What is quantitative easing?
In: Economics
Imagine if a pawn shop was being run by a magician.
Say that you just got fired from your job. On paper you might have a reasonable net worth: you own a showmobile, a jet ski, some art, etc. but you were living paycheck to paycheck and don’t have much liquid cash. Your immediate plan is probably to spend less while looking for a new job – right? Well lets say that there is someone out there who doesn’t want you to do that. They want you to keep spending. How could they help you out with that?
They let you pawn your stuff to them. You give them your jet ski, your snowmobile, your art, and they give you cash. You can now spend and in a few months when you find a new job you can pay them back and get your stuff back.
The only twist to this with QE is that the pawn broker, the FED, owns the money printing presses and is just creating money out of thin air. But at the same time the asset that is being pawned to them is an IOU that THEY ISSUED. So people are mostly willing to say “well actually they are not really creating money…. not in a way that matters to inflation”. Everyone kind of holds their noses at this weird situation because they figure in six months the banks will get their bonds out of the pawn shop, and the money that was printed will be destroyed, and everything will go back to how it was before, EXCEPT that the economy will be helped. So its like a magic trick. Something winks into existence just long enough for the audience to see it and then poof its gone again like it never happened.
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