I am just parsing through a simple model of QE attempting to bring together the disparate strands and thoughts…
One point that is worth pointing out is the extremely large increases in money holdings in the US economy, especially over the last 12 years with regard to their differential with nominal GDP growth. I dealt in detail with the physics of changes in money supply and its distribution between expenditure and asset portfolios in a document I wrote in 2008.
At any one point in time money held by the banking (or shadow banking) system will be held on the one hand for a variety of expenditure items (consumption, working capital, capex) but also as portfolio holdings (future consumption/investment in assets or liquidity).
With QE and with significant corporate share buy backs, an increasing amount of cash is likely being held within the asset portfolio.
The following chart shows a) the indexed cumulative change in cash deposits since Q1 1951 and b) the indexed cumulative change in nominal GDP. The green line shows the differential between the two.
It shows a pretty significant increase in cash deposits since the early part of this century: the green differential line (difference between red and the blue) is still expanding as of Q1 2014.
Note the above just shows deposits of private depository institutions and excludes other sources of broader money supply.
A small change in preferred money holdings as a % of portfolio assets can have a significant change in the valuation of assets.