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Quantitative Easing is the controversial use of gimmicks by the Federal Reserve to try to encourage economic growth during a recession. It consists of buying up longer-term bonds in an indirect effort to lower medium and long-term interest rates. So, the Federal Reserve shifts its portfolio of assets from overnight and short term loans to holding more long-term bonds.

It is an economic monetary policy in which the total money supply is increased by the Federal Reserve buying government Treasury bonds. The goal is to encourage private bank to lend more and help reduce the effects of an economic recession. Quantitative easing was first used by Japan in 2000 to fight a deflationary economy. The 2010 and 2011 actions of Federal Reserve Chairman Ben Bernanke is to buy U.S. government bonds, with borrowed money, to help ease America's declining financial statistics. By creating more dollars out of thin air, the dollar becomes devalued with the existing money supply versus other currencies. This policy of creating additional money to give to banks so that they lend more is highly questionable. The banks were largely responsible for the Great Recession and the increased money for banks have failed to produce the desired effect even after the Central Bank's $1.7 trillion purchase. The short term gains are minimal and in the long term, this will eventually lead to higher prices and inflation or even hyper-inflation. <ref>Higher [[Inflation] Is On The Way, Forbes.com, February 22, 2011]</ref>

For example, in response to a weakening economy likely due to liberal policies by the Obama Administration, the Federal Reserved announced on September 13, 2012 that:<ref>http://www.cnbc.com/id/49036260</ref> <blockquote>The Fed initially disappointed some investors on Thursday when it said it would buy $40 billion of mortgage-backed securities each month. That is far less than the $75 billion a month it bought in its second round of bond-buying, or the more than $100 billion monthly tab for its first round.

But this time, the Fed has promised that “if the outlook for the labor market does not improve substantially,” it won't stop buying and could ramp up its spending further.</blockquote>

In general, the Federal Reserve tries to stimulate the economy by lowering short-term interest rates. However, when short-term interest rates are lowered to zero, the Federal Reserve turns to other less frequently used actions to with a goal of stimulating the economy. The Federal Reserve calls these “quantitative easing.” Basically, these involve the Federal Reserve purchasing longer-term bonds to lower the medium and long-term interest rates.

There is no free lunch, so “quantitative easing” is always at someone's expense. In general, although the some individuals in the economy may benefit from quantitative easing, the people who rely on bond interest income are harmed by their reduced income. On the whole, however, quantitative easing harms the economy as it reduces predictability. Instead of the market determining the value and quantity of money, it is the determined by the caprice of the Federal Reserve Chairman who may act in a very unwise manner unconstrained by market forces and guided by antiquated economic liberal theories such as Keynesian economics. In addition, quantitative easing is not equitable in its policy and unjustly enriches the wealthier members of society.<ref> Does Quantitative Easing Benefit the 99% or the 1%?</ref> For example, the elderly who wish to receive income from low risk bonds and bank deposits are hurt by arbitrary and artificial measures to lower interest rates dictated by unelected elitist bankers rather than market forces.<ref>Effects of low interest rates</ref>

Michael Snyder wrote concerning Ben Bernanke: <blockquote>You can't accuse Federal Reserve Chairman Ben Bernanke of not living up to his nickname. Back in 2002, Bernanke delivered a speech entitled “Deflation: Making Sure 'It' Doesn’t Happen Here” in which he referenced a statement by economist Milton Friedman about fighting deflation by dropping money from a helicopter. Well, it might be time for a new nickname for Bernanke because what he did today was a lot more than drop money from a helicopter. Today the Federal Reserve announced that QE3 will begin on Friday, but it is going to be much different from QE1 and QE2. Both of those rounds of quantitative easing were of limited duration. This time, the quantitative easing is going to be open-ended. The Fed is going to buy 40 billion dollars worth of mortgage-backed securities per month until they have decided that the economy is in good enough shape to stop. For those that get confused by terms like “quantitative easing” and “mortgage-backed securities”, what the Federal Reserve is essentially saying is this: “We're going to print a bunch of money and buy stuff for as long as we feel it is necessary.” In addition, the Federal Reserve has promised to keep interest rates at ultra-low levels all the way through mid-2015. The course that the Federal Reserve has set us on is utter insanity. Ben Bernanke can rain money down on us all he wants, but it is not going to do much at all to help the real economy. However, it will definitely hasten the destruction of the U.S. dollar.<ref>QE3: Helicopter Ben Bernanke Unleashes An All-Out Attack On The U.S. Dollar</ref></blockquote>

Unjust enrichment of banking class

Hedge fund manager Mark Spitznagel argues in the Wall Street Journal: <blockquote>|Ludwig von Mises and his students demonstrated how an increase in money supply is beneficial to those who get it first and is detrimental to those who get it last. Monetary inflation is a process, not a static effect…

