when the market loses faith with government does it begin to be overwhelmed by ideas the government cannot create inflation because logically it knows the government can create inflation and seems determined to do it. The next phases of QE if they come will be to buy more illiquid types of assets. Trichet as also said that if necessary they will lend directly and bypass the banks. No QE in Europe of course. But it is all about intention. Mortgage rates in Europe are much lower than in the USA. My reading of the current USA situation is that a huge amount of savings wealth in the form of US treasuries is being gauranteed by the people of the USA. Deficit spending by the USA community is unsecured loan creation where the treasury loan asset is guaranteed by the community of the USA and sold inside and outside the community. As Pete Stark would say the community has wealth because of the loans. [...] looking at it from the macro level, all that happened is that some stocks changed hands and some bonds changed hands. Total stocks outstanding and total bonds outstanding, if you count Social Security as a bond, remained about the same. And so this should have no influence on the economy or total savings, or anything else apart from generating transactions costs? You seem to be making two assumptions that don't look quite right to me. First, you assume the government will issue extra treasury bonds to