Dick Ehnts writes:  With quantitative easing, a central bank creates additional deposits for banks as it buys some of their assets, like bonds. What can banks do with these reserves? They can lend them out to other banks, but that is not very likely since all banks will receive additional reserves and none will lose some.

Banks can use reserves to buy financial assets, but this would increase their exposure to risk since they would have to take any losses resulting from this business. Plus the reserves are moved to the balance sheets of another bank, so we’re still unsure of where they go. In the end, the banks will move the reserves into the deposit facility at the European Central Bank, forinstanace, which offers a fantastic interest rate of -0.2%. And this creates inflation how?

Bank loans are created by banks when they mark up the deposits of their client and simultaneously create an item called loan on the asset side of their balance sheet. Banks do not need reserves to make loans, which should by now by common knowledge among macroeconomists.

The monetary circuit in the euro zone is damaged, because the private sector repays net debt. This destroys deposits, which are not available for spending. We need additional deposits to grow faster. Some confuses deposits in the central bank (reserves) with deposits in banks. Only the latter can lead to more spending and hence more inflation. Banks owning more central bank deposits will not be able to spend them on goods and services produced. QE was a failure in Japan, in the US, and the UK. It will be a failure in the euro zone as well. The only thing it does is to lower the long-term yields, but given that firms have problems with demand this will not be the cure of the aggregate demand weakness that is hurting the euro zone so much.