The Fed doesn’t expand the money supply by uniformly dropping cash from helicopters over the hapless masses. Rather, it directs capital transfers to the largest banks (whether by overpaying them for their financial assets or by lending to them on the cheap), minimizes their borrowing costs, and lowers their reserve requirements. All of these actions result in immediate handouts to the financial elite first, with the hope that they will subsequently unleash this fresh capital onto the unsuspecting markets, raising demand and prices wherever they do.”<ref> Does Quantitative Easing Benefit the 99% or the 1%?</ref></blockquote>

Destruction of capital for investment and a cause of malinvestments

In May of 2012 Chris Ferreira wrote: <blockquote>|When the majority of people are depositing their savings into banks and contributing to a high savings rate for their country, this creates an environment of higher levels of cash reserves in banks: in other words, a nation of savers creates a situation where banks have enough capital to lend for new business ventures. As part of normal supply and demand characteristics in a free-market, lower interest rates will be adjusted to loan out this extra savings in deposits. In this case, interest rates fall in order to provide incentives to loan out money. In turn, the investment horizon for this capital is longer term and is primarily used to finance capital projects (“high orders”) and away from producing consumer goods (“low orders”). When all the excess savings in the bank are loaned out, the banks are operating at their minimum reserve requirements; interest rates then naturally increase to account for the shortage of savings in deposits, since the excess supply of money has been exhausted though loans…

If, however, central banks intervene in the market to suppress interest rates to pump an artificial stimulus into the markets, this provides the illusion to entrepreneurs that there is real excess savings in banks that would supposedly account for a longer term vision and increase of demand for capital goods.

This is a fallacy. Entrepreneurs in this scenario are lead into making malinvestments, for when the suppressed interest rates are allowed to increase to their normal levels, the malinvestments fail. The longer the suppression of interest rates, the more malinvestments are created and the more systemic damage it will create in any given economy when interest rates return to normal (and corrections are inevitable).

Construction and real estate are two of the main beneficiaries of capital good investments when interest rates are low. The inverse applies for high interest rates, as more capital is spent on a shorter-term vision on consumer goods and away from capital goods.<ref>Effects of low interest rates</ref></blockquote>

Quotes

“The one aim of these financiers is world control by the creation of inextinguishable debt.” - Henry Ford

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Snippet from Wikipedia: Quantitative easing

Quantitative easing (QE) is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity. An unconventional form of monetary policy, it is usually used when inflation is very low or negative, and standard expansionary monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. This differs from the more usual policy of buying or selling short-term government bonds to keep interbank interest rates at a specified target value.

Expansionary monetary policy to stimulate the economy typically involves the central bank buying short-term government bonds to decrease short-term market interest rates. However, when short-term interest rates approach or reach zero, this method can no longer work (a situation known as a liquidity trap). In such circumstances, monetary authorities may then use quantitative easing to further stimulate the economy, by buying financial assets without reference to interest rates, and by buying riskier or longer maturity assets (other than short-term government bonds), thereby lowering interest rates further out on the yield curve.

Quantitative easing can help bring the economy out of recession and help ensure that inflation does not fall below the central bank's inflation target. Risks include the policy being more effective than intended in acting against deflation (leading to higher inflation in the longer term), or not being effective enough if banks remain reluctant to lend and potential borrowers are unwilling to borrow. According to the International Monetary Fund, the US Federal Reserve System, and various other economists, quantitative easing undertaken following the global financial crisis of 2007–08 mitigated some of the economic problems after the crisis. It has also been used by several major central banks (Federal Reserve, European Central Bank and Bank of England) in response to the COVID-19 pandemic.

Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective.<ref>

</ref><ref>

</ref><ref>Publications | Learning the Lessons from QE and Other Unconventional Monetary Policies: 17–18 November. Bank of England (18 November 2011).</ref> 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 and lowering the yield on those financial assets.<ref>

</ref> This is distinguished from the more usual policy of buying or selling short term government bonds in order to keep interbank interest rates at a specified target value.<ref name=“BOE QE Explained (pdf)”>

</ref><ref>

</ref><ref name=“bbcnews”/><ref name=“BOE QE Explained (web)”>

</ref>

Expansionary monetary policy to stimulate the economy typically involves the central bank buying short-term government bonds in order to lower short-term market interest rates.<ref>Open market operations: A Glossary of Political Economy Terms – Dr. Paul M. Johnson. Auburn.edu.</ref><ref name=“omofed”>Open Market Operation – Fedpoints. Federal Reserve Bank of New York.</ref><ref>Monetary policy Instruments. Swiss National Bank.</ref><ref name=“omoecb”>

