This diary is in response to a diary that seems to take the view that QE2 is yet another hand out to the wealthy, just like the previous handouts.
This, of course, is not the case. As the FED takes on debt instruments that would have been held by the banks, the rich, and the Chinese. The future interest is returned to the treasury as opposed to the financial sector. The interest becomes government revenue instead of government cost.
Dean Baker did a very good job on this already in an article he posted at Huffington Post.
The myth among the innocent fraudsters is that prior to or in conjunction with spending, government must tax or borrow. That myth was destroyed in 1973 when we left the last remnants of the gold standard by the side of the road. The primary purpose of taxation is to create a demand for the currency spent into existence by government. And the shape of that taxation determines who will pay for the services performed by government.
If there is inadequate taxation then the currency will lose value. And if the taxation is too extreme on the productive and too light on the owner class then money becomes much too dear to the producers and they are enslaved by the owners.
But all of that aside, it is the holders of money that lose out if the money loses value. There is a constant argument from the far left that inflation harms the poor and the people on fixed incomes. History does not actually support that claim. Much of the wage increases prior to 1975 were pushing inflation as opposed to following it. And the income statistics for all of the 70's tell us that the lowest quintile did much better then it has since. The charge that inflation hurts the poor is simply not factual. And it most certainly is not factual if the inflation is caused by rising wages. And it is to this latter element that we must attend.
Dollar devaluation caused by borrowing from ones self (that is what QE2 does), will increase the price of imported goods as well as increasing the price of homes over what they would have otherwise been. Any increase in price or even a moderation in price declines of housing will create jobs and increase wages. The higher prices for goods now being imported will cause a slight shift to domestic production or at least slow the offshoring of jobs. All of these effects outweigh any harm from increased prices.
The politics of this QE2 are extremely important in that QE2 WILL juice the economy. Democrats had better support it or the Republicans will claim that the new juice is from their ignorant austerity crap. They are going to sing that pig song no matter what, but it is far, far better for the Democrats to lead with QE2 than to explain the facts of fiat money during the pig song fest.