is qe printing money?, page-5

the reality is that QE does not automatically add to the money supply, in conditions of falling credit supply the printed money simply adds to bank reserves, the money is printed but fails to make it through the monetary transmission mechanism of credit to the broader economy

Its simplified by people that have not studied the subject in much detail, the hypothesis that money printing adds to inflation under all circumstances is fairly popular at present, the trouble is its more complicated than people think. In the early stages of economic growth money is printed , interest rates are reduced, banks transmit money through credit expansion. This causes asset prices to rise , which through what Bernanke calls the "wealth effect" this money is then direct to aggregate demand.

Essentially this what happened after the the dot.com boom, Greenspan and then Bernanke implemented this kind of expansion, this essentially caused the RE bubble. What is less well known was the bubble was intentional policy.

During this phase money printing does add to inflation, it does expand the money supply.

As this phase continues though the injection of money has less and less impact, as debt rises in relation to asset prices, loans become riskier and riskier but this is masked to a large extent by the lofty asset prices, bank managers feel loans are well secured due to these asset prices.

Then at some point whats become known as the "Minksy moment" occurs , this is when asset prices become unsustainable.

This is the point where QE starts to look like an old man on Viagra, the Fed continues to lower credit costs and print money, but due to risk and unwilling borrowers no matter what the Fed does , it fails to expand the circulation of money.

The current QE money printing propaganda is classic Fed "cheap talk", its all hot air , the level of debt is such that almost no amount of money printing would impact the economy, essentially there is no more room for debt expansion.

This is where the real trouble occurs, the Viagra stops working, essentially the central bank fails. We are reaching this point sometime over the next 12-18 months. Its hard to make exact predictions because its impossible to predict how far the fed will go, as with 2008 the Fed can put off the collapse but it cant cure the malaise. Eventually the debt disease over comes the Feds efforts and deflation becomes rampant.

This eventually bankrupts a large part of the economy and forms a base for an expansion to begin again. QE is rubbish, central banks have been trying to do this since central banking began, it always fails (eventually) because the political will to keep borrowing fails.