</ref> However, when short-term interest rates have reached or are close to reaching zero, this method can no longer work.<ref>

</ref> 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.<ref name=“Q&A: Quantitative easing”>

</ref><ref name=“federalreserve.gov”>

</ref> Quantitative easing raises the prices of the financial assets bought, which lowers their yield.<ref name=“guardiannews”>

</ref>

Quantitative easing can be used to help ensure that inflation does not fall below target.<ref name=“BOE QE Explained (web)”/> 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),<ref name=“bowlby fear”>

</ref> or not being effective enough if banks do not lend out the additional reserves.<ref>

</ref> According to the IMF and various other economists, quantitative easing undertaken since the global financial crisis of 2007–08 has mitigated some of the adverse effects of the crisis.<ref name=“imf”>Unconventional Choices for Unconventional Times: Credit and Quantitative Easing in Advanced Economies; by Vladimir Klyuev, Phil de Imus, and Krishna Srinivasan; IMF Staff Position Note SPN/09/27; 4 November 2009.. (PDF).</ref><ref name=“federalreserve”>"Evaluating Large-Scale Asset Purchases," 11 October 2012</ref><ref name=“project-syndicate”>

</ref>

Process

Quantitative easing is distinguished from standard central banking monetary policies, which usually targets the interbank interest rate. When interest rates have been lowered to nearly zero (because of either deflation or extremely low money demand), when a large number of non-performing or defaulted loans prevent further lending (money supply growth) by member banks, and when the main systemic risk is a recession or depression because banks cannot lend any more money, then central banks need to implement a new set of tactics. These are known as quantitative easing.

The central bank may enact quantitative easing by purchasing a predetermined quantity of bonds or other assets from financial institutions without reference to the interest rate.<ref name=“bbcnews”>

</ref><ref>

</ref> The goal of this policy is to increase the money supply rather than to decrease the interest rate, which cannot be decreased further.<ref name=“boe” /> This is often considered a last resort to stimulate the economy.<ref>

</ref><ref>

</ref>

Quantitative easing, and monetary policy in general, can only be carried out if the central bank controls the currency used. The central banks of countries in the Eurozone, for example, cannot unilaterally expand their money supply and thus cannot employ quantitative easing. They must instead rely on the European Central Bank (ECB) to set monetary policy.<ref>

</ref>

History

Before 2007

Quantitative easing was first used by the Bank of Japan (BOJ) to fight domestic deflation in the early 2000s.<ref name=“Q&A: Quantitative easing”/><ref>

</ref><ref>

</ref><ref name=“voutsinas”>Voutsinas, Konstantinos, and Richard A. Werner, "New Evidence on the Effectiveness of 'Quantitative Easing' in Japan", Centre for Banking, Finance and Sustainable Development, School of Management, University of Southampton.</ref> According to the Bank of Japan, the central bank adopted quantitative easing (量的金融緩和, ryōteki kin'yū kanwa) on 19 March 2001.<ref name=“IMES2002”>Shirakawa, Masaaki, "One Year Under 'Quantitative Easing'", Institute for Monetary and Economic Studies, Bank of Japan, 2002.</ref><ref name=“boj.or.jp”>Bank of Japan, New Procedures for Money Market Operations and Monetary Easing, 19 March 2001. Retrieved 9 August 2010.</ref>

The Bank of Japan had for many years, and as late as February 2001, claimed that “quantitative easing … is not effective” and rejected its use for monetary policy.<ref>Hiroshi Fujiki et al., Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists, Monetary and Economic Studies, February 2001, p.98. Retrieved 9 August 2010.</ref> The BOJ had maintained short-term interest rates at close to zero since 1999. With quantitative easing, it flooded commercial banks with excess liquidity to promote private lending, leaving them with large stocks of excess reserves and therefore little risk of a liquidity shortage.<ref>Easing Out of the Bank of Japan's Monetary Easing Policy (2004–33, 19 November 2004). Frbsf.org.</ref> The BOJ accomplished this by buying more government bonds than would be required to set the interest rate to zero. It later also bought asset-backed securities and equities and extended the terms of its commercial paper purchasing operation.<ref>PIMCO/Tomoya Masanao interview

</ref>

The BOJ increased the commercial bank current account balance from ¥5&nbsp;trillion to ¥35 trillion (approximately US$300 billion) over a four-year period starting in March 2001. The BOJ also tripled the quantity of long-term Japan government bonds it could purchase on a monthly basis.

