If you, like us, are tired of all the textbook pundits claiming over and over again that QE is nothing but an asset swap (odd how asset swaps get food prices to hit all time highs, not to mention M2, and to reverse what has formerly been a trillion dollar annualized drop in shadow banking - must be that latest outbreak of disinflation...), we urge you to read the following essay from Sean Corrigan. The Diapason Securities strategist as usual manages to cut through the academic drivel and hit at the core of the issue. The conclusion: "money does not have to be borrowed into existence, it can be spent into existence by the state for so long as that money's recipients show a willingness to accept it as a medium of exchange - and that is exactly what we have at work here...the government spends money it does not have into existence and disburses it through its welfare/patronage network; the associated debt is then taken up by a monetary institution (not least, the Fed itself, whether by its earlier process of debt substitution on private sector balance sheets when it was buying MBS, or in its current, direct uptake of Treasuries at the NYFRB) and the non-bank sector ends up with increased holdings of new MONEY as a result... The Fed has successfully placed a great deal of new money in the hands of those same banks' customers and this is patently exerting its expected influence on the prices of a whole range of non-money goods and assets, in a typically differentiated, Cantillon-effect fashion. How anyone can deny this is truly a mystery!" Indeed.
Last week, we appended a graph which we felt showed that the Fed was clearly complicit in producing the current rise in commodity prices - a contention which we foolishly thought was unexceptional. One criticism which quickly emerged was that the graph did not show such a link; another was that this did not apply to commodity prices (obviously responding, therefore, to their 'fundamentals') since the Fed was 'only' creating excess bank reserves before locking them safely away from where they could influence the price of anything much at all. In order to address these two cavils, we unapologetically reproduce a more detailed version of the same graph, together with some extra supporting evidence of the crime and the following address to the jury.
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