You see, by saying QE is not inflationary because it hasn't been spent/lent, then you're also saying QE is not stimulative for the same reason.

Yet Bernanke said today that monetary policy is “highly accomodative”. Accommodative of what? Banks' desire to hold higher cash levels? Certainly. The need to raise aggregate demand in the aftermath of a deflationary shock? Nope.

The Fed has led us to believe that: 1) they have stimulated the economy; and 2) we don't have to worry about inflation because the stimulus was never spent.

Right…

In this crisis, the classic Keynesian government spend has been outsourced. The banks have been selected to be the “spender of last resort”. The government will be frustrated in attempts to produce real increases in spending – debt limits are being reached and it is going to be difficult enough to roll over what is already in place.

So, is this inflationary?

Maybe the question isn't inflationary as much as when inflationary and under what conditions? Now the banks hold the keys to determining when and how to inflate. They can influence the inflation of asset values, but could continue to constraint consumer debt.

The idea that the Fed will be able to withdraw liquidity is based on an assumption that an inflated economy will correspond with increased economic activity and an increase in income. If that fails to occur then withdrawing liquidity will crater the system.

Of course, a circulation flow can be built where the banks return funds to the Fed, then access funds through different programs – we called it check kiting when applied to consumers. So, there is the appearance of transactional flow, but it does nothing to increase incomes and therefore spending.

If inflation is defined as a real increase in wages, then this is an anti-inflationary approach. If inflation is defined as a real increase in consumer prices in relation to income, then it is an inflationary scenario, as prices can remain stable or even decline while incomes can decline faster.

You see, by saying QE is not inflationary because it hasn't been spent/lent, then you're also saying QE is not stimulative for the same reason.

Yet Bernanke said today that monetary policy is “highly accomodative”. Accommodative of what? Banks' desire to hold higher cash levels? Certainly. The need to raise aggregate demand in the aftermath of a deflationary shock? Nope.

The Fed has led us to believe that: 1) they have stimulated the economy; and 2) we don't have to worry about inflation because the stimulus was never spent.

Right…

In this crisis, the classic Keynesian government spend has been outsourced. The banks have been selected to be the “spender of last resort”. The government will be frustrated in attempts to produce real increases in spending – debt limits are being reached and it is going to be difficult enough to roll over what is already in place.

So, is this inflationary?

Maybe the question isn't inflationary as much as when inflationary and under what conditions? Now the banks hold the keys to determining when and how to inflate. They can influence the inflation of asset values, but could continue to constraint consumer debt.

The idea that the Fed will be able to withdraw liquidity is based on an assumption that an inflated economy will correspond with increased economic activity and an increase in income. If that fails to occur then withdrawing liquidity will crater the system.

Of course, a circulation flow can be built where the banks return funds to the Fed, then access funds through different programs – we called it check kiting when applied to consumers. So, there is the appearance of transactional flow, but it does nothing to increase incomes and therefore spending.

If inflation is defined as a real increase in wages, then this is an anti-inflationary approach. If inflation is defined as a real increase in consumer prices in relation to income, then it is an inflationary scenario, as prices can remain stable or even decline while incomes can decline faster.