Yes, QE is interesting. Definitey goes against the “Government must tax before it can spend” idea. Remember the Fed is part of the US Government sector, so spending as a result of QE should go into the private sector, minus what is taxed back later.
Government securities generally represent savings because the Governments are generally legally required to match deficit spending with bonds, etc. QE was a bit of a departure from the norm (perhaps only temporarily though) and shows what modern monetary theory says - that it isn’t really necessary, not is it necessarily inflationary (this is because all spending carries inflationary risk, and inflation has to do more with aggregate demand than money supply etc. - and the most generally anti-inflationary force is actually taxation)
I have a different view. Unfortunately it's not possible to make a real scientific experiment to validate your or my assumption.
My thinking is that QE is quite inflationary.I think that after 2008 crisis we were expected to have a long period of strong deflation (let's say, with prices falling 4% each year, for 8 years straight), but QE reverted that and we had 1% of inflation or something like that instead. So, formally we are in "mild inflation" ground, but in fact the QE effect was quite dramatic. We just can't observe it because we don't have a "control group economy".
Well, all spending carries inflation risk - what really matters is what aggregate demand is like and how much spending and taxing alters that. Certainly QE could be inflationary, but as it was it was mostly just buying back securities it was mostly asset neutral so shouldn’t have done much (just like issuing Government securities to match deficit spending (just in reverse) - it doesn’t actually alter whether deficit spending is inflationary or not since there is a quite liquid market for those assets so they’re very similar to cash).
It is considered to have inflated prices of certain financial assets though (shares etc.)
stephen_g, if you are interested, then I wrote a very simple scenario of how QE could (and IMHO did) spill over into "real economy" here -- https://news.ycombinator.com/item?id=16606140
You do know the Federal Reserve is not actually federal and is owned by private banks right? Perhaps there is some definition of US government sector I'm not aware of.
That's a common misconception. It's technically a soft of public-private hybrid, but the "ownership" by private banks is purely symbolic. The system is considered "independent within the Government", not independent of the Government.
The Federal Reserve's governors are appointed by the President and confirmed by the US Senate, and it derives all its authority only from the Federal Reserve Act. The organisation is accountable to the Government Accountability Office as well.
Most central banks though are just directly owned by the Government of the country, even if they are meant to operate independently.
The "independence" of central banks is generally a bad thing though - the point is supposedly to "depoliticise" them but really it's just an attempt to remove any democratic control of them.
Your first paragraph is just flat wrong. I know quite a bit about the Fed, and I'd like you to cite your source on both the "public-private hybrid" part and the "purely symbolic" part. Neither are true, unless you consider 6% of trillions and trillions (after expenses) "purely symbolic". I have no idea where you get the hybrid part. No government owns shares of the fed.
Also, for your information, the GAO audits are anything but accountability. After finally getting the GAO audit part passed in 78 there were so many limitations on thier audits as to make them so piecemeal they are more of a rubber stamp than anything. (Not to mention a few times when it got out the Fed destroyed source documents)
Don't call something a common misconception when you don't have a more solid understanding of the subject please. The common misconception is that they are federal, not the other way around.
Government securities generally represent savings because the Governments are generally legally required to match deficit spending with bonds, etc. QE was a bit of a departure from the norm (perhaps only temporarily though) and shows what modern monetary theory says - that it isn’t really necessary, not is it necessarily inflationary (this is because all spending carries inflationary risk, and inflation has to do more with aggregate demand than money supply etc. - and the most generally anti-inflationary force is actually taxation)