What you all seem to be missing here (or perhaps not) is that who do you think is paying the Fed the interest on its UST portfolio? The US Treasury! Its a massive Ponzi scheme.
Now lets break down the bleedin obvious.
As incentive for Banks to sell back bonds to the Fed the Fed has said we will issue you 'reserves' (credit) instead & we will pay you interest to make up for the lost revenue on your bond portfolio in the hope that the reserves will be put to better use. i.e. be lent & create stimulus in the economy.
However corporate America isn't spending on capital, its one of the biggest holes in the recovery to date.
So the US banks sit on trillions of credit from the Fed & get paid 0.25% for the privilege!
Wow that is turning economics upside down!
So effectively the banks have a negative interest rate they borrow at & still can't put it to good use!
And why would they its money for jam.
Not only that, but the Fed will give the same deal to selective corporates.
Doesn't trust the banks to do the business for them?
Or its probably more likely that the likes of Apple could swallow a bank tomorrow without breaking a sweat or its cash balance.
Is QE inflationary? Perhaps, but maybe its just offset massive deflation.
Would that have been a bad thing? The only reason that deflation would hurt is because of debt levels that were built up relating to much higher prices. i.e. the proposition of paying of debt that has ballooned when prices drop & earnings are likely to as well in dollar terms is unthinkable.
It doesn't matter that it would actually put more money in Mom & Dad's pocket, that's not the point.
Governments need to get comfortable with the prospect that prices can go up & down & can't just be relied on or want them to go in only one direction. Its that sort of thinking that built up the excesses in the mid 2000s.
If the Government didn't have high levels of debt lower prices probably wouldn't be a problem.
Instead what QE & zero interest rates will create & it has already in the form of corporate takeovers, is bad investment decisions.
Inflation, who knows, personally I think we have seen massive inflation in the last twenty years, its just not shown in the stats as the stats don't capture the true cost of living.
So why would you expect to see inflation in the stats under a scenario of weak global growth when it apparently was non existent when the likes of oil quadrupled....
