It is true that QE reduces cash flows out of the public sector. However, to conclude from this that QE is deflationary is a mistake: QE takes cash flow away from people who are long Treasury bonds - the very people who have the lowest propensity to spend.

As such, the fiscal effect should be expected to be negligible.

And there is a (more than) countervailing distributional effect, away from people who are long in private bonds and toward people who are short in private bonds. In other words, out of the hands of people who have proven that they tend to stuff money under a mattress and toward those who spend it productively.

This distributional effect, from the spread in marginal propensities to spend, is likely to overshadow the very limited negative fiscal effect.

- Jake

Friends come and go. Enemies accumulate.