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To: ahhaha who wrote (404335)	5/7/2010 6:34:52 PM
From: Real Man	Respond to of 436258

Thanks for the attempt, but I still don't get it. Wiki explanation is much simpler for laymen like me, and I get it - there is SOMA, Fed just creates some electronic cash and buys stuff like MBS, Agency bonds, or treasuries. The stated size of 1.725 Trillion Quantitative Easing corresponds to the size of actual money creation (as opposed to credit creation that banks do, and which is reflected in M2 and M3). I also don't get how something listed as permanent at the Fed can be temporary lending with 1 to 28 day term. I would assume these would have to be temporary repos, while they were definitely not. Currently there are no operations, but the permanent operations (of total size 1.725 Trillion) were complete as of March, 31. The Fed stated they will sterilize these transactions as the markets improve. However, they must improve for them to do so. If the markets improve and they sterilize Quantitative Easing, then inflation will not be a threat. However, I sincerely doubt the MBS they bought (likely at par, to re- liquify the banking system) will become whole, in which case the sterilization will be incomplete. Technically, they could sterilize the treasury purchases as well, then leading to no long term effect on the monetary base, but until they do so, they printed a total of 1.725 Trillion. -g-