Good points Rudy.
You certainly understand more of this than me...
But how can the Fed manage where the money ends up? The idea of 'Sterilized QE' is bogus.
So there is no connection with 3 rounds of QE and any of the price increases consumers are seeing? i.e fuel / food/ commodities. Right.
The Fed is paying Banks for monies they are owed from Bond purchases, by "expanding their balance sheet"? Isn't this a hollow un-backed way to go about paying off debt?
At the same time holding interest rates at artificially low rates?
How is this helping the people on Main street find a job? Tough to pay a Bank loan with no, or reduced income.
The money doesn't need to circulate to have ill effects, as the quality of Goods and Services has been on a steady decline. Sure an item may cost the same as a year ago, but often the portions size has been reduced, no? Perhaps the item was formerly made of metal , an now is chrome covered plastic?
Don't call it inflation if you want, Just outright loss of purchasing power for the dollars you hold, being managed in a very subtle and effective way.
Hi Grampy,
So many questions. I'll try and answer some.
"But how can the Fed manage where the money ends up?" They can't directly, but they can partially control it by requiring banks to have a certain amount of reserves on deposits. Stress testing the largest banks was a way to make this happen. Also, the Fed is hoping that some of that money winds up being invested back into the economy in the form of commercial loans, etc.
"So there is no connection with 3 rounds of QE and any of the price increases consumers are seeing? i.e fuel / food/ commodities. Right." Correct, for domestic staples, recall that we've had an awful drought. It has dramatically affected crops and livestock. Nothing to do with QE. As for fuel, two things: Speculation in oil futures continues in the commodities market. Although there has been talk about curbing speculation, it still exists and a lot of the increase has been due to speculation about the political instability of the Middle East. Also, the oil produced in the US doesn't necessarily stay here, it is a commodity sold to the highest bidder.
"At the same time holding interest rates at artificially low rates?" Not good for seniors who have traditionally invested in bonds. But great for the country. It gives us the opportunity to refinance the debt at much lower interest rates. It also lets us reinvest in the infrastructure at historically low interest rates.
"How is this helping the people on Main street find a job?" The Fed is hoping that the low interest rate and higher liquidity environment will kick start the economy and create jobs. In a real sense, the Fed is trying to fix --with monetary policy-- what the government has not been willing to address with fiscal policy.
"The money doesn't need to circulate to have ill effects, as the quality of Goods and Services has been on a steady decline." Money has to circulate for it to matter. Try this thought experiment. If you are in charge of the Treasury and you print a trillion dollars, but you lock it up in a vault and don't let anyone know it's there. Does it have an effect? Nope.
Quality is another story. I don't think the drop is due to QE, as much as a need to hold down prices.
"Perhaps the item was formerly made of metal , an now is chrome covered plastic?" Thats nothing new, been going on for years. Cars are a good example.
"Don't call it inflation if you want, Just outright loss of purchasing power for the dollars you hold, being managed in a very subtle and effective way." Our inflation rate is pretty moderate and has not shot up due to QE. To be clear, it is a danger and the Fed will have to soak up the extra liquidity before the inflation rate starts to shoot up. But this is much better than falling back into a deep recession.
Hope that helped.
g