After 2007

Since the advent of the global financial crisis of 2007–08, similar policies have been used by the United States, the United Kingdom, and the Eurozone during the financial crisis of 2007–2012. Quantitative easing was used by these countries because their risk-free short-term nominal interest rates were either at or close to zero. In the United States, this interest rate is the federal funds rate; in the United Kingdom, it is the official bank rate.

During the peak of the financial crisis in 2008, the US Federal Reserve expanded its balance sheet dramatically by adding new assets and new liabilities without “sterilizing” these by corresponding subtractions. In the same period, the United Kingdom also used quantitative easing as an additional arm of its monetary policy in order to alleviate its financial crisis.<ref>Alloway, Tracy, The Unthinkable Has Happened, ft.com, 10 November 2008. Retrieved 9 August 2010.</ref><ref>'Bernanke-san' Signals Policy Shift, Evoking Japan Comparison, Bloomberg.com, 2 December 2008</ref><ref>Bank pumps £75bn into economy, ft.com, 5 March 2009</ref>

United States QE1, QE2, and QE3 {{anchor|QE2|QE3}}

The US Federal Reserve held between $700 billion and $800 billion of Treasury notes on its balance sheet before the recession. In late November 2008, the Federal Reserve started buying $600 billion in mortgage-backed securities.<ref>Harding, Robin. (3 November 2010) Quantitative easing explained. Financial Times.</ref> By March 2009, it held $1.75 trillion of bank debt, mortgage-backed securities, and Treasury notes, and reached a peak of $2.1 trillion in June 2010. Further purchases were halted as the economy had started to improve, but resumed in August 2010 when the Fed decided the economy was not growing robustly. After the halt in June, holdings started falling naturally as debt matured and were projected to fall to $1.7 trillion by 2012. The Fed's revised goal became to keep holdings at $2.054 trillion. To maintain that level, the Fed bought $30 billion in two- to ten-year Treasury notes every month.

In November 2010, the Fed announced a second round of quantitative easing, buying $600 billion of Treasury securities by the end of the second quarter of 2011.<ref>

</ref><ref>What is the Federal Reserve Quantitative Easing. Useconomy.about.com (22 September 2011).</ref> The expression “QE2” became a ubiquitous nickname in 2010, used to refer to this second round of quantitative easing by US central banks.<ref>Fed's desperate measure is a watershed moment, John Authers, The Long View, Financial Times, 5 November 2010</ref> Retrospectively, the round of quantitative easing preceding QE2 was called “QE1”.<ref>

</ref><ref>

</ref>

A third round of quantitative easing, “QE3”, was announced on 13 September 2012. In an 11–1 vote, the Federal Reserve decided to launch a new $40 billion per month, open-ended bond purchasing program of agency mortgage-backed securities. Additionally, the Federal Open Market Committee (FOMC) announced that it would likely maintain the federal funds rate near zero “at least through 2015.”<ref name=qe3>

</ref><ref>

</ref> According to NASDAQ.com, this is effectively a stimulus program that allows the Federal Reserve to relieve $40 billion per month of commercial housing market debt risk.<ref>

</ref> Because of its open-ended nature, QE3 has earned the popular nickname of “QE-Infinity.”<ref>Jason Haver.</ref> On 12 December 2012, the FOMC announced an increase in the amount of open-ended purchases from $40 billion to $85 billion per month.<ref>http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm</ref>

On 19 June 2013, Ben Bernanke announced a “tapering” of some of the Fed's QE policies contingent upon continued positive economic data. Specifically, he said that the Fed could scale back its bond purchases from $85 billion to $65 billion a month during the upcoming September 2013 policy meeting.<ref>http://www.foxbusiness.com/economy/2013/06/19/fed-decision-on-tap/</ref> He also suggested that the bond buying program could wrap up by mid-2014.<ref>http://www.bloomberg.com/news/2013-06-20/fed-seen-tapering-qe-to-65-billion-at-september-fomc-meeting.html</ref> While Bernanke did not announce an interest rate hike, he suggested that if inflation follows a 2% target rate and unemployment decreases to 6.5%, the Fed would likely start raising rates. The stock markets dropped approximately 4.3% over the three trading days following Bernanke's announcement, with the Dow Jones dropping 659 points between 19 and 24 June, closing at 14,660 at the end of the day on 24 June.<ref>http://www.al.com/business/index.ssf/2013/06/dow_jones_down_43_percent_sinc.html</ref> On 18 September 2013, the Fed decided to hold off on scaling back its bond-buying program.<ref>http://www.reuters.com/article/2013/09/19/us-usa-fed-banks-analysis-idUSBRE98I07B20130919</ref>

United Kingdom

During its QE programme, the Bank of England bought gilts from financial institutions, along with a smaller amount of relatively high-quality debt issued by private companies.<ref name=“boe”>

</ref> The banks, insurance companies, and pension funds could then use the money they received for lending or even to buy back more bonds from the bank. The central bank could also lend the new money to private banks or buy assets from banks in exchange for currency.

