Radical Difference Between Monetization 1 and QE2

[mick silver]

http://danielamerman.com/articles/Monetize1.htm

[Silver Shield]

Daniel Ammerman is a very skilled writer that takes economics from the very purposefully complex back to the easily understandable.

[Silver Rocket Bitches!]

The money this time around is not sterile and will not just sit in banks.

The first QE they bought mortgage backed securities.

This time, they are buying bonds and the money is going straight into the economy.

[vacuum]

What makes this current round night-and-day different is that the new money is being created to pay real people for real jobs and real tangible goods. The United States government budget deficit is not about market values of financial instruments, but rather about paying workers on a massive scale for "stimulus" projects. It's about massive road reconstruction projects and expensive high-speed rail lines – with the money being given to workers to go out and spend, in return for their labor. It's about paying a vast army of federal workers - who spend their paychecks. The federal budget deficit is about massive transfers and redistributions of wealth within the US, including Social Security and Medicare, low income housing and many other purposes. All of which require real money that really gets spent by real people.

This is about "stimulating" the economy, not sterilizing the hidden bailout funds. "Stimulating" means the money reaches the economy.

In other words, this money goes directly into the general money supply at a rate of about $110 billion per month through at least June, (the money is the sum of the to-be-created $600 billion, and the cash flow from the Fed's mortgage security portfolio that was purchased with created money). This adds up to lots more newly created government dollars chasing the same goods and services, and competing with savings earned over a lifetime.

There are about 111 million US households, so $110 billion per month in government spending funded by direct monetary creation is equal to about $1,000 a month per household in new money that is competing with our salaries and savings. And add another $1,000 in government money the next month. And so forth.

Good article. The previous QE was to support balance sheets but didn't allow purchase of goods and services. The current QE is direct cash stimulus = directly inflationary.