timber
I am not the one who said things were sold twice ... and I can agree with you that is the case.
However, it is no trifle that your original pretty picture left out the role of the US government in the process.
Certainly you are correct that the money provided by the Fed to the commercial banks, in exchange for their distressed assets has been, in large measure although not in its entirety, deposited back with the Fed. The reason for doing this was always to contain the surplus supply of cash and prevent it freely circulating in the wider economy.
Why it is important to consider the whole picture is, although the Fed is now tapering the purchase of the banks' 'toxic' assets, the process of purchasing the US debt [bonds] continues apace. Since most of the bonds now being issued by the US government are no longer finding 'non resident' buyers, the US through the agency of the Fed, is buying much of its own debt. In other words, the deficit is no longer being properly offset by external funds.
When you consider the huge debts taken on by the Fed from the banks [which although they have been given a very long maturity are none-the-less worth far less than the face value the Fed has paid for them] and add to that the ongoing necessity for the Fed to keep facilitating the 'in house' buying of US bonds ... which it is forced into doing to keep a lid on interest rates.... you start to see things as I do. It is the QE operation which has created this problem. Now that the Fed has taken on that vast debt it cannot allow interest rates to overwhelm their position.
So ..... I return to my original statement ..... it is money printing.
And in the long run ... it has a lot to do with the price of gold.
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