Quantitative Easing (QE) is not "money printing"

People call Quantitative Easing (QE) "money printing" but that's not accurate. In QE, the Fed is conjures up a liability it owes (called reserves) and exchanges this newly minted liability for a marketable security (usually US Treasury debt).

In other words, the Fed creates a liability (reserves) and receives an asset (US Treasury note).

Likewise, in the case of currency ("paper money"), the Fed prints up an IOU (a Federal Reserve Note) and exchanges it for another note (ex. a US Treasury Note). Again, the new liability (currency) matches the obtained asset.

So the Fed is really printing IOUs, and exchanging their IOUs for other IOUs, rather than printing "money". QE is IOU printing rather than money printing.

This may seem rather harmless or useless, but when you think about it, what the Fed is doing via QE is refinancing expensive, maturing Treasury debt into low or no cost loans with no maturity.

Don't you wish you could refinance your 5-year adjustable (or balloon) mortgage whose interest rate will soon soar into a zero percent loan with no maturity? That's what QE does for the government.

Hat tip to Louis & Charles Gave via Evergreen Gavekal, who described Japan's QE like this :

Thus, in a pinch, Japan could choose to convert its repayable debt into perpetual bonds yielding, say, 1%. Even better, it could transform its debt into pieces of paper called banknotes, which are really perpetual debt yielding 0% (perhaps this is what Japan is already doing?).