A Federal Reserve Conspiracy

A conspiracy theory I heard recently from someone else: the Fed is privately owned and it is scamming out the American public; the U.S. economy is on the verge of hyperinflation due to the rounds of QEs and what the Fed is doing is huge theft of wealth from the public. Unfortunately, that 'theory' is believed by many although most portion of the Fed expansion in monetary base is still sleeping in the Fed vaults and the velocity of money has slowed. However, you may still suspect that M2 has indeed increased and the U.S. economy is about to face hyperinflation.  

Since the quantity theory of money shows MV=PY or P=(MV)/Y, an increase in M will lead to a growth of price level only if V does not fall or Y does not grow. However, the truth is Y has slowly grown anyway and V has fallen. Accordingly, inflation pressure has been offset. 

I think that kind of widespread belief, even among very intellectual people, that monetary base expansion like QE directly causes hyperinflation is partly, (not mainly), due to how we are taught in macro class. Our Econ professors show a simplified MD/MS diagram, which assumes money supply appears fixed by the central bank. That diagram also appears that the central bank has some magical power to fix the interest rate. Of course, no central bank has that kind of power. It can increase MONETARY BASE, not directly M1 or M2, which are actual money supply indicators; it SETS the TARGET for some interest rates, not fixing interest rates. I think it is a very important notion that is often ignored in our macroeconomics class. If the Bank of Canada or the U.S. Fed really could control the money supply and fix overnight rate, then monetary policy would be much more of mechanical process and our economy would not have any problem from the business cycle.

Of course, My econ profs indeed taught me that expansionary monetary policy itself does not directly lead to inflation and why. I really appreciate that.