There has been a lot of talk in the news of Quantitative Easing (QE), which is is the unofficial description of the act of essentially printing money. The Fed goes into the market place with “created money” and buys things like assets, treasuries, and say mortgages…….essentially acting as another buyer (think big investor) but usually the buyer of last resort. They pay for that stuff with printed money or “hold it on their balance sheet” as a liability to be sold out again later. They essential create demand where there isn’t in theory with money that isn’t there. If what the Fed had on its balance sheet could never be sold back (currently roughly $2 Trillion), they would effectively have monetized it or “printed the money”. They technically haven’t yet, but that’s only because there’s a belief they could one day sell these assets back to the open market or let their Treasuries mature and not buy more………it’s called sterilizing. If they don’t sterilize they are directly monetizing debt which is highly inflationary…..more dollars in circulation chasing the same number of goods. Ultimately it will take more dollars to own things and you have supply-side driven inflation.
We think it’s a mistake to do more QE and that our woes lie in the government policy sector, not the monetary policy sector. We are at zero and deleveraging needs to happen. I think inflation will do more harm than good because it won’t inflate growth and incomes (wages) just costs for things like oil and all our imports, further deteriorating buying power, reducing disposable income, and tightening consumer and business balance sheets even more. We are a consumer nation………inflation is a net negative to us in our opinion.