Recently I was looking at inflation
rates and reading what some progressives had to say on economics. I
knew inflation rates were low and in part that was due to cheap
imports. Imports alone couldn't account for $4 trillion in
Quantitative Easing inflation dollars. For the past few days I've
been looking for these answers and here are my conclusions.
The answer is far simpler than I
imagined, and it also answers a question I had last year. Where are
the missing $3 trillion Fed dollars? Today that question would now
have to be changed to—Where are the missing $4 trillion fed dollars?
The answer is that it's stored at the Federal Reserve in the form of
bonds, or at least should be.
The US government has been attempting
to practice Keynesian economics. The basic principle of John Keynes
economics is that the government pumps money into the economy. That
money can come from either borrowing or printing. In the age of
computers that money can be created through digital information. It's
not important how the Fed got the money for QE. What's important is
what happens to all that money.
Right now the Fed is sitting on $4
trillion in bonds accumulated over almost five years of Quantitative
Easing. It's hard to determine what the value of those bonds will be
at the time they are sold. The eventual problem will be how to inject
that money back into the economy without causing hyper inflation. The
Fed could simply hand over that money to the US Treasury and placed
into the general fund. The Fed banks could simply keep the money and
pay the US government their 6% interest as determined by the Federal
Reserve Act.
