big drop in gold, page-24

Since for political reasons gov stimulus is not acceptable the only alternative is monetary policy. However because they the Americans and the Europeans are in a liquidity trap, traditional monetary policy does not work.

In other words, for the USA economy to get back to full employment interest rates have to be negative.

Under these circumstances, the aim of QE is to attempt to lead the financial institutions, starting with the banks to lend more by paying for their excess reserves a little more or at least the same than what they can get from 'safe' gov bonds.

The reserve prints money and with it buys gov bonds from the banks forcing the price of those bonds up and therefore the yield down with the proceeds being credit to the banks' accounts with the reserve in the HOPE THAT THE MONEY will start coming out of the banks' reserve accounts through extra lending.

When things get back to normal the Reserve bank has the option of doing any or all of these things:
1 - to raise interest rates,
2 - to increase the reserve requirements of the banks,
3 - to sell its gov bonds back to the banks and by so doing sterilizing the extra money, and
4 - to sell part of its gold reserves with the same intention and probably at a huge profit.

Whether or not they are going to be able to do these things it is totally a different matter, but the indications so far it that there is no reason to doubt.

As somebody once said: Anybody can be an economist. What they have to do it to learn like a parrot how to say QE is not the solution.