These have the effect of depressing interest yields on government bonds and similar investments, making it cheaper for business to raise capital.<ref name=“bean”>

</ref> Another side effect is that investors will switch to other investments, such as shares, boosting their price and thus encouraging consumption.<ref name=“boe”/> QE can reduce interbank overnight interest rates and thereby encourage banks to loan money to higher interest-paying and financially weaker bodies.

The Bank of England had purchased around £165 billion in assets as of September 2009 and around £175 billion in assets by end of October 2010.<ref name=“speech404”>http://www.bankofengland.co.uk/publications/speeches/2009/speech404.pdf</ref> At its meeting in November 2010, the Monetary Policy Committee (MPC) voted to increase total asset purchases to £200 billion. Most of the assets purchased have been UK government securities (gilts); the Bank has also been purchasing smaller quantities of high-quality private sector assets.<ref>://www.bankofengland.co.uk/monetarypolicy/qe/amount.htm

</ref> In December 2010, MPC member Adam Posen called for a £50 billion expansion of the Bank's quantitative easing programme, while his colleague Andrew Sentance has called for an increase in interest rates due to inflation being above the target rate of 2%.<ref name=Independant2167438>

</ref> In October 2011, the Bank of England announced that it would undertake another round of QE, creating an additional £75 billion.<ref>

</ref> In February 2012 it announced an additional £50 billion.<ref>

</ref> In July 2012 it announce another £50 billion,<ref>Publications | Bank of England maintains Bank Rate at 0.5% and increases size of Asset Purchase Programme by £50 billion to £375 billion. Bank of England.</ref> bringing the total amount to £375 billion. The Bank has said that it will not buy more than 70% of any issue of government debt.<ref>

</ref> This means that at least 30% of any issue of government debt will have to be purchased and held by institutions other than the Bank of England. In 2012 the Bank of England estimated that quantitative easing had benefited households differentially according to the assets they hold; richer households have more assets.<ref>The Distributional Effects of Asset Purchases, Bank of England, July 2012</ref>

Europe

The European Central Bank said that it would focus on buying covered bonds, a form of corporate debt. It signalled that its initial purchases would be worth about €60&nbsp;billion in May 2009.<ref>

</ref>

At the beginning of 2013 the Swiss National Bank had the largest balance sheet relative to the size of the economy it was responsible for, at close to 100% of Switzerland's national output. A total of 12% of its reserves were in foreign equities. The Federal Reserve's holdings equalled about 20% of US GDP, while the European Central Bank's assets were worth 30% of GDP.<ref>Brian Blackstone and David Wessel (8 January 2013), Button-Down Central Bank Bets It All The Wall Street Journal</ref>

Japan after 2007 and Abenomics

In early October 2010, the Bank of Japan announced that it would examine the purchase of ¥5&nbsp;trillion (US$60 billion) in assets. This was an attempt to push down the value of the yen against the US dollar in order to stimulate the domestic economy by making Japanese exports cheaper; it did not work.<ref>Quantitative Easing – A lesson learned from Japan. Oye Times.</ref>

On 4 August 2011 the BOJ announced a unilateral move to increase the commercial bank current account balance from ¥40 trillion (US$504 billion) to a total of ¥50 trillion (US$630 billion).<ref>

</ref><ref>Bank of Japan increases QE by 10 trillion yen. Banking Times (4 August 2011).</ref> In October 2011, the Bank expanded its asset purchase program by ¥5&nbsp;trillion ($66bn) to a total of ¥55&nbsp;trillion.<ref>

</ref>

On 4 April 2013, the Bank of Japan announced that it would expand its asset purchase program by US$1.4 trillion in two years. The Bank hopes to bring Japan from deflation to inflation, aiming for 2% inflation. The amount of purchases is so large that it is expected to double the money supply.<ref>

</ref> This policy has been named Abenomics, as a portmanteau of economic policies and Shinzō Abe, the current Prime Minister of Japan.

Effectiveness

According to the IMF, the quantitative easing policies undertaken by the central banks of the major developed countries since the beginning of the late-2000s financial crisis have contributed to the reduction in systemic risks following the bankruptcy of Lehman Brothers. The IMF states that the policies also contributed to the improvements in market confidence and the bottoming out of the recession in the G7 economies in the second half of 2009.<ref name=“imf” />

Economist Martin Feldstein argues that QE2 led to a rise in the stock market in the second half of 2010, which in turn contributed to increasing consumption and the strong performance of the US economy in late 2010.<ref name=“project-syndicate” /> Former Federal Reserve Chairman Alan Greenspan calculated that as of July 2012, there was “very little impact on the economy.”<ref>Navarro, Bruno J.. (12 July 2012) "CNBC Coverage of Greenspan". Finance.yahoo.com.

