Well....there's some half truths in the article.
First of all, QE is an asset swap, not money printing. All the FED really does is buy Treasuries and sells the dollars it creates. After this asset swap happens, the primary dealer that sold the Treasuries to the Federal Reserve now has cash as opposed to bonds, and the Federal Reserve now has Treasuries as opposed to cash.
In other words, QE is a change in the overall asset composition of government sector liabilities (and term structure). There isn't an increase in non-government net financial assets.
First, I congratulate you for a clear and concise description of OMO. I'd like to follow it up with a comment that goes to the heart of current monetary policy debates. In the usual economy we are used to, an increase in the banking sector "cash" is really an increase in the bank's deposits at the Federal Reserve. Treasuries are not part of the bank's reserves, but deposits at the Fed are. This means that OMO allow the Fed to increase bank reserves (the "monetary base"), and that banks can then lend out more money, creating an increased money supply and hopefully, increased economic activity. This is the traditional description of monetary policy.
Keynes great insight in monetary theory was that in some circumstances a "liquidity trap" is created where the additional reserves are not lent out, but sit as excess reserves in the banking system (about $2 trillion currently). Thus there is very little economic stimulus to OMO in these conditions. Whether or not we are in a liquidity trap is a question of fact, and the existence and growth of excess reserves seems to me to be determinative. If the Fed is buying Treasuries and increasing the monetary base, but that increase is mainly sitting in excess reserves, there will be little economic stimulus, growth of GDP will lag, unemployment will not be reduced, and inflationary pressure will not build up. There is no reason to believe that inflation or interest rates will rise in these circumstances, so forecasters who have been famously wrong in predicting large increases in interest rates and/or inflation as a result of the Fed's OMO ae wrong because they have ignored the implications of the liquidity trap.
Economics is not an experimental science and it is rare that we see a test of a theory as definitive as the last five years on the issue of whether or not a liquidity trap exists. It is even rarer that the evidence is so overwhelming in favor of one model. The opposite view has been forced into what can only be called intellectually dishonest arguments. Feldstein blames the failure of his hyperinflation predictions on the Fed paying 0.25% interest on excess reserves, soaking up all that inflationary pressure. If inflation is that easy to solve, we need never fear it again! Others (including many on this board) have gone into denial and argue that hyperinflation is happening, we just don't see it because suddenly the statistics no longer reflect the true "reality". Somehow the statistics magically became unreliable at exactly the right time, never mind that alternate measures of inflation produce pretty much identical results to the official measures.
So in a nutshell, this is what the debate over monetary policy has become. The world is either filled with confidence fairies and bond vigilantes and other magical characters or it is not. The discussion is now out of the realm of economics and into the realm of abnormal psychology.
