Quote:
Originally Posted by rivercitybirdie
good comment............ expanding the Fed's balance sheet wasn't very inflationary. at least not as much as some alarmists thought. one reason (there are others) is that the money didn't go out into the economy as bank loans/equity. i think it went through money markets and/or treasury bond market once and/or ended up on reserve at fed anyway. not sure how this differs from nazi germany or zimbabwe crazy money creation that was highly inflationary (at least in Z's case)
Yeah as far as I understand, a major goal of QE was to prop up asset prices, which had plummeted in 2007-08, as a way of rescuing firms' balance sheets that were underwater. Until that was done nobody was lending money because their liabilities all exceeded their assets, causing a credit crunch and a major recession.
Richard Koo
explains a "balance-sheet recession" really well, adding that the newly-created money from a QE injection doesn't circulate into the economy during a balance-sheet recession because there are too few borrowers. After all, if your balance sheet is underwater, you're focus is paying down your liabilities, not taking on new ones.