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To: skinowski who wrote (391504)	11/5/2010 5:36:20 PM
From: ManyMoose	Respond to of 794357

I think that's the way my mortgage broker explained it when I wondered why we didn't have hyperinflation already. It's only a matter of time. That's where the act of Creation occurs... :) Money appears where there was none

To: skinowski who wrote (391504)	11/5/2010 6:41:59 PM
From: rich evans	2 Recommendations Read Replies (1) \| Respond to of 794357

This is how the banking system works. The FED is unrstrained and can make these loans or purchases. Your local bank can also. If you go for a loan , they simply deposit funds in your account out of thin air. The difference is that the banks are constrained by capital requirements to back up a percent of their loans in case of losses. This is about 10%. The Feds also do not allow the banks to loan more then 10 times their deposit in the reserves at the central bank. This is the system. The problem as Lindy says is that the banks are restrained because of loan losses so they can not loan too much because of their capital requirements. So as Lindy says the Banks just keep the money they got for selling bonds in their accunts at the FED REserve. Will this change? That is the risk for inflation if the banks start lending. But they can't because of their loan losses and capital requirements. Thus this QE is just perception. Bernanke in his textbook on page 179 talks about this perception. Frankly this situation will exist for years Because their is little lending or commerical or residential construction. So don't worry, be happy. The best thing the FED did was not QE but their facilities desk. There they loaned money to AIG and also bought commercial paper from GE and the likes. This unfroze the commercial paper market etc. No One talks about this but you can see it all on the FED web site . This was a great success and saved on from a financial meltdown. Ricn

To: skinowski who wrote (391504)	11/5/2010 7:29:29 PM
From: LindyBill	2 Recommendations Read Replies (2) \| Respond to of 794357

Where does the Fed get the money to buy those bonds? It's a bookkeeping entry. The definition of inflation I accept is: "A general price rise caused by the money supply increasing faster than the GNP." Let's say the Fed buys X amount of bonds, and the Banks get X amount of money for them. If the money is not put in circulation, but simply remains on the Bank's books, there is no real "increase in the money supply" until the banks lend it out. In this situation, if the GNP was increasing and the banks did not lend, you could have deflation, even though the Banks of tons of new money on the books. The Reserve is doing this in an attempt to get the Banks to lend more money. As long as they have no confidence in what is going on, they won't lend more out no matter how much cash they have on hand. They will keep it in the "overnight" market. An interesting side effect of this action is that it saves us money. The Bonds that the Reserve buys back no longer have to have interest paid out on them. Cuts our interest payments.