Pretty interesting website

[editec]

PRAGMATIC CAPITALISM

I found "UNDERSTANDING THE MECHANICS OF A QE TRANSACTION" helpful for firming up my grasp of this policy.

My only complaint regarding the above, is the author's inability to explain the MOTIVE behind the policy. But I suppose I must forgive him for speculating on something so elusive as motive.

The FED moves in mysterious ways -- beyond the understanding of we mere mortals.​

But, despite this minor complaint, some of you who are currently long on GOLD or EQUITIES really ought to give this five minutes of your time.

 

[Book of Jeremiah]

Thanks, editec. Interesting link!

 

[itfitzme]

I'm up to page 6 of PRAGMATIC CAPITALISM and haven't found the article yet. How about a clue for the more challanged of us.

 

[itfitzme]

UNDERSTANDING THE MECHANICS OF A QE TRANSACTION

There we go. Thank you very much, it is awesome.

Also, I am enjoying

Understanding the Modern Monetary System by Cullen O. Roche :: SSRN

 

[itfitzme]

Now, just wait a minute. Straight out of the box, the article indicates that the t-bills are all being purchased from banks on the reserve side of their portfolio. Of course, reserves are clearly not cash in circulation. It suggests tbat there are no purchases from private bond holders like you and me. Can this be right? I keep hearing that the Fed is monetizing the debt. In fact, I read it on about.com. But if it's all on the reserve side, then there can't be monetization.

Why would banks give up higher yield t bills for cash on their reserve side?

What am I missing here?

(yeah, I still have more to read, but I got frustrated.)

 

[itfitzme]

Just read the second comment.

Though QE may not be DIRECTLY inflationary, ... the effect wil be inflationary.

...

[It's] like saying that gravity, not the wings falling off, caused the plane to crash.

You see the problem with the article's argument just from this comment. * Increasing the money supply is like gravity, QE is like removing the planes wings and inflation is like falling. *When you increase the money supply, production and the velocity of money remaining constant, change the portfolio structure of reserves, price inflation is guaranteed. The wings fall off the economic plane and the increase in lending causes the economic gravitational forces to inflate prices because consumption won't increase and unemployment will remain high given the job killing regulations and minimu
wage that keeps the labor market from clearing. Not to mention that the Fed is guaranteed to be "caught with it's pants down" when inflation jumps 1% a month.