</ref> Federal Reserve Governor Jeremy Stein has said that measures of quantitive easing such as large-scale asset purchases “have played a significant role in supporting economic activity”.<ref name=“federalreserve” />

Economic impact

Quantitative easing may cause higher inflation than desired if the amount of easing required is overestimated and too much money is created by the purchase of liquid assets.<ref name=“bowlby fear”/> On the other hand, QE can fail to spur demand if banks remain reluctant to lend money to businesses and households. Even then, QE can still ease the process of deleveraging as it lowers yields. However, there is a time lag between money growth and inflation; inflationary pressures associated with money growth from QE could build before the central bank acts to counter them.<ref>

</ref> Inflationary risks are mitigated if the system's economy outgrows the pace of the increase of the money supply from the easing. If production in an economy increases because of the increased money supply, the value of a unit of currency may also increase, even though there is more currency available. For example, if a nation's economy were to spur a significant increase in output at a rate at least as high as the amount of debt monetized, the inflationary pressures would be equalized. This can only happen if member banks actually lend the excess money out instead of hoarding the extra cash. During times of high economic output, the central bank always has the option of restoring reserves to higher levels through raising interest rates or other means, effectively reversing the easing steps taken.

Increasing the money supply tends to depreciate a country's exchange rates versus other currencies, through the mechanism of the interest rate. Lower interest rates lead to a capital outflow from a country, thereby reducing foreign demand for a country's money, leading to a weaker currency. This feature of QE directly benefits exporters living in the country performing QE, as well as debtors, since the interest rate has fallen, meaning there is less money to be repaid. However, it directly harms creditors as they earn less money from lower interest rates. Devaluation of a currency also directly harms importers, as the cost of imported goods is inflated by the devaluation of the currency.<ref>

</ref>

Risks

Economists such as John Taylor<ref>John B. Taylor, The Fed’s New View is a Little Less Scary, 2013-06-20 blog post ://economicsone.com/2013/06/20/the-feds-new-view-is-a-little-less-scary/</ref> believe that quantitative easing creates unpredictability. Since the increase in bank reserves may not immediately increase the money supply if kept as excess reserves, the increased reserves create the danger that inflation may eventually result when the reserves are loaned out.<ref>John Taylor, Stanford, 2012 testimony before House Financial Service Committee, page two ://financialservices.house.gov/uploadedfiles/hhrg-112-ba19-wstate-jtaylor-20120508.pdf, retrieved 2013-10-20.</ref>

Savings and pensions

In the European Union, World Pensions Council (WPC) financial economists have also argued that artificially low government bond yield rates induced by QE will have an adverse impact on the underfunding condition of pension funds, since “without returns that outstrip inflation, pension investors face the real value of their savings declining rather than ratcheting up over the next few years”.<ref name=“Reuters”>

</ref><ref name=“Plan Sponsor ”>

</ref>

Housing market over-supply and QE3

The only member of the Federal Open Market Committee to vote against QE3, Richmond Federal Reserve Bank President Jeffrey M. Lacker, said,

Capital flight

The new money could be used by the banks to invest in emerging markets, commodity-based economies, commodities themselves, and non-local opportunities rather than to lend to local businesses that are having difficulty getting loans.<ref>

</ref>

Increase income and wealth inequality

In August 2012, the Bank of England issued a report stating that its quantitative easing policies had benefited mainly the wealthy. For example, the report said that the QE program had boosted the value of stocks and bonds by 26%, or about $970 billion. About 40% of those gains went to the richest 5% of British households.<ref name=TG>

</ref><ref name=CNBC12>

</ref>

Dhaval Joshi of BCA Research wrote that “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it”.<ref name=CNBC12/>

Economist Anthony Randazzo of the Reason Foundation wrote that QE “is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality”.<ref name=CNBC12/>

In May 2013, Federal Reserve Bank of Dallas President Richard Fisher said that cheap money has made rich people richer, but has not done quite as much for working Americans.<ref>

</ref> Most of the financial assets in America are owned by the wealthiest 5% of Americans. According to Fed data, the top 5% own 60% of the nation's individually held financial assets. They own 82% of individually held stocks and over 90% of individually held bonds.<ref name=CNBC12/>

