Free Money and Banking Lesson:
The Fed and the Treasury are necessarily apart of one another although distinct in practice. The Fed can't implement QE unless there is a supply of bonds (issued by the Treas) to purchase. If the Fed fails, the whole banking system comes crashing down and the Treasury is bankrupt by virtue of being unable to sell bonds and therefore unable to meet its present maturing financial obligations (this concept is known as "liquidity").
QE is an "Accounting Fiction" because the Fed doesn't actually have cash to credit to the bank, it just makes a credit entry (debit to the bank) on its book which is backed by the "full faith" of the govt.
In this case the Fed is giving banks a credit (money on balance sheet) in exchange for shitty bonds (not just Treas Bonds this time, could be wrong) the bank currently owns and deposits with the Fed [Bank delivers bond to Fed, Fed credits cash to bank in amount of bond]. By having cash (which doesn't really exist b/c the Fed doesn't have any) on its balance sheet the bank has increased its reserves, which it can turn around and lend 10x the amount on (fractional banking). This is when the money is printed. The hope is that the banks will lend the money to people and not turn around and buy more bonds that aren't nearly as shitty. FYI- buying a bond is in essence making a loan (for the dumber posters on this board).
If too much money is dumped into the economy, rather than back to the Treasury in the form of purchasing less shitty bonds, inflation happens. To date this has not occurred because banks are too scared to lend money because they've had no idea what the democrat government was going to do with legislation and how it would effect the potential borrowers and themselves. With repubs soon in charge of the house (perhaps more importantly with Pelosi out), more certainty exists and there may be a stronger likelihood that banks lend. With all the cash already on the balance sheets from TARP and stimilus and all the new cash from this QE there could be hyperinflation. IMO, the only thing keeping inflation from occurring in the current environment is the banks own fear of unknown losses in their current portfolios which they will protect by hoarding cash.
Obama doesn't understand high school economics, let alone the fractional banking system, so I doubt he's intervening much more than what Geitner says he should do, which in and of itself is frightening.
Feel free to criticize and act like an bad person.
