I will find the link (I can't seem to find it now), but between August of last year and August of this year, data shows that Federal Reserve policy nearly doubled the monetary base from about 860 billion to almost 1.56 trillion in the United States.
Now, I know it's intuitive to assume this will inevitably lead to inflation, and a lot of people are in fact assuming this, but if you drill down deeper, isn't how the monetary base was expanded, where the additional supply went, and how it's now being treated at least important, if not equally (or more) so, than just the mere fact that the monetary supply has been expanded?
Example: Shittygroup (a giant, national, hypothetical bank, with a hypothetically quite sickly balance sheet in this hypothetical scenario) receives 45 billion of the additional dollars that Fed Reserve policy has created, in an attempt to prevent the implosion of this bank.
This 45 billion received by Shittygroup alone (just one financial institution represents about one out of every 15 dollars that Fed Reserve policy has injected into the system. And this is just one bank (in the real world, AIG received 172 billion dollars, and Citigroup received 45 billion).
Shittygroup uses the 45 billion in taxpayer money to recapitalize its capital base, to write off bad loans and derivative losses (an ongoing process to this day), and to essentially avoid insolvency (for now).
A few questions now follow:
Has this Federal Reserve created money, compliments of U.S. taxpayers, gone into the "real U.S. economy," in a way that is likely to spur inflation, or it is pretty much contained to allowing Shittygroup to deal with its losses, which destroys a great deal of the 45 billion lent by the government.
Also, to the extent there is anything of the original 45 billion left over, after Shittygroup deals with its toxic losses and recapitalizes itself, where does this excess "go?" Does the Federal Reserve recapture it? Does it get loaned out to businesses and consumers? Again, this is assuming anything remains at the end of the day.
Now, take all of the monetary base expansion created by the Fed Reserve, and assume at least 70% if not more of this fiat was dealt with the same way, with different recipients. Where is the risk of inflation?
In fact, can't one argue that given that loan losses are ongoing, still, despite some actors paying their bailout loans back, deflation is the predominant force versus inflation, as these monies aren't really making it into the pockets of consumers or small businesses, as credit contraction continues and loans are even harder to come by (after all, what good would giving money to sickly financial institutions do if they, in turn, made more bad loans in a precarious economy, and didn't use the money to deal with their current balance sheet losses, which effectively destroys that money)?
Now, I know it's intuitive to assume this will inevitably lead to inflation, and a lot of people are in fact assuming this, but if you drill down deeper, isn't how the monetary base was expanded, where the additional supply went, and how it's now being treated at least important, if not equally (or more) so, than just the mere fact that the monetary supply has been expanded?
Example: Shittygroup (a giant, national, hypothetical bank, with a hypothetically quite sickly balance sheet in this hypothetical scenario) receives 45 billion of the additional dollars that Fed Reserve policy has created, in an attempt to prevent the implosion of this bank.
This 45 billion received by Shittygroup alone (just one financial institution represents about one out of every 15 dollars that Fed Reserve policy has injected into the system. And this is just one bank (in the real world, AIG received 172 billion dollars, and Citigroup received 45 billion).
Shittygroup uses the 45 billion in taxpayer money to recapitalize its capital base, to write off bad loans and derivative losses (an ongoing process to this day), and to essentially avoid insolvency (for now).
A few questions now follow:
Has this Federal Reserve created money, compliments of U.S. taxpayers, gone into the "real U.S. economy," in a way that is likely to spur inflation, or it is pretty much contained to allowing Shittygroup to deal with its losses, which destroys a great deal of the 45 billion lent by the government.
Also, to the extent there is anything of the original 45 billion left over, after Shittygroup deals with its toxic losses and recapitalizes itself, where does this excess "go?" Does the Federal Reserve recapture it? Does it get loaned out to businesses and consumers? Again, this is assuming anything remains at the end of the day.
Now, take all of the monetary base expansion created by the Fed Reserve, and assume at least 70% if not more of this fiat was dealt with the same way, with different recipients. Where is the risk of inflation?
In fact, can't one argue that given that loan losses are ongoing, still, despite some actors paying their bailout loans back, deflation is the predominant force versus inflation, as these monies aren't really making it into the pockets of consumers or small businesses, as credit contraction continues and loans are even harder to come by (after all, what good would giving money to sickly financial institutions do if they, in turn, made more bad loans in a precarious economy, and didn't use the money to deal with their current balance sheet losses, which effectively destroys that money)?
). This page is formatted much better than it used to be, BTW.