Popular media’s definition of quantitative easing focuses on the concept of central banks increasing the size of their balance sheets to increase the amount of credit available to borrowers.
Theoretically, this leads to increased spending results in increased consumption, which increases the demand for goods and services, fosters job creation and, ultimately, creates economic vitality. (a simple explanation)
The idea is that by making it easier to obtain loans, interest rates will drop and consumers and businesses will borrow and spend.
So why are we most of us still struggling to make a living?
What in fact is happening is that a flood of cash has encouraged reckless financial behavior and directed a fire-hose of money to emerging economies that cannot manage the cash.
As I understand it the sole purpose of money is as a stable measure of value that facilitates the exchange of goods and investment. Quantitative easing, by its very name, involves the corruption of money’s sole purpose as a stable medium of exchange.
If only life were so simple.
By destabilizing the value of money, Quantitative easing works against the very investment that would drive economic growth. It’s supporting the very government spending and housing consumption that got us into trouble to begin with. It is the horribly obtuse notion that central banks can produce real economic growth through their monetary machinations.
It is financing the ongoing economic hardship through its expanded borrowing of bank reserves. 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.
Quantitative easing policies have benefited mainly the wealthy. For example 40% of those gains went to the richest 5% of British households.
Quantitative easing cash ends up overwhelmingly in profits, thereby exacerbating income inequality. The consequent social tensions that arise from it, 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.
It might well have been better saved if insolvent firms, institutions like Banks had been allowed to restructure through bankruptcy, and our central banks had provided credit only to sound banks on a short-term basis.
What we have now is central banks selling the assets they have accumulated and it wont be long before interest rates start to climb, choking off what they call the recovery.
Technically, a central bank could become insolvent ( although its liabilities are essentially costless) in a manner similar to a commercial bank. In practice, the situation is very different because a central bank’s assets and liabilities are different from those of a commercial bank, and because the central bank can issue money to meet its obligations. In effect, they can bail themselves out by printing money.
I am no financial ingenious guru but the evidence of Quantitative easing seems to me to be a devaluation of buying power of your money. A good first step in avoiding such a lack of confidence would be to start unwinding the QE policies.
When we look back it might have been better to have put a million in the bank account of ever citizen, which they could have drawn down over twenty to twenty-five years provided they cleared their mortgage, took out health and old age insurance. This would have stimulate the economy for all.
As I said I’m no financial adviser and I’m certainly not “rich, my advice to anyone reading this post ”Rather than settling for a wage (and be “owned” by bosses), you should be come owners.
Have a look at the below. All comments welcome.
Because the Fed’s—it does not pay interest on Federal Reserve Notes and typically pays no interest on reserves—it almost always remits money to the Treasury.
Since 2008, however, the Fed has sold off virtually all of its short-term Treasury securities and acquired instead longer-term Treasuries and the debt and MBS issued by Fannie Mae and Freddie Mac.
These securities are riskier relative to those normally held by the Fed for two reasons.whether a central bank can become insolvent, therefore, centers on what it can do to cause the public to lose confidence in its currency. A good first step in avoiding such a lack of confidence would be to start unwinding the QE policies.
Even the invention of quantitative easing is shrouded in it did raise economic activity a bit. controversy. that central banks have the capacity to keep inflation in check if the money they have created begins circulating more rapidly.