I am aware of that.
Where do you calculate in the $1-2 trillion a year federal deficit? I gave a range because the published deficit is highly massaged and is greater than claimed. Where is that “money” coming from?
And the Fed balance sheet? It’s been a while but the last I saw it was huge. Plus the the real market value of the Fed holdings is a lot less than their balance on the books. There has to be a reckoning due there.
With QT, what should happen is that the Treasury will have to sell new bills, bonds and notes to cover the deficit. They will need about $1 trillion a year to cover QT, plus another $2 trillion for new spending. So the excess liquidity will start to run out after only a year.
The result will be rising long-term interest rates, combined with deflation and lower stock prices. Eventually, the Fed will have to stop QT. If the Fed reverts to a neutral position, that’s still $2 trillion a year in additional spending. This will start to crowd out other investments.
Now if the Fed decides to resume QE, yes, we could see inflation. But they probably wouldn’t do that unless they were faced with drastic deflation.