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Question about Quantitative Easing

story © Michael Betancourt | published March 21, 2011 | permalink | TwitThis Digg Facebook StumbleUpon  |  


Here's a question that's not getting asked about all the FED's QE programs: where are these funds going since they do not appear to be causing significantly large price inflation in the United States? This is not simply an issue of "follow the money."

Yes, we know that it is going to various groups arrayed to collect the money, and it least some of it is being passed on to fees, salaries, bonuses, etc--but that doesn't answer the more basic question: where is the money going?

Even if being spent on investments and financialization, it is still money floating around in the global economy. It should be going somewhere, even if simply to drive prices on commodities: there are always buyers and sellers, with the sellers getting dollars for what they sell--and then where does it go? What do these sellers spend it on?

My suspicion is that at least some of this is being held, or equally likely, it is being used to keep the circulation going as funds are drained out into accounts or used as leverage to acquire physical commodities where the funding must be held in trust against delivery; obviously there's also a reshuffling of debts to give the illusion of their repayment (think TARP). If these are the primary sites where these funds are vanishing, then anticipation of immanent hyperinflation may be an error: for hyperinflation to happen, the volume of currency must be in the marketplace, driving up prices significantly in a very short time: the price inflation we are seeing, while it is happening, isn't at a large enough scale at the moment for it to be an example of hyperinflation; for hyperinflation to happen, these funds would need to be entering the physical marketplace--instead, they appear to be staying within the immaterial market, implying that this market has collapsed entirely, and can only remain in existence so long as it has a direct input of funding in the form of Quantitative Easing. (While not a new observation, it does explain the missing money.)

It is the direct creation of new obligations for future labor that is now sustaining this market--obligations produced not by banks making loans, as in the Housing Bubble--but in the form of government guarantee. This change is not an insignificant shift: it shows a transformation where the only immaterial economy has now completely triumphed, has severed its tenuous connection with physicality. The money used in this immaterial market is not connected to any physical, tangible labor or production. It is the final shift to a fully digital economy without a basis in physicality.


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