Why QE Can’t Lead to Hyperinflation
Posted at 9:45 a.m. on Aug. 15
Josh Brown points to a recent note from Standard & Poor’s that explains why the Federal Reserve’s quantitative easing program cannot lead to out of control inflation.
From the note: “Many talk as if banks can “lend out” their reserves, raising concerns that massive excess reserves created by QE could fuel runaway credit creation and inflation in the future. But banks cannot lend their reserves directly to commercial borrowers, so this concern is misplaced… Banks in aggregate can reduce their reserves only to the extent that they initiate new lending and the bank deposits created as a result flow into the economy as new banknotes as the public demands more of them.”
“If the excess reserves created by QE were to be associated with too much credit creation, central banks could readily extinguish them.”