Criticism by BRIC countries

BRIC countries have criticized the QE carried out by the central banks of developed nations. They share the argument that such actions amount to protectionism and competitive devaluation. As net exporters whose currencies are partially pegged to the dollar, they protest that QE causes inflation to rise in their countries and penalizes their industries.<ref>Jeff Black and Zoe Schneeweis, Yi Warns on Currency Wars as Yuan in Equilibrium'', Bloomberg News, 26 January 2013</ref><ref>John Paul Rathbone and Jonathan Wheatley, finance chief attacks US over QE3'', Financial Times, 20 September 2012</ref><ref>Richard Blackden, president Dilma Rousseff blasts Western QE as monetary tsunami'', The Telegraph, 10 April 2012</ref><ref>Michael Steen and Alice Ross, on new currency war'', Financial Times, 22 January 2013</ref>

Comparison with other instruments

Qualitative easing

Professor Willem Buiter of the London School of Economics has proposed a terminology to distinguish quantitative easing, or an expansion of a central bank's balance sheet, from what he terms qualitative easing, or the process of a central bank adding riskier assets to its balance sheet:

</ref>}}

Credit easing

In introducing the Federal Reserve's response to the 2008–9 financial crisis, Fed Chairman Ben Bernanke distinguished the new program, which he termed “credit easing”, from Japanese-style quantitative easing. In his speech, he announced,

Credit easing involves increasing the money supply by the purchase not of government bonds but of private-sector assets such as corporate bonds and residential mortgage–backed securities.<ref name=“lexicon.ft.com”>Credit Easing Definition. Financial Times Lexicon.</ref><ref name=“businessweek.com”>How Bernanke's Policy of 'Credit Easing' Works. BusinessWeek (28 January 2009).</ref> In 2010, the Federal Reserve purchased $1.25 trillion of mortgage-backed securities in order to support the sagging mortgage market. These purchases increased the monetary base in a way similar to a purchase of government securities.<ref name=“research.stlouisfed.org”>http://research.stlouisfed.org/publications/es/10/ES1014.pdf</ref>

Printing money

Quantitative easing has been nicknamed “printing money” by some members of the media,<ref name=“bbc.co.uk”>Stephanomics: Is quantitative easing really just printing money?. BBC.</ref><ref>Mackintosh, James. (2 December 2010) QE: Replacement not debasement. FT.com.</ref><ref>Hyde, Deborah. (8 November 2010) Ask Citywire: Quantitative easing part II – Citywire Money. Citywire.co.uk.</ref> central bankers,<ref>

</ref> and financial analysts.<ref>

</ref><ref name=“business.timesonline.co.uk”>

</ref> However, central banks state that the use of the newly created money is different in QE. With QE, the newly created money is used to buy government bonds or other financial assets, whereas the term printing money usually implies that newly created money is used to directly finance government deficits or pay off government debt (also known as monetizing the government debt).<ref name=“bbc.co.uk”/>

Central banks in most developed nations (e.g., the United Kingdom, the United States, Japan, and the EU) are prohibited from buying government debt directly from the government and must instead buy it from the secondary market.<ref name=“research.stlouisfed.org”/><ref>Stephanomics. BBC.</ref> This two-step process, where the government sells bonds to private entities which the central bank then buys, has been called “monetizing the debt” by many analysts.<ref name=“research.stlouisfed.org”/> The distinguishing characteristic between QE and monetizing debt is that with QE, the central bank is creating money to stimulate the economy, not to finance government spending. Also, the central bank has the stated intention of reversing the QE when the economy has recovered (by selling the government bonds and other financial assets back into the market).<ref name=“bbc.co.uk”/> The only effective way to determine whether a central bank has monetized debt is to compare its performance relative to its stated objectives. Many central banks have adopted an inflation target. It is likely that a central bank is monetizing the debt if it continues to buy government debt when inflation is above target, and the government has problems with debt financing.<ref name=“research.stlouisfed.org”/>

Ben Bernanke remarked in 2002 that the US government had a technology called the printing press (or, today, its electronic equivalent), so that if rates reached zero and deflation threatened, the government could always act to ensure deflation was prevented. He said, however, that the government would not print money and distribute it “willy nilly” but would rather focus its efforts in certain areas (e.g., buying federal agency debt securities and mortgage-backed securities).<ref>Wolf, Martin. (16 December 2008) "'Helicopter Ben' confronts the challenge of a lifetime". Financial Times.</ref><ref>Speech, Bernanke -Deflation- 21 November 2002. Federal Reserve Bank.</ref> According to economist Robert McTeer, former president of the Federal Reserve Bank of Dallas, there is nothing wrong with printing money during a recession, and quantitative easing is different from traditional monetary policy “only in its magnitude and pre-announcement of amount and timing”.<ref>

