fed to begin quantitative easing today, page-22

Thanks BH and Adwebster,

There certainly is a difference between the temporary and open market operations - and I agree that this difference is what Bernanke is using to claim the significance of the open market operations. But I think the question remains unanswered for three reasons.

1) While the temporary loans are supposed to be paid back - lowering the money supply. We all know - and especially gold followers - that this is a ruse designed to mask inflationary policies over the past ten years. The short term money was almost certainly used for long term loans - not just to grease the wheel on holidays - with the short term loans continually being rolled over. This way the borrower can still claim the treasuries as an asset on their balance sheet and the Fed can say it isn't really printing more money. Everybody wins! (While I don't have direct evidence for this - we know that it was the practice in just about every other lending market - and is one of the more significant reasons for the credit crisis, the corporate loan market collapsed and no one could get financing to roll over their short term loans. It seems highly unlikely to me that the fed wouldn't have participated in this sort of scam since it was just the default wisdom at the time.) So this temporary money is really as inflationary as before but without the perception (and these guys think perception is the key!).

2) According to those news reports - open market operations were performed at least as soon as 1999 to the tune of 40 billion. That's 40 billion when there was no financial crisis whatsoever and the US government was in surplus. That's on top of the repo loans made during the year. So 300 billion of open market operations during a financial crisis isn't really that jaw dropping.

3) They already own nearly 5 trillion worth of treasuries. They had to purchase these at some point. 300 billion on top of that is peanuts.

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So in response to my own question I'm arguing the following:

1) The 300 billion purchase is not that significant when considered in a broader (but not that broad really) historical context.
2) Bernanke KNOWS this.
3) He wants everyone to think that it is. He wants to think that he's doing something REALLY inflationary.
4) He doesn't believe it is that inflationary, because he believes that it is not MUCH different to what the fed has previously done and that hasn't led to catastrophic inflation.
5) His hope is that it will shift perception to end the deflationary spiral - without causing inflation.