Will QE2 cause inflation?

[Bman]

The fed will be swapping t-bills for new new money, but the transaction seems a zero sum since it matters not if a bank has cash or t-bills.

Is there a case that this will cause inflation?

[Chase]

Quantitative easing *is* inflation. It's an increase of the money supply. And it's being used to buy bonds, which means the printed money will be spent into the economy.

[Bman]

Quantitative easing *is* inflation. It's an increase of the money supply. And it's being used to buy bonds, which means the printed money will be spent into the economy.

OK, but how is that money getting out of the banks? It matters not to banks if they have t-bills or cash in regards to lending.

[GunnyFreedom]

It makes it easier to dump cash onto the market. I believe it will cause runaway inflation, and that Obama will blame the "Republican wave of 2010" for that inflation.

[Bman]

Here's the video I watched that has me asking questions. I'm having trouble wrapping my head around it.

YouTube - QE2 (http://www.youtube.com/watch?v=kLTDdbGMy5c)

[Chase]

OK, but how is that money getting out of the banks? It matters not to banks if they have t-bills or cash in regards to lending.

Consider where the t-bills come from. At first, they don't exist at all. Then the treasury department issues them, by writing on a piece of paper, "We'll give you X amount of money tomorrow for Y amount of money today." Basically, a loan. Now the fed prints money and buys t-bills with them. Although it is not irrelevant to ask what happens to the t-bill at that point, the printed money is now in the hands of the treasury to spend on whatever it pleases.

[Bman]

It makes it easier to dump cash onto the market. I believe it will cause runaway inflation, and that Obama will blame the "Republican wave of 2010" for that inflation.

BTW. A million congratulations Gunny. Go give em hell!

[Zippyjuan]

If there is not demand for more money (and banks and companies and individuals seem to have plenty to take care of what they are currently willing to spend- the banks already have a reportedly $1 trillion they are sitting on and companies are accumulating lots of case) then QE2 will have zero effect on price inflation in the short term. Nor will it cause people or businesses to spend more than they are currently willing to spend so on that objective, I and many others don't see the point to this new round of money.

The potential problem comes down the road when things do start to pick up again and people and companies do start demanding more money and begin borrowing and spending more of the money the Fed will have put into the system. Unless the Fed can pull back on that (and there is not a lot of evidence that they can do so in a well-timed manner), then the risk of price inflation will be a lot higher than if the Fed does not make this round of QE2. Again, if the money really isn't needed right now and you will have to take it away when people do start demanding it, why put it out there in the first place?

[nobody's_hero]

It makes it easier to dump cash onto the market. I believe it will cause runaway inflation, and that Obama will blame the "Republican wave of 2010" for that inflation.

Already causing trouble, eh GF?;)

[Bern]

It is contributing to commodity inflation which is going to hurt everyone.