Putting aside your incorrect assumption that I agree with the conclusions of Sinclair, Schiff and others that hyperinflation is likely, and returning to my original point - that they do understand the banking system and that it is inaccurate of you to say that they don't - of this I am sure because I have read and listened to both gentlemen for many years, years after I personally learned how the banking system works.
It would, however, be accurate of you to say that you disagree with their conclusions about the general reaction to the Fed's actions, because that's the actual source of your disagreement.
Just give 'em a little credit for their intelligence, for goodness sakes.
Now that this is cleared up, answer me these questions...
1. How can you say that QE doesn't add dollars to the general economy?
Clearly, it does. When the Fed purchases bonds from a primary dealer they do so with funds that didn't previously exist. Sure, they can remove those funds by selling the bonds (provided that they can get the same price, which they won't be able to do if interest rates rise) but the process of purchasing the bonds not only creates money out of thin air, it seeds the potential creation of much more money by the banking system.
2. Do you not see that the Fed's actions enable overspending politicians, and if you do see, do you not see this as problematic?
You said that the government doesn't need to issue debt. But in the real world today it clearly does. If one starts with the reality that politicians will provide supporters as many freebies as they can get away with providing, in an era where balanced budgets are not required, politicians will overspend, and in order to fund the overspending they must borrow. The alternative is raising taxes, and since the livestock doesn't like that politicians avoid this funding method in favor of borrowing.
Now if the borrowing were limited to only the current money stock then there would be a limit to the borrowing. Eventually, as the borrowing grew lenders would demand higher and higher interest rates, so the borrowing would have to be tapered as eventually interest rates would rise to rates that would scare off even the most aggressive investors.
But as long as the Fed is there to pick up the slack with new money created out of thin air, politicians can continue to overspend until something happens to stop the process.
That "something" could be (not necessarily WILL be) the livestock waking up to the fact that they actually ARE being taxed to pay for the overspending, taxed via the inflation tax. But that realization is unlikely to occur until folks actually can see and feel the tax, which might not happen until price inflation increases, which becomes much more likely to happen if the Fed follows the Krugmans of the world who are calling for even more QE.
Never trouble trouble til trouble troubles you. Fortune Cookie
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