[quote=Leorocky]
The money the Fed has “printed” has mostly gone to shore up the balance sheets of large banks. Using your simple economy example if the new money supply was buried in my backyard or in some other inaccessible location (such as a banks deposit account at the Fed) it has no effect on the price of the goods.[/quote]
Why does the fed need to shore up the balance sheets of banks, unless that money has already been spent as credit and entered the economy?
Total money supply includes both credit and money (bank notes, savings, etc.). They spend the same whether I borrow $100K and spend it or take $100K out of my saving account and spend it. I’ve created the same demand for some set of goods.
If your point is just that hyper inflation hasn’t happened, massive inflation hasn’t happened and likely won’t happen then I agree with you. It hasn’t happened because that money was already spent and now it’s just being used to shore up the asset side of the banks balance sheet.
Now to say that Fed money printing has had nothing but positive effects on the economy and that there isn’t any consequences to their actions is naive. They have created a massive asset price bubble in certain asset classes. There’s a significant portion of that printed money that has ended up in asset price speculation. We’ll see the result in a few years but for now I don’t expect to find many to agree with me now. Nobody seems to be able to hold onto the lessons taught from the previous bubbles.
