We did exactly that. The Fed orchestrated the greatest ordinary person bailout the world has ever seen: it reinflated the US housing market and salvaged the net worth of the entire middle class in the process.
It did cause vast inflation. Just look at the cost of a house in 2012 vs 2018 or the equity situation then vs now:
Average gain on a home sale in 1Q04: positive ~$50,000.
Average gain on a home sale in 1Q12: negative ~$50,000.
Average gain on a home sale in 1Q18: positive ~$55,000.
https://i.imgur.com/SfktmBU.png
Median sales price for homes sold in the US:
1Q06: $247,000 (peak bubble...)
1Q12: $238,000
1Q18: $338,000 (!)
Those recent gains are very heavy with inflation courtesy of the Fed, and they are entering the real economy slowly but surely with every exit. That's also why the Fed is being forced to raise interest rates when it's the last thing the economic party wants.
The artificially juiced stock market (artificial courtesy of the low rates), which has created millions of new millionaires in the last four or so years, is also inflationary. It has also helped to salvage countless pension funds for large numbers of ordinary persons, funds that were badly under water. Every time someone sells their hilariously inflated Netflix stock at 200 times earnings, they can thank the Fed, and when they dump that into the economy (consumer goods or housing) it's inflation in action.
How the the Fed do this? Certainly not by QE, which did none of these things.
> Just look at the cost of a house in 2012 vs 2018
What did the Fed do during this time? Most of the money printed by QE happened from 2009-2013, and QE was shut down completely in October 2014.
QE was the bridge between the two sides of the chasm, hence it's not visible on the graph. We see a rapid fall, a smooth bottom and a nice rise, but it could have been simply a big crash at the bottom and nothing for a decade.
No. QE bought T-bills in order to exchange them for increases in the banks' account balances at the Fed.
TARP funds bought junk-ish bonds back in 2008-2009, but all that did was make banks and financial institutions not go bankrupt from being forced to make subprime mortgages for several decades due to the federal government's policy to "encourage" home ownership.
Also 247,000 to 338,000 over 12 years is not a huge gain. An APR of 2.7% doesn't seem crazy
Which I believe is the entire point of QE. I find the current incarnation of QE (buying bonds) unimaginative at best. I get that helicopter drops are politically hard, but there's gotta be something better than this.
Not really. The point of QE is to stimulate economic activity. Unfortunately, buying bonds doesn't do that either if banks don't use the newly printed money to make loans.
Usually QE allowed banks to roll over mark-to-market assets that turned into garbage into sane cash to satisfy solvency and liquidity requirements. And of course this led to price stability.
That's not an "argument", it's an observation. Almost all of the QE "new money" was never used by the banks to make loans; it just sat in their accounts at the Fed. Why? Because the banks weren't fools: they knew they had way too little reserves for the loans they already had outstanding, so they just used the QE funds to increase their reserves. That equates to "significantly deleverage".
> I guess it may also have to do with how the QE was introduced. If it was money printed to pay civil servants it might have had a different effect than introduced in the bond market.
Or money printed to pay ordinary people whose retirement savings had collapsed through no fault of their own. And yes, that would have caused inflation, because you would have had a greatly increased quantity of money chasing the same quantity of goods and services. It might also have stimulated some economic growth which could have offset that effect, but that's a chancy thing to rely on.