![Quote](https://startingstrength.com/resources/forum/images/misc/quote_icon.png)
Originally Posted by
Jovan Dragisic
I am not saying this, you are interpreting what I said from the London School of Economics faulty perspective. QE is an accounting maneuver, yes. QE is not increasing the money supply. In the monetary system that we have, central banks do not create money, private banks do. They do it by lending money to customers. What QE does is increase the bank reserves, but bank reserves are not money, they are one of the assets on a bank's balance sheet. It also enables the central banks to "buy" government debt, but they are not really buying anything, they are swapping bank reserves for government debt. This is somewhat useful for governments, because they can then issue debt and use it to meet their obligations. Some of this goes back into the economy in terms of governments paying employees or running infrastructure projects, but since the whole thing encourages further conservative behavior by the banks, any money that manages to make its way into the economy is offset by constantly contracting bank lending. Japan is the best example of this, they have had outright price deflation for two thirds of the time in which they have been running the so called inflationary QE. Europe is a good example too, bank lending has been contracting for most of the ten years of QE.
You can call what we have been seeing for the past two years inflation, since prices are rising. This is the standard London School of Economics (neoclassical) bullshit. The problem is that prices are rising in an environment in which bank lending (actual money creation) has been on the decline. There are many reasons for price increases, they are all connected to government actions, and in China and Russia's case this might be belligerent action, but since this is happening in an era of contracting money supply (so actual deflation), we are in for a very interesting ride. I can't really explain this much better, since I am not a professor. In case you are interested in how money and the economy really work, I suggest you stop reading the news and the financial analysts right now and get your hands on Milton Friedman and Anna Schwarz's A Monetary History of the United States and Keynes's General Theory.