What the Fed is doing under QE is increasing the monetary base (MB) by increasing bank reserves. From this M2 can be increased by banks if there is sufficient demand in the economy to take on additional liabilities. Increasing M2 is not printing money. Simply put, M2 is what happens when a bank loans out money and they create a new asset and a new liability in the economy. This is different from what happens in a fractional reserve banking system where the number of bank notes is increased but the reserves that they represent remain fixed. That's what printing money is.
The banks dont need to loan money, if they purchase assets like USTs, GSEs MBSs from non-banks M2 rises. And if M2 is not money, I dont know what is, those mostly can be exchanged for physical cash with very little lags
You're wrong. If a bank purchases securitized debt in the open market there's no increase in M2. Likewise, open market operations such as QE1&2 only swap reserve balances. The increase in M2 only arrives if in the aggregate more debt is issued than extinguished.
Nope, sorry, you are wrong. If I own $1m in USTs and sell to BAC, then they will use their bank reserves which then turned over to me will be called a bank deposit(checking account money), which gets added to the M2 number. Those things are true by definition
Yeah right, so they credit your checking account and debit their own in order to purchase the USTs. No increase has taken place, it's just some bank reserves that have been swapped around. In order to actually increase money supply the amount of debt issued must rise, or the interest rates must rise, or both.
All the obfuscation aside, the Fed is 1) Buying securities. Where do they get the money to do this? 2) Those who "sell" the securities have their accounts credited with U.S. dollars. Call it QE, call it "non-money printing" or whatever Orwellian term you wish, but that's what's happening. And if Bernanke was so confident this wasn't printing, why did his body language show otherwise (very clear on 60 Minutes)?
QE is a program that exchanges longer term notes and bonds for 30 day T-bills. It's akin to moving money from your savings account to your checking account. The idea is to provide stability to the banking system by increasing liquidity reserves (30 day t-bills) It does not increase the amount of money that's in circulation. It just alters the term structure of the assets that banks are holding. It's not a jobs program either as the Federal Reserve likes to pretend. No one is being *hired* as a result of QE and demand for loans in not increased. All it prevents is outright demand destruction caused by an unstable banking system in the form of liquidity crunches and skyrocketing interest rates.
You're right, sorry. I misread you and thought you were talking about reserve accounts at the Fed. If you as an individual sell $1m in bonds to a bank then what happens is they create a new asset (the bonds) and a new liability (your deposit account) on their balance sheet which does increase M2.