Everyone says that since 2008 the Fed has been printing money like crazy, creating inflation. Isn’t that right?
The Fed has monetized a lot of debt: about $2 trillion worth. But this is not precisely equivalent to printing money. The bonds the Fed holds back the money it creates. Its monetization is indeed inflationary, but not necessarily permanently so. The Fed can create new money only with good debt, and our case is that there is hardly any of that left. If some of the debt it holds begins to sour, it might have to divest itself of some of it, in which case it would have to call in the money that debt was backing. In other words, the Fed still operates as a bank, albeit a privileged one.