavor of the day. It's
inflationary only for those assets that the banks decide to bid up. The fact that the bankers also have the entire shadow banking system at their disposal precludes the need
to tap into monetary aggregates like M2. They can create all their own debt-money outside of Congress and the FED simply by the use of otc derivatives. Over the past 10 yrs
they've created a separate banking system with approximately the same liquidity as the M0/M1/M2 money aggregates. This is why asset prices of some things have been ballooning
even while base monetary reserves aren't leaking into the economy. QE is used to bail out and fund banking operations. Even so, M2 continues to increase at 8-10% per year since 1995.

VanHalen

...Reserves are in essence a no fee margin account for the banks to use to place leveraged bets on the flavor of the day...

Yes indeed. The banks had to be kept afloat and QE combined with bail-outs were the chosen Hors d'oeuvres.

Happy Memorial Day weekend!

derryb

guaranteeing the banks new liquidity with QE has only empowered them with more arrogance, higher bonuses and greater leveraged betting as risk is now covered by QE money. Fortunately the liquidity from QE will delay any Cyprus-like need to confiscate bank savings. All will continue to appear to be well as long as the extra money they are receiving remains on deposit with the FED. The slightest rise in interest rates will shift the money to Main St. loans where greater gains can be made. This is the threat that feeds the discussion of future inflation.

jmski52

John Edwards was right about the existence of "Two Americas", but they aren't exactly the ones that he was trying to exploit. The main question regarding QE is whether or not the top dog bankers will be able to buy only a new Jag this year vs. their own private island or a small country. Other than that, QE isn't "helping" anyone.

If they wanted to strengthen the banking system, they might have wanted to let the bad ones fail, prosecute the crooks, and then give QE to individuals who would have been free to invest or spend it with the more honest institutions left standing.

ranshdow

Exit Strategy Principles (referenced in the speech)

from FOMC Minutes of June 21-22nd, 2011

Exit Strategy Principles
The Committee discussed strategies for normalizing the stance and conduct of monetary policy, following up on its discussion of this topic at the April meeting. Participants stressed that the Committee's discussions of this topic were undertaken as part of prudent planning and did not imply that a move toward such normalization would necessarily begin sometime soon. For concreteness, the Committee considered a set of specific principles that would guide its strategy of normalizing the stance and conduct of monetary policy. Participants discussed several specific elements of the principles, including how they should characterize the monetary policy framework that the Committee would adopt after the conduct of policy returned to normal and whether the principles should encompass the possible timing between the normalization steps. At the conclusion of the discussion, all but one of the participants agreed on the following key elements of the strategy that they expect to follow when it becomes appropriate to begin normalizing the stance and conduct of monetary policy:


The Committee will determine the timing and pace of policy normalization to promote its statutory mandate of maximum employment and price stability.
To begin the process of policy normalization, the Committee will likely first cease reinvesting some or all payments of principal on the securities holdings in the SOMA.
At the same time or sometime thereafter, the Committee will modify its forward guidance on the path of the federal funds rate and will initiate temporary reserve-draining operations aimed at supporting the implementation of increases in the federal funds rate when appropriate.
When economic conditions warrant, the Committee's next step in the process of policy normalization will be to begin raising its target for the federal funds rate, and from that point on, changing the level or range of the federal funds rate target will be the primary means of adjusting the stance of monetary policy. During the normalization process, adjustments to the interest rate on excess reserves and to the level of reserves in the banking system will be used to bring the funds rate toward its target.
Sales of agency securities from the SOMA will likely commence sometime after the first increase in the target for the federal funds rate. The timing and pace of sales will be communicated to the public in advance; that pace is anticipated to be relatively gradual and steady, but it could be adjusted up or down in response to material changes in the economic outlook or financial conditions.
Once sales begin, the pace of sales is expected to be aimed at eliminating the SOMA's holdings of agency securities over a period of three to five years, thereby minimizing the extent to which the SOMA portfolio might affect the allocation of credit across sectors of the economy. Sales at this pace would be expected to normalize the size of the SOMA securities portfolio over a period of two to three years. In particular, the size of the securities portfolio and the associated quantity of bank reserves are expected to be reduced to the smallest levels that would be consistent with the efficient implementation of monetary policy.
The Committee is prepared to make adjustments to its exit strategy if necessary in light of economic and financial developments.