Do you really think the amount of money is the only thing that matters?
Why does everyone forget about money velocity? These two parameters don't really have any economic sense regarding price inflation without each other.
I think the amount of money in circulation is the foundation of money velocity: If money is scarce it is more likely to be hoarded (deflation), because it will not loose value, if there is an oversupply it is more likely to be spend fast (inflation), because it might be less valuable in future. There may be other factors that influence velocity, but I think these are rather temporary.
Money in circulation, as well as money velocity are dependent on economic activity, with money velocity a lot more responsive to changes in economy.
Just look at how central banks try to pump money into economy with little to no success, and how money velocity is tumbling. That's because they have no power over economic activity, instead the economy should be stimulated by government. But then we have those silly republicans trying to cut the deficit
I think the main reason for QE how Bernanke is doing it. He's buying MBSs. He's doing this because banks can't unwind these toxic assets. He's trying to un trap liquidity but the banks just use the money to trade instead of lending to the private sector. If they aren't allowed to prop trade, then perhaps they would lend out the money. The other problem is private sector isn't really borrowing because they don't see a recovery.
Yes, he's basically transferring those risks from the banking system onto Fed hoping that it will increase lending. But lending does depend on presence of creditworthy borrowers rather than on banks balance sheets.
And overall this ZIRP only results in misallocation of capital and bubbles.
