Can somebody please explain to me what quantitative easing is in simple terms?
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It’s printing even more money.
The Federal Reserve is in charge of deciding how much money to print. If there’s not enough money they’ll print more and if there’s too much they’ll print less or delete some. But there’s a problem with printing money, and that’s deciding who gets to have the new money. They could give it to everyone, but that’s a logistical nightmare. They could give it to the government, but they’re not allowed to treat the government specially.
Before about 2008, printed money was given to banks in the form of interest. The Federal Reserve is also the central bank – it’s where banks put their money. So the Federal Reserve could print more money to each bank depending on how much money the bank had. If there was too much money they’d give less interest and if there wasn’t enough money they’d give more interest.
In the 2008 crisis for some reason they decided this wasn’t a fast enough way of printing money. What they decided to do instead was to go to Wall Street and buy things from Wall Street. What did they buy? Well, they weren’t there to gamble – they just needed to put money into the economy – so they picked the safest thing that is traded on Wall Street, which is government bonds – government IOUs. It doesn’t count as treating the government specially, because they bought the bonds from the Wall Street banks, not actually from the government. Banks still traded bonds with each other like before – the bond market works a lot like the stock market – but sometimes, the market ended up matching a bank’s trade with the Federal Reserve, and the bond disappeared into the dark abyss of the Fed’s balance sheet, and the money magically appeared in the bank’s pocket, and this was how the Fed put money into the economy.
This program never ended and many people believe it permanently fucked up both the amount of money and also the bond market.
I don’t know why it’s called “Quantitative Easing”. It might be a euphemism. The EU’s version has a better name – they call it “Outright Monetary Transactions” – “screw this interest rate shit, we’re just gonna straight-up buy stuff.”
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