</ref><ref>

</ref> Stephen Hester, Chief Executive Officer of the RBS Group, said in an interview, “What the Bank of England does in quantitative easing is it prints money to buy government debt, and so what has happened is the government has run a huge deficit over the past three years, but instead of having to find other people to lend it that money, the Bank of England has printed money to pay for the government deficit. If that QE hadn't happened then the government would have needed to find real people to buy its debt. So the Quantitative Easing has enabled governments, this government, to run a big budget deficit without killing the economy because the Bank of England has financed it. Now you can't do that for long because people get wise to it and it causes inflation and so on, but that's what it has done: money has been printed to fund the deficit.” <ref>http://www.itv.com/news/2012-05-11/hester-quantitative-easing-funds-bigger-budget-deficit/</ref>

Richard W. Fisher, president of the Federal Reserve Bank of Dallas, warned in 2010 that a potential risk of QE is “the risk of being perceived as embarking on the slippery slope of debt monetization. We know that once a central bank is perceived as targeting government debt yields at a time of persistent budget deficits, concern about debt monetization quickly arises.” Later in the same speech, he stated that the Fed is monetizing the government debt. “The math of this new exercise is readily transparent: The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation's central bank will be monetizing the federal debt.”<ref>Speeches by Richard W. Fisher. Dallas Fed (8 November 2010).</ref>

Altering debt maturity structure

Based on research by economist Eric Swanson reassessing the effectiveness of the US Federal Open Market Committee action in 1961 known as Operation Twist, The Economist has posited that a similar restructuring of the supply of different types of debt would have an effect equal to that of QE.<ref name=“Economist”>

</ref> Such action would allow finance ministries (e.g. the US Department of the Treasury) a role in the process now reserved for central banks.<ref name=“Economist”/>

See also

References

External links

WHY QE3 WILL “WORK”

Posted on September 21, 2012 by Modern Survival

I am only calling it QE3 because that is how it is mostly known to the public. It would be more accurate to call this thing QEF (quantitative easing forever) or QEI (quantitative easing infinity).

I also know the majority of people who will read this post and watch these videos will be fairly educated financially and will likely at first have a problem with my claim that it will “work”, please understand work here DOES NOT MEAN, it will be good or it will fix out problems.

Work as I am using it means it will do what it is actually supposed to do, create a financial shell game that will buy the Fed and the Banking Elite time to set up a financial check mate when they shift the current monetary paradigm. So listen with an open mind and get as prepared as you can for what is on the horizon.

The Survival podcast referenced in the first video is is located at http://www.thesurvivalpodcast.com/982-freestyle-day. The part of that podcast goes with these videos begins at about 54 minutes into the podcast.

Videos in this Post

Why QE3 Will Work – Part One: http://www.youtube.com/watch?v=L24uoSR_QMQ

How QE3 Will Work – Part Two: http://www.youtube.com/watch?v=rvh-Y90tHFc

Why QE3 Will Work – Part Three: http://www.youtube.com/watch?v=tRYQZqnOAVY

http://www.thesurvivalpodcast.com/why-qe3-will-work

"Quantitative easing", site:conservapedia.com "Quantitative easing", Quantitative easing

"QE3", site:conservapedia.com "QE3", QE3

Specific References
General References

Based on research from diverse Fair Use Disclaimer Sources:

Snippet from Wikipedia: Quantitative easing

Quantitative easing (QE) is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity. An unconventional form of monetary policy, it is usually used when inflation is very low or negative, and standard expansionary monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. This differs from the more usual policy of buying or selling short-term government bonds to keep interbank interest rates at a specified target value.

Expansionary monetary policy to stimulate the economy typically involves the central bank buying short-term government bonds to decrease short-term market interest rates. However, when short-term interest rates approach or reach zero, this method can no longer work (a situation known as a liquidity trap). In such circumstances, monetary authorities may then use quantitative easing to further stimulate the economy, by buying financial assets without reference to interest rates, and by buying riskier or longer maturity assets (other than short-term government bonds), thereby lowering interest rates further out on the yield curve.

Quantitative easing can help bring the economy out of recession and help ensure that inflation does not fall below the central bank's inflation target. Risks include the policy being more effective than intended in acting against deflation (leading to higher inflation in the longer term), or not being effective enough if banks remain reluctant to lend and potential borrowers are unwilling to borrow. According to the International Monetary Fund, the US Federal Reserve System, and various other economists, quantitative easing undertaken following the global financial crisis of 2007–08 mitigated some of the economic problems after the crisis. It has also been used by several major central banks (Federal Reserve, European Central Bank and Bank of England) in response to the COVID-19 pandemic.

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