Can somebody please explain to me what quantitative easing is in simple terms?
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tl;dr The government buys back it’s bonds to reduce inflation and stimulate the economy.
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If the government needs money *today,* it sells a bond which is a promise the government will pay the price of the bond back + some percent interest (like 4% generally). But if people think inflation will be faster than 4%, they would rather stick their money somewhere else. Except the government needs money *today*, so it sells bonds for 5%, then 6%, etc. But in doing that, it’s a feedback loop which makes inflation go higher because now they’re actively putting more money in circulation.
QE is when the government flips direction and starts spending lots of money to buy up those high interest bonds. This puts the money that would been put in the economy 5 years from now in circulation today, which in theory stimulates the economy. At the same time, the **total** money being put in the economy goes down, since they’re no longer paying interest payments. And as a final bonus, since the supply of bonds is going down the price bumps up a bit, so if they need to sell bonds again in the future they will get a better price.
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