Quantitative Easing

RECENT NEWS
newratings.com  59 min ago  Comment 
WASHINGTON (dpa-AFX) - The dollar wavered Tuesday, giving back some of its strong recent gains against European rivals ahead of a crucial monetary policy announcement from the Federal Reserve. The Fed is expected to end a two-day meeting tomorrow...
SeekingAlpha  5 hrs ago  Comment 
By MetalMiner: By Stuart Burns The markets, both financial and commodity, have felt the chill winds of credit tightening several times in recent months, notably in May of 2013 and again in January of this year, causing a shock to emerging...
Clusterstock  6 hrs ago  Comment 
Ever since the Federal Reserve dropped short-term interest rates to near-zero and started buying up bonds through its quantitative easing program, skeptics were freaked out that the unwinding of easy monetary policy would mean doom for the...
guardian.co.uk  Sep 15  Comment 
Call for ECB to use QE to help boost eurozone as political uncertainty dents growth predictions, says thinktank The global economy faces headwinds from a sluggish eurozone and rising political tensions, including the uncertain outcome of...
SeekingAlpha  Sep 14  Comment 
By Jeff Opdyke: The Fed is meeting on Wednesday and will undoubtedly discuss the end of Quantitative Easing and the imminent rise in interest rates. We are moving into the fall season… but I am not talking about the autumnal period of leaves...
SeekingAlpha  Sep 10  Comment 
By APAC Investment News: The Wall Street Journal recently ran an article suggesting that the European Central Bank is "wading into a currency war." An inflammatory title to be sure, but it's worth exploring the effects of the quantitative easing...
Financial Times  Sep 9  Comment 
The dollar has long been expected to strengthen this year, as the US economy continues to improve and the US Federal Reserve stops quantitative easing and begins to contemplate when to start raising rates
The Economic Times  Sep 8  Comment 
'The whole regime of easy money will come to an end very soon, though it is likely that Europe will go ahead with quantitative easing,' says Madan Sabnavis.
The Hindu Business Line  Sep 5  Comment 
The ECB’s move at quantitative easing can work to India’s advantage
SeekingAlpha  Sep 5  Comment 
By Chris Tell: By: Brad Thomas at: http://capitalistexploits.at/ We are repeatedly reminded by many so-called "experts" that the stock market is in a bubble, and that when central bank quantitative easing programs end stock markets will...




 
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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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