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Author: Jgrimm4 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 10561  
Subject: Re: Inflation fears are overblown Date: 1/16/2012 9:39 PM
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Help me understand the fed money sitting on the sideline? The fed did not have 1.5 trillion dollars in a bank that it used to buy bonds or MBS. They created dollars out of thin air or added a line item on the balance sheet and bought it from someone. That someone now has cash which they use to buy more stuff which increases the velocity of money. All that money did not exist before they handed it to someone.

With that said I agree inflation will not be an issue for a long time but IMHO it is b/c of the great deleveraging that has occurred which has erased a tremendous amount of dollars out of the economy.

Back to the fed, the out of thin air dollars they pumped into the economy will naturally be destroyed. MBS and us government bonds they bought will be slowly paid back as long as they do not buy anymore. To me this seems to be an ideal way to suck the dollars back out of the economy without killing liquitiy.

But I am no expert...
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