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Reply #10: Quantitative easing had the net effect of an asset swap, nothing more. [View All]

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girl gone mad Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Apr-24-11 09:43 PM
Response to Reply #5
10. Quantitative easing had the net effect of an asset swap, nothing more.
Edited on Sun Apr-24-11 09:54 PM by girl gone mad
It really didn't flood the system with money. Bonds have been replaced with dollar credits. When interest rates are at 0%, this is the asset swap equivalent of issuing treasury bills to replace whatever the Fed purchases. The Fed takes these assets out of circulation when it buys them, so while the monetary base expands, net financial assets do not expand.

Tax cuts for the wealthy, on the other hand, have resulted in more capital available for speculation, as has the growth in income for the wealthy which has resulted from decades of global labor arbitrage. Too much money at the top is now engaged in rent-seeking activity, fueling bubbles in commodities and equities.

This activity shouldn't be confused with broad inflation, which would require an expansion of credit and increase in the velocity of money.

Here's a look at M1, btw:



This is what debt deflation looks like. I think it's interesting that everyone screams 'inflation', but that's not what we've got. We have more dumb asset bubbles, fueled by financial speculation. Blame it on the bailouts and the Bush tax cuts. Rich people have more money than they know what to do with and they all want quick returns. The rest of the country is still screwed, with wages and housing declining while credit dries up.
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