Or third the government could just sell bonds back into the market, reduce bank liquidity, reduce funds available for investment in the private sector, help precipitate a credit crisis and seek to pull the economy down. That’s the ‘normalisation’ route. Of course it need not do this. As has been shown here, QE has not actually boosted money supply so by itself it has created no economic risk, including of inflation.
His reference is to here. Which shows that QE has not increased M4.
Quite so. But there are two money supplies (at least), base money, M0, and then wide money, M4. The second is the first times the velocity of circulation–roughly and without troubling the referee too much.
V, velocity, fell precipitately in the recession. At some point it will rise again. Thus, we increased M0 in order to stop M4 falling as a result of he ollapse of V. And when V recovers we’ll have to reduce M0 back down again to stop the inflation coming from strongly rising M4.
The annoyance here is that there’s nothing in the slightest either difficult or odd about this explanation. It’s very, very, simple and straight monetary economics. Why is it that the Senior Lecturer at Islington Tech cannot grasp it?
Still, at least he’s offering another hostage to fortune. As and when the Fed and BoE do reverse QE and there isn’t some appalling crash we can all refer back to this, can’t we?