Sergeant I am not playing with semantics. I understand how the...

Sergeant

I am not playing with semantics. I understand how the banking system works. If you are thinking about duration and credit worthiness, you are missing the point. This is purely about net cashflow between the central bank and the commercial banks who clear payments through central bank clearing accounts in that jurisdiction.

1. When the Fed prints currency notes, the commercial banks putting them into circulation have to pay for them. That means the money circulating as newly issued currency notes has replaced money removed from the banking system as payments to the Fed. This is not inflationary because the net amount of money in the banking system is unchanged.
2. When the US government issues bonds to fund expenditure the government spending adds money to the banking system, and the sale of bonds subtracts money from the banking system. If the spending increase corresponds to the amount borrowed, it is not inflationary because the net amount of money in the banking system is unchanged.
3. When the US Fed buys bonds under a QE program, they borrow back the money they paid the commercial banks for the bonds. This is not inflationary because the net amount of money in the banking system is unchanged.
4. The government can increase its levels of debt (IOUs in any form) but if the level of spending is equal and opposite, this is neither inflationary nor deflationary.
5. Changes in the amount of money in the banking system are determined by the commercial banks by the creation or contraction of lending. When a bank makes a new loan, the funds are paid to a borrower. The borrower deposits the funds with the same bank or another commercial bank either directly or indirectly funding their own loan. The aggregate amount of money in the banking system (money supply) increases.
6. The Fed can only influence levels of bank lending using changes in interest rates on daily transactions dealt with the commercial banks to encourage or discourage borrower appetite for debt. The Fed could uses changes in the capital adequacy requirements applied to the commercial banks to influence lending growth, but almost never do.

When is money printing inflationary?

1. The German government under the Weimar Republic could not borrow sufficient money or raise sufficient taxes to pay its bills. (Reparation to France and England were not paid in cash or gold, but in commodities like timber, coal and steel.) So when they printing currency notes to pay public servants and meet local creditor obligations, these new currency notes entered circulation without an offsetting debit to the banking system, and the amount of money in the German banking system increased proportionally. When an increased amount of money suddenly is available to spend on a fixed amount of goods and services, prices can rise equally suddenly. Some people call this is called inflation.
2. Something similar happened in Zimbabwe.
3. But this did not happen in the United States. US government domestic receipts and payment flow exclusively through the banking system. We can tell this from the Fed’s accounts, but the proof in the pudding is the total absence of demand inflation that suggests the spending of money from other sources.

It has taken a few years for this to sink in, but the smart investors started to understand that QE was not inflationary some time in 2012 and it has been one way traffic for the price of gold ever since.

No apology necessary....