Here’s how I understand it. The Fed, in particular the NY Fed, through the primary dealers replace bonds with Federal Reserve Notes (currency). The bonds end up on the Fed balance sheet as a debt, about $7 trillion now, but they can keep rolling and expanding this. Seems like most of this new money stays tied up with the rich, so you get asset inflation (stocks, real estate, etc) and not much consumer inflation, so far. I think the main risks of this scheme going forward are the value of the currency and cultural instability.
Excellent post.
Historically speculative money sits in real estate and equities. When consumer necessities inflate, people immediately cut those purchases. Those commodities aren’t going to inflate forever without buyers. Real estate and stock valuations can stay high for a much longer period.
When actual deflation hits, something we haven’t felt since the 1930’s. The speculative values evaporate and pricing reaches an equilibrium for both labor and capital. Another economic expansion will eventually unfold.