“Most people don’t know how or why monetary policy works. That’s evident by the “printing money is inflation” comments.”
I guess I don’t understand either. How is it not inflationary?
It depends on the printing relative to the demand for money. When there is a very high demand for liquidity, providing liquidity (ie “printing money”) is necessary. Don’t “print” enough of it and you will have DEflation. Printing can be inflationary if there is “too much money chasing after too few goods.” You cannot just assume that printing money, in and of itself, is inflationary. It’s relative to demand.
Now the issue we are currently in is that we’ve provided significant liquidity to meet demand. But the money is not getting into the economy (bank reserves have gone up by about the same amount as QE) and turning over by various parties spending/buying. The velocity of money is at a record low. That’s because of the fiscal/regulatory issues that Fisher discussed. If that gets turned around and appropriate levels of growth start to occur (3-5%) and velocity turns back up then the provided liquidity will be excess and could then be inflationary if the liquidity isn’t drained fast enough. It will be drained by the Fed selling the bonds they purchased and removing the cash from the system. Anti-QE. That’s the mechanism for manipulating the money supply to add/subtract liquidity.