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Comment by nwah1 | Hacker News Reader

Bingo. Also this argument in particular is wrong because even if you want to describe the current repo operations as QE, it isn't inflationary or doing much to "prop up the economy" given that none of the other QE rounds were inflationary.

At the end of the day, fiscal policy is extremely important, and almost no amount of monetary policy can do much on its own.

Unless we decide to start actually minting money, like the trillion dollar platinum coin idea.

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>> ..."none of the other QE rounds were inflationary."

Earlier QE rounds (and this "not QE" round too) are definitely inflationary, but that inflation is not evenly distributed through the economy.

QE inflates prices of financial assets and related stuff. The further you get from financial assets, and the correspondingly closer you get to the real economy, the less inflation there is. Eg. equities get inflated a ton, housing prices less, the price of a hamburger not at all. The mechanism for this non-flat inflation distribution is straightforwardly derive-able just from supply-and-demand; they increase the supply of capital, but only by bidding up the prices of financial assets, while demand for those assets is approximately constant.

That said, you're right that Zerohedge ranges from "mostly-uninformed" to "intentionally writing nonsensical clickbait lies." On the other hand, it is broadly speaking not any wronger than e.g. what you see on TV or read in major newspapers.

Shifting the definition of inflation this way is misleading and confusing for everyone involved - a better analogy may be that QE is equivalent to price controls on fixed income assets.

The effects of QE become much more clear - since the price of a bond is now fixed above its market clearing price (alternately, rates are artificially pegged low), this actually results in a shortfall of supplied liquidity and a situation that sharply favors strong borrowers.

How were the QE rounds not inflationary? The Fed injected (albeit indirectly via debt instruments) cash into the economy.

Ostensibly, GP means that they were not inflationary to consumer prices. Asset prices were definitely inflated. This is the whole point of QE.

The Federal reserve injected banks with money, not the economy. One would naturally think that these banks would then lend money to the broader economy (because that's how banks make money), but a law passed around that time allowed banks to deposit their money in the Fed itself and extract an interest rate better than they would get from normal lending. The Fed, which normally ran a surplus (money which goes to the Treasury to pay down debt), began to run a deficit from these payouts. Potential inflation just became more debt. This is why over a trillion dollars in "printed money" failed to yield much inflation over the last 10 years, but let's all just keeping reading ZH articles about the looming "inflation bomb"..

The Fed ran deficits? My understanding is that they ran surpluses throughout the recession, and that is confirmed by this chart.

https://www.federalreserve.gov/newsevents/files/other2019011...

>How were the QE rounds not inflationary?

Reflationary might be a better interpretation, since vast amounts of wealth were destroyed in 2008.

What do you mean none of the other QE rounds were inflationary?

Overall consumer prices and aggregate demand were virtually unaffected by QE. All the individuals who, for ideological reasons, believed QE would be inflationary got wiped out.

Peter Thiel's hedge fund, Clarium Capital, lost huge amounts of money on such a bet.

If you use the original definition of inflation, i.e., increase of the money supply, there has been massive inflation. It hasn’t resulted in a substantial increase in the consumer price index, but you can see huge increases in certain areas such as the stock markets, housing markets in certain areas, health care and education.

The rate of healthcare inflation declined during all of the QE periods.

https://www.chicagofed.org/~/media/publications/chicago-fed-...

Stocks did increase quite a lot, as it generally tends to do over the course of the business cycle. Although, it generally was tracking actual profits up until recently (when the Fed was drawing down their balance sheet). It was tethered to real profits during the QE periods.

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