Ellen Brown: How the Fed Could Fix the Economy:

Quantitative easing is supposed to stimulate the economy by adding money to the money supply, increasing demand. But so far, it hasn't been working. Why not? Because as practiced for the last two decades, QE does not actually increase the circulating money supply. It merely cleans up the toxic the toxic balance sheet of banks. A real helicopter drop that puts money into the pockets of consumers and businesses has not yet been tried. Why not? Another good question? When Ben Bernanke gave his famous helicopter money speech to the Japanese in 2002, he was not yet chairman of the Federal Reserve. He said then that the government could easily reverse a deflation, just by printing money, and dropping it from helicopters. The US government has a technology, called a printing press, he said, that allows it to produce as many US dollars as it wishes, at essentially no cost. Later in the speech, he discussed a money financed tax cut, which he said, was essentially equivalent to Milton Friedmans famous helicopter drop of money. Deflation could be cured, said Professor Friedman, simply by dropping money from helicopters. It seemed logical enough. If the money supply were insufficient for the needs of trade, the solution was to add money to it. Most of the circulating money supply consists of bank credit, created by banks when they make loans. When old loans are paid off faster than new loans are taken out, the money supply shrinks. The purpose of QE is to reverse this contraction. But if debt inflation is so easy to fix, then why have the Feds massive attempts to pull this maneuver off, failed to revive the economy? And why is Japan still suffering from deflation, after 20 years of quantitative easing? On a technical level, the answer has to do with where the money goes. The widespread belief that QE is flooding the economy with money is a myth. Virtually all of the money it creates, simply sits in the reserve accounts of banks. That is the technical answer, but the motive behind it may be something deeper. An Asset Swap Is Not a Helicopter Drop. As QE is practiced today, the money created on a computer screen, never makes it into the real, producing economy. It goes directly into bank reserve accounts, and it stays there, except for the small amount of vault cash available for withdrawal from commercial banks, bank reserves do not leave the doors of the central bank.