Federal Reserve's "Quantitative Easing" for Dummies

Mon, 22 Nov 2010 23:55:00 +0000

eowyn2

Early this month, your eyes probably glazed over at news that America’s central bank — the Federal Reserve — undertook a “Quantitative Easing (QE)” to jump start the sluggish non-existent economic recovery. Since this is the Feds’ second attempt at monetary stimulus (the first one failed miserably), it’s called QE2. 

Quantitative Easing is a monetary policy used by some central banks to increase the supply of money by increasing the excess reserves of the banking system, generally through buying of the central government’s own bonds to stabilize or raise their prices and thereby lower long-term interest rates. This policy is usually invoked when the normal methods to control the money supply have failed, e.g. the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.

Did you understand that? Me neither! LOL

What I do know is that, having taught a college course on the politics and economy of Japan, Quantitative Easing was used unsuccessfully by the Bank of Japan Japanese government to fight domestic deflation after the country’s “bubble economy” bursted at the end of the giddy 1990s. Today, Japan’s economy, sadly, remains in the doldrums.

Here’s a great video that explains what the euphemistic “Quantitative Easing” means. It’s a hoot. Highly recommend!

H/t beloved fellow Dave from Atlanta.

~Eowyn

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