Based on recent comments/twitter posts/interviews...my email, vm, dm & twitter stream have been inundated with questions about, & challenges to, my assertions regarding QE being "deflationary" rather than "inflationary"
As such, I have been asked for "Proof" or my "Source" to back up my assertions.
The "Smoking Gun" per se...
I'll attempt to answer this as clearly as possible below
The assertions aren't to say QE is "never" inflationary.
Or "can't" be inflationary.
The assertion is that it's "not currently" inflationary.
It needs cooperation from commercial banks in form of credit extension (which isn't currently happening).
there is no money multiplier effect...
and thus the inflationary pressures that would normally come if they WERE lending...
are NOT currently present.
Because Fed liabilities being legal tender would effectively grant them the power to spend.
Which as Powell himself says would be in violation of the Federal Reserve Act.
Reserves do have function. (partly explained below)
But serving as medium of exchange in real economy or to purchase On the Run Treasury Bonds is not one of them.
Well all seem to agree that in QE Commercial Banks trade (swap) a bond to Fed & in exchange Fed "credits" the account of the Commercial Bank that sits at the Fed with new Reserves.
What are these "other" Reserves that have suddenly entered the picture?
Bank Reserves can ALSO come from Commercial Banks themselves depositing cash at the Fed.
Where do Commercial Banks get this cash?
From the market in normal banking operations.
Visibly on a Balance Sheet? No...
Clearly delineated on the Fed's website? No...
And that last part is the key to it all...
Just bc Reserves r DEFINED the same way on Investopedia...
Just bc a car has a speedometer that goes to 120mph...
Does NOT mean can be treated same way or used as such from a LEGAL perspective.
A: Legal Tender/Money
To be money must be:
1-store of value
2-unit of account
3-medium of exchange
Reserve credits from Fed satisfy 1-2 but not 3 bc 3 is LEGALLY encumbered.
Last thing they want to do is get bogged down in legality of accepting restricted $ for latest T auction.
& if u think Congress...
The most Power Hungry group of people on Earth...
Will willingly cede their power over spending to Fed...
Fed & Congress r the most corrupt, evil & willing to break the law organizations to exist...right?
If that's the case, then why do you keep asking me to cite a law passed by congress or a page written in Fed document stating my case?
They don't want to clear it up. The more confusion the better.
They want u to believe when they tell u they r flooding market with liquidity.
Bc if you believe them u will change your behavior.
And that helps them.
If you can't find a specific statement/paper/document that says Fed deposited Reserves are different than Bank deposited Reserves...
Then why do you think so...?
Who is the secret source that is telling you it's this way...?
Just kidding. The real answer is the collective wisdom of millions of participants from all over the world.
The market is telling me that the Banks are NOT paying for new Treasury auctions with newly created QE credits.
with spendable cash received from the Fed in QE...
with only the PDs as a short term intermediary...
For 11 years...
Then why did the dollar rise & why haven't we had hyperinflation?
What more could inflationists want than 11 yrs of monetization?
If the way QE is popularly described is true...
And Fed liabilities r able to be spent by Banks as if they are cash...
It would be like setting dollars on fire.
I know it doesn't seem right.
And I know you want certainty.
So I would encourage everyone to keep digging. Even if think u already understand it all.
You might be surprised at what you find.