Quantitative Easing

RECENT NEWS
Financial Times  Jul 22  Comment 
Countries take advantage of low rates resulting from European Central Bank quantitative easing
MarketWatch  Jul 17  Comment 
With the Federal Reserve’s quantitative easing program gone, share buybacks have become the preferred stock price booster in light of softening earnings, but like QE, it is unclear on how long the buyback boom is sustainable.
newratings.com  Jul 9  Comment 
LONDON (dpa-AFX) - The Bank of England retained its record low key interest rate and the size of the quantitative easing unchanged. The Monetary Policy Committee decided to hold the key bank rate at 0.50 percent and the size of asset purchases at...
New York Times  Jun 17  Comment 
Investment returns match the bravado of Davide Serra, a London-based Italian hedge fund manager, who believes quantitative easing will continue.
newratings.com  Jun 15  Comment 
LONDON (dpa-AFX) - Bank of England policymakers unanimously voted to maintain its key interest rate and quantitative easing at the meeting held early this month, the minutes showed Wednesday. The Monetary Policy Committee voted 9-0 to retain its...
Insurance Journal  Jun 15  Comment 
Rising costs for information technology infrastructure pose greater concerns for financial services firms than regulation or cyber attacks, a survey showed on Monday. IT costs came second only to macroeconomic concerns such as the impact of...
Yahoo  Jun 10  Comment 
This is where Janus Capital's Bill Gross is investing now, and what he's warning about when global quantitative easing ends.
newratings.com  Jun 4  Comment 
LONDON (dpa-AFX) - The Bank of England left its record low key interest rate and the size of the quantitative easing unchanged. The Monetary Policy Committee decided to retain the key bank rate at 0.50 percent and the size of asset purchases at...
MarketWatch  Jun 3  Comment 
Investors are fond of taper talk when it comes to the European Central Bank’s quantitative easing program. Mario Draghi thinks that’s a hoot. Here’s why.
New York Times  Jun 1  Comment 
The former Fed chairman expressed uncertainty about the impact of quantitative easing on economic inequality, and said it was beside the point.




 
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Quantitative easing is a monetary policy tool in which a central bank—like the Federal Reserve—floods the market with cash in an attempt to stimulate an economy in recession and to stave off deflation. The idea is that if the central bank floods enough cash into the market, it will set off the following chain of events:

  1. Banks and other financial institutions will build up larger and larger cash reserves
  2. Banks will finally decide to loosen their lending standards to utilize their excess cash
  3. Individuals and companies will start getting the loans they are seeking
  4. The economy will begin to recover as people and companies begin to spend again.Understanding Quantitative Easing

Quantitative easing involves flooding the market with cash. The question is...how does a central bank—like the Federal Reserve—flood the market with cash?

Quantitative easing requires the central bank to take the following three steps:

  1. Cut the short-term interest rate to zero percent
  2. Announce how long it will leave the short-term interest rate at zero percent
  3. Begin buying long-term securities—like Treasuries, corporate bonds and asset-backed securities


Why Would the Federal Reserve Resort to Quantitative Easing?

It seems that during good economic times, all we hear about is how concerned the Federal Reserve is with inflation. We can't let the economy grow too fast....We can't let the monetary base get too big....We can't just print money—the Fed says.

But during bad economic times, all of that seems to change. And during really bad economic times, we even start to hear about quantitative easing. But what does quantitative easing do for the economy?Benefits of Quantitative Easing

Quantitative easing can help consumers, exporters and financial institutions find their way out of a recession and offers some of the following benefits.

  1. Quantitative easing can lower longer-term interest rates by pushing down yields at the far end of the yield curve.
  2. Quantitative easing can lower deflationary expectations by promising to keep interest rates low for an extended period of time.
  3. Quantitative easing can stimulate exports by increasing the monetary base.


Connecting Quantitative Easing to Government Spending (fiscal budgetary security tools)

Although monetary and fiscal models are normally viewed separately, QE as a monetary tool is so similar to deficit spending that the two lend themselves to a common view based on their immediate purpose: each is concerned with national and global security--to prevent chaos in trade and tragedy among nationals working in their own country.

QE and DS create necessary demand to protect people and nations from economic crises that may bring casualties in very large number and very short order. Both can create demand without limit -- except for the purchasing power of money after they become effective.

Each can be partially controlled by ending them. When either has done more harm than good their common remedy is taxation to prevent hoarding and policing to prevent tax evasion.

Accordingly, QE and DS require intense monitoring while in progress -- preferably by extremely sophisticated data analysts with tools akin to those of a national security agency with the highest priority on effectiveness not their cost.

References

Video: Understanding Quantitative Easing. Learning Markets. Retrieved on 2009-01-24.

Speech: Chairman Ben S. Bernanke. The Federal Reserve Board (1/13/2009). Retrieved on 2009-01-24.

Quantitative Monetary Easing and Risk in Financial Asset Markets. The Federal Reserve Board (9/282004). Retrieved on 2009-01-24. Bold text

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