"we will provide additional support.”’bernanke, page-48

Hi Blackrivered,

QE increases monetary base, not necessarily the broader money supply.

The problem with the Gold Bug increase Fed Balance sheet (reserves) = Increase Loans = Increased Inflation is that it implies that Banks are reserved constrained. Banks are never reserve constrained, only capital constrained. Banks, can and always will acquire reserves after the fact if need be. It also implies that there is a steady demand for new credit, just waiting for the necessary reserves to be created.
This nonsense is plain as day when you look at the amount of excess reserves sitting with the Banks accounts at the Fed:

http://www.federalreserve.gov/releases/h3/current/

After all the QE, financial institutions have in excess of $1.85 trillion in excess reserves just sitting at the Fed, not being lent out. These excess reserves receive .25% which is the current federal funds rate.

AS we know, the MBS/treasuries were purchased by the Fed in exchange for reserves which the Banks hold at the fed. Prior to QE the Banks had $1.85 trillion in long dated securities paying in excess of 1-2%. They now have $1.85 trillion in reserves paying .25%.

Nothing has been created, it has been swapped. They have simply changed the duration of their portfolio's by taking people out of treasuries and into cash. They are also buying these securities in the secondary market, not at the issuance stage so can't be funding the US gov't deficit.