What I am gonna ask is a simple question. The "I'm entitled to my 10% risk-free payment on my moolah" crowd are starting to make noise again. Fisher, ex-Dallas is in the news.
With all this liquidity in the system once it gets activated into real investment and the velocity of money picks up, then what might happen? The real challenge to my successors and the FOMC (Federal Open Market Committee) is to manage that carefully, and to make sure it doesn't become inflationary fuel. It has that potential.
[Aside: my emphasis, and his admission that neither the Stimulus nor QE worked.]
The question: where does the moolah to pay the interest come from?
Since Fisher is of the 10% crowd, the sooner his cabal can get their money for nuthin' and their chicks for free, the better. What he pleasantly ignores is the simple fact that The Great Recession was caused by the over-supply of idle moolah chasing 10% risk-free income. The Giant Pool of Money is still out there, fattened up with all that added moolah sitting, idle of course, on corporate balance sheets. Trillions of dollars that the CxOs, aka Masters of the World, have no bloody idea how to invest into physical capital. To put it plainly: there's been a stark lack of demand for real investment for more than a decade, nearly two. If QE had worked, it really didn't, the moolah wouldn't be sitting on those balance sheets, but converted to physical capital. The Fed (and the ECB and Japan and ...) is pushing a string. Treasuries still get bought at cratered rates just because there's so much moolah chasing risk-free bonds; the CxOs can only counter with a 0 opportunity cost. And the US Treasury isn't the only bond going at auction for next to no interest. All that moolah chasing risk-free return. Remember your Econ 101 class, and virtually anything written by Friedman, about government debt crowding out private investment and how terribly horrible such a situation is??? Well, those Masters of the World want the Damn Gummint to pay them more than they can generate in their businesses. Just because they've accumulated all that moolah. And you and I and the rest of the 99% have provided them with that moolah. Crowding out? Not so you'd notice from them.
The real interest rate is never determined by monetary policy or gold bugs, just by increases in real productivity in real production. There has been a significant slacking off of such. Consider the "innovations" in consumer goods over the last couple of decades. How many of them had the impact on household life as did the automobile, telephone, washing machine, stove, dishwasher, vacuum cleaner, etc. The last such is likely the microwave oven. When was it invented? Depending on definition, as early as 1933, or as late as 1945. In any case, a long time ago. Over the last two decades? Mostly toys and miniaturization of existing devices. Well, and Watson and the self-parking car. But both of those are engineering exercises, not scientific discovery.
The point being: we're not in 1850 with most of physics and chemistry and biology yet to be discovered. Real return is paid for out of increased productivity. One might argue that playing games on mobile phones (i.e., not using the phone as a phone, in the first place) diminishes human productivity. Without such an increase in output, the vig has to come from delayed/foregone consumption; otherwise known as a Zero Sum Game. In other words, paying the Fat Cats their 10% comes out of the lives of the rest of society. Not a prescription for a long lived, stable society.