To: William Cloutier who wrote (63525 ) 3/24/2020 8:49:52 PM From: ajsharp 1 RecommendationRecommended By
Read Replies (1) | Respond to Now, I'm wondering of the afterward effects of QE and money printing.In fact, I feel pretty anxious about this. Are we going to see a lot of inflationafter this crisis is done? What about retirees and government's debt? At least speaking for the US, I don't think we run much risk of sparking runaway inflation. Rather, the QE is a hodgepodge of tools to prevent a deflationary depression. Their approach is very similar to 2008, the perspective at the time being that the main factor that extended a really bad market crash and recession into the Great Depression was overly tight monetary policy (this is sometimes referred to as the monetarist theory ).good view on this yesterday:When the Fed buys a Treasury bill, it creates new money with which to buy the bill. It simply increases the amount of reserves, which banks can freely transform to cash, so you can think of it as printing up money to buy the bill. Why doesn't this cause immense inflation? Well, the Fed backs the money with the bill. The overall quantity of government debt has not changed, just the composition. Lots of people tend to massively conflate the idea of QE with "printing money". The money printing moniker should most be applied to central banks who're not independent from the legislative body, and when the legislative arms wants to spend a bunch of money, they phone up the central bank and order them to create more money so the government can spend the new money. Luckily, our central bank doesn't work this way, and they are very acutely aware of their affects on inflation (Their core mandate, after all, is to maximize growth while maintaining a 2% inflation target).Note: these same dynamics are also obviously true of the less mainstreet-ish things banks do, like hold hedge fund customer brokerage accounts, and deal with liquidity issues due to customer redemptions, margin calls, etc.
