[nhaehnle]

Your post contains a great example of what was called the Worst Argument in the World on LessWrong: http://lesswrong.com/lw/e95/the_worst_argument_in_the_world/

To be more precise, you are using the moniker "money printing" to confuse the issue. See, inflation isn't caused by printing money, inflation is caused by spending. If there is too much spending power going around and the productive capacity of the economy cannot keep up, then prices are going to be bid up.

QE isn't going to cause much more spending, because as grandparent correctly stated, nobody's total amount of assets is going to be changed by QE. After all, suppose you hold long term treasury bonds. Now the Fed offers to buy them at a higher price. Maybe you will take that offer. And maybe you'll use that money to buy some other class of assets. But will you now actually put that money into the real economy, buying some produced goods or services that you would not otherwise have bought?

Most people won't do the latter, and that's why QE isn't going to cause additional spending, and this is why it isn't going to cause inflation.

Note that this is very different from historical episodes where money was printed by the government for direct spending, e.g. by the southern US states during the civil war.

[dstanchfield]

I am not sure I understand your point, I didn't say anything about inflation. Maybe you meant to reply to the original post. But I'll respond nevertheless...

Saying inflation is caused by spending, not by money printing, is akin to saying a heroin addict has a "syringe problem." Sure, the spending is what actually increases prices, but tell me, how can spending actually increase? What allows this to take place? Your line of thinking is similar to Nixon's, when he decided to freeze wages in the 70s, thinking this would tame inflation. How did that work out for him. Just about as well as outlawing syringes would do to eliminate heroin addicts.

The Fed's goal with QE is to increase asset prices, this is not some right-wing conspiracy theory.

[chii]

I m not an economist, so i might've understood your point wrong, but you just argued that the Feds offered to purchase your long term bonds for a higher price - logically this must mean you've made some money (ala, profit).

So having made profit, wouldn't you then spend that profit on something that you otherwise wouldn't have afford to spend? Thus, this introduces more spending power, and thus, introduce the inflation that you said wouldn't happen?

[nhaehnle]

Let me clarify what I wrote: you have a choice between (a) just keeping the money, (b) buying some other kind of asset, and (c) spending the money in the real economy.

Asset prices can indeed go up, because people do (b), but (c) is almost non-existent, which is why these Fed operations are neither going to help the real economy nor create inflation there.

Keep in mind that those transactions are mostly done by insurances, pension funds, and other types of "money managers".