Money put into the system would, in normal times multiply aggressively in use (e.g. Fed to bank, bank to business, business to consumer, consumer to restaurateur, restaurateur to farmer, farmer back to bank etc etc.) In reality, as Citi notes, there are often even more legs to this multiplier. However when QE puts artificial support under the Equity and Bond market you get misallocation of capital and no velocity of money. If ever there was a chart of the gross misallocation of capital caused by QE, this has got to be it...
- The last time both were as low as this was 1965 (Nearly half a century ago)
- Core PCE stands at 1.23% having seen a range in the last 54 years of 0.95% to 10.25% (Inflation floor anybody???)
Inflation does not show up in the true economy but in paper asset prices instead. (that worked well in prior cycles)
One might even argue that as a consequence QE actually stifles economic growth, employment creation and inflation.
The trouble with that assessment (if correct) is that Ben does not believe that premise and neither does Janet.
(Quite the contrary) If the premise is potentially true that QE is actually a negative for the economy/savers etc. then more QE will not only not solve the problem, but exacerbate it. It therefore becomes a negative feedback loop that we cannot get out of until the Fed has the nerve to stop QE no matter what the economic backdrop. Under Janet Yellen that scenario is highly unlikely.
(Translation: It aint happening)