More Inflation and Taxes From the Fed? Not Exactly
These sorts of arguments annoy me. TMFRedwood blogs via Motley Fool:
This news that the electronic printing press has been dusted off and is starting to hum should bring a queasy feeling to your stomach. When investors buy government debt, they do so with dollars already in existence. When the Fed buys government debt, it creates new dollars to do so. An influx of new dollars decreases the value of existing dollars (including your wages, stocks, and other financial assets). And because these new dollars are not distributed evenly through the society (they are spent by government), your financial wealth is reduced. This is the worst kind of inflation.
What happened this week is both inflation and a tax increase. Yet no mainstream media report will discuss it in this fashion. There is no uproar because this tax increase is 1) essentially invisible, 2) cloaked in “this will help the economy” language, and 3) people don’t fully understand it.
The Fed does create inflation by serving as concubine to the tax scheme, charging interest on our own dollars to force us to ask them (through Congress) for more and, recently, bypassing the taxpayer money laundering scheme to trade debt for "money" directly. To call those "dollars" would be somewhat incorrect as it's really just numbers added to a reserve account. Blips. As long as they sit there like that, very still, the Fed can say it has inflation under control as they aren't toxic to the value of current dollars that existed before these new blips came along until they hit the air. If you wonder why the banks aren't lending despite the Fed telling you they are and want to, all you have to do is the math on the last $2 trillion or so that we've "made up" to cover the many more trillion "dollars" that were lost when the last bubble popped. If you want to get specific about things. Whereas that money - which could be debated as having existed as actual dollars but we'll save that for another day - flowed a little freer in the general economy (this inflation mentioned above happens as a result), this new batch of "money" is only an account.
That's why no one (well OK, I partake sometimes) is freaking out about the Fed's balance sheet. They could probably blow it up another 200% and doomsday will not suddenly befall all of us.
So no, not more inflation and taxes from the Fed. Not yet, anyway. Let that shit hit the air and we're fucked.
We talk about Zimbabwe Ben at the printing press but don't literally mean he's down in the Board basement giving his easy money arm a workout.