All QE does is shorten the "average time to maturity" of government borrowing.

I've explained before at great length that in accounting terms, QE is just bits of paper (or their modern equivalent, numbers on computer screens) being shuffled in a closed loop between commercial banks and two departments of HM Treasury (Debt Management Office and Bank of England) and has little impact on the outside world. Whether HM Treasury controls the commercial banks or vice versa, or whether they are indeed the same thing is a separate debate.

To put it crudely, it's as if commercial banks were to take all the £5 notes (previously issued by the Bank of England, physically printed by De La Rue) they have in their safes (being too scared to lend them out) and to 'sell' them to the Royal Mint for 500 pence in coins, which the banks promply put back in their safes. Only to ensure the banks make their cut, the Royal Mint pays 501 pence or 502 pence - but as all these bits of metal end up in a safe, it makes little difference to the real economy.

There is another important factor to consider - the impact of QE on the average time to maturity ('ATTM') of government debt (or 'bonds' or 'gilts'). As we know, the ATTM for the UK is quite long, over ten years, compared to two or three years for Greece (figures from memory). What QE does is turn a government bond paying 4% interest and maturing in (say) ten years into a balance at the Bank of England paying 0.5% interest but payable on demand.

The disadvantage of a long ATTM is that the government's average borrowing costs are slightly higher (see yield curve); the advantage is that the government is insured against sudden increases in interest rates (which is why things were particularly acute for Greece).

It's no different to the decision every mortgage borrower has to make - is it better to have a long term fixed rate of 5%, or to take the current standard variable rate of 2.5% and risk it rising above 5% in future? In the long run, you're better off on the SVR, but that's not much consolation if your monthly payments have suddenly doubled.

Although this article on the latest $600 billion paper shuffling exercise in the USA kicks off with the misconception that QE 'pumps money into the economy' or 'creates money', it then jumps to the correct conclusion:

... the Fed will create money to buy long-dated government bonds [this] is likely to create new asset bubbles, may fail to revive the sputtering US economic recovery and could further erode the country’s global stature.

i. As we also know, commodities (oil, food etc) do not pay interest or earn income until sold to the end user, so if you buy a future, you usually (but not always - see backwardation) pay more than the spot rate because you are paying somebody else to store those commodities in the interim (including the embedded interest cost or opportunity cost of not selling now to the end user).

ii. The lower the embedded interest rate cost, the cheaper it is to be the owner of those commodities, so all things being equal, the spot price goes up and the futures price falls, in relative terms. So we get a nice bubble going, like with oil prices in 2008-09. And as to why the extra money that people can now borrow at lower interest rates will probably flow abroad (i.e. out of the USA, in this example), see Japanese yen/carry trade.

iii. So, getting back to ATTMs, the government (the US government in this instance) is actually saving the taxpayer money in the short term by indulging in QE, but the government is also making it ever so slightly more likely that it will suffer a sudden debt crisis, like Greece did earlier this year, which will end up costing its taxpayers far more than the short term saving.

Here endeth.