Quantitative Easing

RECENT NEWS
Yahoo  May 21  Comment 
Despite speculation that the Federal Reserve will raise interest rates in June, minutes from the Fed’s April policy meeting released this week reveal a rate hike is highly unlikely.
Wall Street Journal  May 21  Comment 
Minutes from the ECB’s latest meeting show it is firmly resolved to carry out quantitative easing at least until September 2016.
MarketWatch  May 20  Comment 
Mario Draghi, president of the European Central Bank, is printing hundreds of billions of euros as part of his quantitative easing program, and it’s already blowing at least five asset bubbles, Matthew Lynn writes.
Yahoo  May 14  Comment 
The European Central Bank will not stop short in rolling out its trillion-euro-plus money printing scheme, its president said on Thursday, playing down fears that quantitative easing could blow price bubbles.
MarketWatch  May 14  Comment 
In a major speech delivered in Washington, European Central Bank President Mario Draghi hit back at a popular argument that low interest rates, and quantitative easing in particular, not only hurt savers but also benefit the wealthy...
guardian.co.uk  May 13  Comment 
Businesses let out a sigh of relief after Mario Draghi’s £1.1tn quantitative easing programme but questions remain over future sustainability There’s a return to healthy growth in the eurozone. Surprised? It’s called the QE bounce. First...
Finance Asia  May 13  Comment 
Dragging Japan out of its deflation mindset is proving tough, despite the tumbling yen and Bank of Japan’s determined programme of quantitative easing.
Wall Street Journal  May 8  Comment 
China’s economy faces downward pressure in the short term, but there is no need to use quantitative easing to boost liquidity, the central bank said.
Financial Times  May 5  Comment 
Shift towards quantitative easing and negative interest rates has led investors to take on more risk
Benzinga  May 1  Comment 
Brian Dolan was recently a guest on #PreMarket Prep, a daily trading idea radio show hosted by Joel Elconin and Dennis Dick. Tune in to the daily broadcast live Monday-Friday at 8 a.m. ET here. DriveWealth Head Market Strategist Brian Dolan...




 
TOP CONTRIBUTORS

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

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki