Fed Announces Open Ended QE3
reason.com
reason.com
Now if you really wanted to argue that this is not money printing, I might accept the claim that the Fed will at some point unwind this position. But even that is highly dubious.
In fact, you could argue that QE ultimately reduces private sector income because it eliminates this interest income.
To be more precise, you are using the moniker "money printing" to confuse the issue. See, inflation isn't caused by printing money, inflation is caused by spending. If there is too much spending power going around and the productive capacity of the economy cannot keep up, then prices are going to be bid up.
QE isn't going to cause much more spending, because as grandparent correctly stated, nobody's total amount of assets is going to be changed by QE. After all, suppose you hold long term treasury bonds. Now the Fed offers to buy them at a higher price. Maybe you will take that offer. And maybe you'll use that money to buy some other class of assets. But will you now actually put that money into the real economy, buying some produced goods or services that you would not otherwise have bought?
Most people won't do the latter, and that's why QE isn't going to cause additional spending, and this is why it isn't going to cause inflation.
Note that this is very different from historical episodes where money was printed by the government for direct spending, e.g. by the southern US states during the civil war.
So having made profit, wouldn't you then spend that profit on something that you otherwise wouldn't have afford to spend? Thus, this introduces more spending power, and thus, introduce the inflation that you said wouldn't happen?
Asset prices can indeed go up, because people do (b), but (c) is almost non-existent, which is why these Fed operations are neither going to help the real economy nor create inflation there.
Keep in mind that those transactions are mostly done by insurances, pension funds, and other types of "money managers".
Saying inflation is caused by spending, not by money printing, is akin to saying a heroin addict has a "syringe problem." Sure, the spending is what actually increases prices, but tell me, how can spending actually increase? What allows this to take place? Your line of thinking is similar to Nixon's, when he decided to freeze wages in the 70s, thinking this would tame inflation. How did that work out for him. Just about as well as outlawing syringes would do to eliminate heroin addicts.
The Fed's goal with QE is to increase asset prices, this is not some right-wing conspiracy theory.
But I'm sure I'm just latching onto a simplified explanation because I am too ignorant and stupid to comprehend the complexities of "economic science".
It should be clear to all that with the Fed keeping near-zero interest rates whilst printing more money, inflation is the objective and is underway...
I don't know if that equates to "sabotage", but it's certainly not good for folks who aren't in the Asset Class.
From what I understand, the Fed is politically in a very crappy position: they have a mandate for high employment (which is a good thing!), but they cannot really do anything to meet that mandate.
To create jobs, somebody needs to actually spend money. Spending money means moving money around so that afterwards, person A has less monetary assets and person B has more monetary assets.
However, the Fed is not allowed to engage in such actions. All it can do is asset swaps. So it can swap short term for long term bonds, for example, but when they do that, everybody still has the same amount of monetary assets afterward. It is only the maturity and interest rate structure that changes.
The hope is that lower interest rates encourage private investment and thus private spending on jobs. However, that's not very realistically going to happen on a larger scale, because demand for products matters much more to firms than a tiny change in interest rates does. And as long as unemployment is high, demand remains low, which means that firms have no incentive to create jobs.
It's a vicious cycle, that in theory the government (the union of legislative and executive branch) should break out of, because they are in a unique position to do so: they are not bound by market constraints. But the government is instead bound by partisan politics and an unscientific belief in the religion of austerity.
So with the government not doing anything, the Fed at least tries to do the best they can to help the situation, which happens to be almost nothing - but they still try, because of the miniscule hope that there are, after all, some positive effects.