Comment: Thanks - isnt that half of it?

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Thanks - isnt that half of it?

When the fed offers credit to the banks at basically zero percent interest rates, you are right that is not printing money that is offeing credit which can be pulled back. Although in your example with the million dollar house dropping to 100k you noted the bank marks it down- under accounting rules passed in 2009 they don't. This was done in order to allow the banks to appear solvent.

When the Fed buys mortgage backed securities and us treasuries they are printing money out of thin air to do so.
The purchasing of MBS's acts to keep rates down ad encourages asset inflation of the prices of homes. You and other sensible people may not pay $500k for a boston condo but that is what the market is bearing because of the low rates engendered by the fed.

When the fed buys treasuries they are also printing money out of thin air. This money does circulate as it goes to pay for the government's spending.

Deflation would occur if the govt cut spending. The sequester isnt a cut in spending but rather a slowing of its growth.

Deflation is a natural product of a boom and we would have already gone through that period from 2008-2011 if the fed did not boost spending on homes and the stock market through Qe.

They are clearly interested in staving off deflation. That s why they have spent over 2 trillion since 2008, extending credit and printing money to buy MBS's and treasuries.

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