Need some help with QE...

[Corruptbuddha]

...from anyone who knows.

First, read this: http://www.project-syndicate.org/commentary/the-inflationary-risk-of-us-commercial-bank-reserves-by-martin-feldstein

It supposedly explains how QE isn't printing money, rather it's just moving assets around from commercial banks' T-Bills to it's reserves. Reserves that are kept in the FED and payed interest on (since 2008).

Ok...so if QE isn't a printing of money (which explains why inflation is still so low) then what is the benefit of it to the economy as a whole. In other words, if the stated goal of the FED for QE is to increase employment, how does it do that by simply taking treasury bonds and converting them to 'reserves' held by the FED?

Anyone?

 

[fairsheet]

...from anyone who knows.

First, read this: http://www.project-syndicate.org/commentary/the-inflationary-risk-of-us-commercial-bank-reserves-by-martin-feldstein

It supposedly explains how QE isn't printing money, rather it's just moving assets around from commercial banks' T-Bills to it's reserves. Reserves that are kept in the FED and payed interest on (since 2008).

Ok...so if QE isn't a printing of money (which explains why inflation is still so low) then what is the benefit of it to the economy as a whole. In other words, if the stated goal of the FED for QE is to increase employment, how does it do that by simply taking treasury bonds and converting them to 'reserves' held by the FED?

Anyone?

I'm sure you'll get a worthwhile response from someone who knows what the hell they're talking about. But, here's what I think. "Printing money" isn't exactly printing money, in the strict sense of the phrase. It's more of a euphemism for, "making more dollars available". So whatever the hell it is that the Fed is doing, is about making more dollars available and thus..we - depending upon our agenda - shorthand it to "printing money".

I could be wrong - I could VERY well be wrong! - but I imagine there are at least a few different ways the Fed could make more dollars available. But in each case, some would describe it as "printing money".

 

[Woolleybugger]

Double entry accounting makes most of these moves immaterial really. The FED uses QE to keep interest rates low. The idea is that if rates are low, people will borrow more to spend on consumables, houses, business investment, etc. It is a very indirect means of stimulating the economy. Since we are now at record low rates, they are kind of stuck. The Fed could just give money away without selling it as an investment (Tbills) but then they would lose their power in setting interest rates. That really is the best reason they just don't give us all a million bucks. The supply of money has to have a relationship to economic activity. We need enough money to keep growing but if we are not growing how do they get more money into our hands? That is fiscal policy. They could eliminate taxes altogether and fund the government by simply paying it with "printed" money. But then they would lose the brake on the economy that taxes represent. Taxes are the way we control money. We take it out of the economy to further some goal. Right now the goal should be getting everyone working, inflation we can deal with later.