Quote from: johnyj on October 28, 2013, 11:22:57 AM

However, when economy eventually improved and loaning become active again, V will rise back to a normal level of 5, that will cause a 500% rise in price level if GDP keeps growing at a couple of percent per year, that will effectively crash the fiat money system

In such a case, central bank must quickly reduce the M accordingly. However, the way to reduce M is to sell their assets to commercial banks to get base money back, those assets include government bonds and mortgage backed securities, and a large sell of those assets will crash the market immediately and destroy many people's house value, drive economy back into recession

Moreover, if central banks were to unwind the QE, they would be selling assets at a loss. Maybe that's not a problem for the central banks, but it would further transfer wealth in society from people to big banks.