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  • want2bik want2bik Oct 17, 2013 5:12 PM Flag

    Quanitative Easing

    This is a concept I can't understand. One part of our government sells debt and another part of our government buys the debt. Seems like moving money from one pocket to another pocket. Is this a version of the shell game? Can anyone explain how the fed can keep buying treasury bills? Are they using real money and where do they get the money? Can this go on forever? Are there any limiting factors? I have never seen this before and just do not understand it. Doesn't seem like the market can ever go down as long as they keep doing it. What would prevent them from doing this forever then we never have a correction. Someone please explain this to me.

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    • W2B - Haven't you ever seen the trucks from the US Treasury driving around? They are loaded with newly printed money and they are distributing it all around to states, cities, individual organizations, etc. They have a fleet of at least 1,000 tractor-trailers that they load as fast as they can print it.

    • Quantitative easing (QE) is an unconventional monetary policy used by central banks to prevent the money supply falling when standard monetary policy has become ineffective.[1] [2][3] A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus increasing the monetary base.[4] This is distinguished from the more usual policy of buying or selling government bonds in order to keep market interest rates at a specified target value.[5][6][7][8]

      Expansionary monetary policy typically involves the central bank buying short-term government bonds in order to lower short-term market interest rates.[9][10][11][12] However, when short-term interest rates are at or close to zero, normal monetary policy can no longer lower interest rates.[13] Quantitative easing may then be used by monetary authorities to further stimulate the economy by purchasing assets of longer maturity than short-term government bonds, and thereby lowering longer-term interest rates further out on the yield curve.[14][15] Quantitative easing raises the prices of the financial assets bought, which lowers their yield.[16]

      Quantitative easing can be used to help ensure that inflation does not fall below target.[8] Risks include the policy being more effective than intended in acting against deflation (leading to higher inflation in the longer term, due to increased money supply),[17] or not being effective enough if banks do not lend out the additional reserves.[18] According to the IMF and various other economists, quantitative easing undertaken since the global financial crisis has mitigated some of the adverse effects of the crisis.[19][20][21]

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