From: Fed Weighs ‘Sterilized’ Bond Buying if It Act

Many Fed officials believe strongly the bank reserves it has created as part of this money creation aren’t an inflation threat. But they are acutely aware of a popular perception, also held by a few inside the Fed itself, that the money the Fed has created could cause an inflation problem down the road.

Karim writes:

Dealing with perceptions not reality.

7 Responses

  1. If people perceive the dollar as more valuable then cost of commodities could fall along with the equities markets?

  2. I think they are talking about increasing the money supply here, which funnily enough QE doesn’t do at all. Swapping reserves for troubled BANK assets increases m0, but doesn’t move m1 or m2 at all. Seriously, I just pulled the numbers the other day. The Fed might actually be right for once.

  3. QE didn’t work too well, so they’re trying operation twist. Isn’t it great to live in a world where those in power cannot think of anything to do except flog dead horses?

    1. @dan,

      He’s still confused:

      “Is fractional reserve banking a bad thing?

      The U.S. has always had fractional reserve banking. People and businesses want and need “liquidity”, but the physical analog of liquidity is unemployment. The fundamental economic purpose of fractional reserve banking is to make it possible to have financial liquidity without the need to have physical resources sitting idle, waiting for that liquidity to be spent. It is likely that under a modern gold standard, fractional reserve banking would not be crisis-prone, as it has been in the past.”
      http://www.forbes.com/sites/louiswoodhill/2012/03/07/monetary-policy-faq-explaining-the-basics-of-the-dollar/

      Other places too.

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