To understand what I mean by 'Zimbabwean version of the U.S. dollar', we need to take a quick tour of the Zimbabwean banking system. A nation's central bank usually runs the plumbing that connects local banks. These banks keep accounts at the central bank—in Zimbabwe's case the Reserve Bank of Zimbabwe(RBZ)—and use balances held in these accounts to clear and settle among each other. These accounts, along with central bank-issued banknotes, constitute a nation's supply of base money, the quantity of which determines its price level. When Zimbabweans spontaneously stopped using the local currency, the Zimbabwean dollar, in late 2008, RBZ accounts (and cash) became worthless. The RBZ-managed plumbing system had imploded.
Say what? Doesnt 7 yrs of QE mean anything? Hasnt the notion that "printing money causes inflation", at least in the way the mainstream uses the term, been discredited completely? By ignoring that deficit spending is where the money is really "printed" and that the type of Govt IOU the Non-Govt saves in (Reserves\checking accounts or TSY Cds at the Fed) is largely irrelevant to the macro economy, people get themselves so confused due to QE. If you dont consider TSY Cds "money" but instead only as "debt" (even though all commercial bank CDs are considered "money") then when CBs do QE, you have a hard time trying to rationalize away why "printing money" isnt inflationary, or just ignore the whole thing like maybe JP did above. It is very easy to avoid this confusion by simply using the most accurate and reasonable definitions, that all Federal Govt IOUs are "money", and so of course exchanging one type of Govt money (TSY Cds) for another type of Govt money (reserves) in the process of QE isnt likely to have much of an impact.
And the mirror image of that is when the Govt issues TSY Cds when it deficit spends, (converting one type of Govt money, Reserves, to another type of Govt money, TSY Cds) this doesnt sterilize anything and doesnt prevent inflation.
IOW if QE doesnt cause inflation then issuing TSY CDs while deficit spending doesnt prevent inflation
Here's the comment I left over there, if he responds, I'll edit in his comment later:
What do you mean with this line?
"constitute a nation's supply of base money, the quantity of which determines its price level."
Since 2009 the US supply of reserves has increased by more than 400% ($900B to $3.7T) and yet the price level (CPI) has gone up just 11% (211 to 236)
In the equivalent 7 year period before 2009 the supply of reserves in the US dollar system went up 22% ($670B to $870B) and the price level (CPI) had gone up 16% (177 to 211)
QE has definitively proven that base money does not drive anything, least of all the price level.