Yes money is all a joke right now.
More info: https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...
(Edit: Updated link to a more recent blog post)
This gave banks more wiggle room to sit out the pandemic without reducing lending at the exact wrong time.
So the Fed has done its job on the way down. Now they just have to do their job on the way up as well, or this money will eventually end up as new money in someone's pocket (via new loans) and potentially create inflation.
For that to happen you need enough credit demand in the economy.
It could happen, and, as you say, the Fed would increase the interest rate making reserves less available (credit more expensive), but the number of reserves in the system doesn't cause directly more money in the economy. It depends of the type of recovery.
They may justifiably want to keep interest rates low and loans easily available to help businesses and governments roll their pandemic induced debt until they can grow out of it.
But then some other credit worthy borrower comes along and snaps up those cheap loans to buy into some asset market that doesn't need any support.
And where they do have the tools to make that distinction they don't appear to be using them. I don't understand why they keep buying mortgage debt while house prices are already looking dangerously inflated.
We had this unprecedented crash that clogged up global supply chains and caused a huge shift in what people are buying. We have massive government spending increases. I don't think it's possible to work out what impact QE is having on inflation right now or whether it will indeed be transitory as the Fed believes.
Inflation always lags behind, though, and it’s pretty likely at this point that rising inflation indicators in the coming quarters force the fed to tighten. Opinions are very much divided on this, where many are convinced the fed needs to take drastic action to keep inflation from getting out of control with another financial crisis as a result. The other mainstream view is that we’re only seeing transitory inflation right now and as long as the real economy is healthy we shouldn’t expect inflation to persist and cause carnage.
I believe the situation is the same with stocks. They were criminally undervalued for decades (imo still are somewhat undervalued) so additional money supply causes the prices to increase (it's profitable to buy into great opportunity and pay back cheap loan later) but it's only because the assets were very cheap. If they weren't it wouldn't make sense to buy them no matter how much money is around (as you need to pay it back).
What may cause inflation though are programs when you just hand money to people (not as loans but as handouts) as then you just diluted everyone's else money.
Because another way to read the situation is that stocks are simply the asset of last resort. In a world with no interest, you can't park money in bonds (or CD's etc.) so you've basically got stocks, real-estate and commodities left as options.
Large-scale asset managers are not going to park billions of dollars under the mattress, so basically it has to go to stocks.
2. No.
3. Not at a comparable rate as is evident from the graph.
4. Are equities and other assets completely disconnected from the consumer economy? Many of the new rich and retirees will cash out or take loans against their assets.
5. Economically speaking Bitcoin is inconsequential in this story. Careful using its proponents as another strawman.