FANDOM


To carry out QE central banks create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before. The new money swells the size of bank reserves in the economy by the quantity of assets purchased—hence "quantitative" easing. Like lowering interest rates, QE is supposed to stimulate the economy by encouraging banks to make more loans. The idea is that banks take the new money and buy assets to replace the ones they have sold to the central bank. That raises stock prices and lowers interest rates, which in turn boosts investment. Today, interest rates on everything from government bonds to mortgages to corporate debt are probably lower than they would have been without QE. If QE convinces markets that the central bank is serious about fighting deflation or high unemployment, then it can also boost economic activity by raising confidence. Several rounds of QE in America have increased the size of the Federal Reserve's balance sheet—the value of the assets it holds—from less than $1 trillion in 2007 to more than $4 trillion now.

source-the economist


To put it simply, you use debit, to buy debit, to make more debit. The idea that a centreal bank can create money sounds okay, yet the long term dangers of this artifical boost are too costly. Basing your finanaical system off a loan isnt a good idea.  By no means am I saying that a gold standard is good ,yet we had a defined value placed on our currency beside good will and hope it never fails. Now, our paper is defined by just that paper. In theroy this works, your adding a stimulat base to allow building on top of it, yet to create money, you now need a base on a loan that you owe back, and in the event you cant pay or the rate goes so high, it crashes. In a sense, we have gotten our financial system hyped on sugar. Once the hype wears off, it becomes dependent on more or it crashes. In the older history of America, before the federal reserve, we had a national bank, that had one currency. Our main issue came from locla banks making all types of money that had various values and we couldnt exchange. It put too much pressure on the growing system. Now, we have a federal reserve to create these bonds from the treasury, then the banks buy them and hand back the money to the treasury to give to the goverment. So, they write bad checks to the bank ,in hope of a return on the loan the banks create money from the bad check. Yet, QE only adds more loan amounts and longterm stress because it only stimulants, the money isn there, and they cant get it, yet they keep handing it out in the form of bad checks in a sense, and thats the sad reason why QE plans are not good. When your system is already broken, the worst thing to do is add a short term stimulant to it, that brings people in, because when it crashes, they all crash with it.

Ad blocker interference detected!


Wikia is a free-to-use site that makes money from advertising. We have a modified experience for viewers using ad blockers

Wikia is not accessible if you’ve made further modifications. Remove the custom ad blocker rule(s) and the page will load as expected.