What the hell is Quantitative Easing? Never understood it properly.
In: Economics
Short and easy: Free money from the money printer.
Slightly longer: The FED forces the big banks to take loans. The big banks loans out that money like banks do. The loan from the FED has a small rate. The load they give out to others has a larger rate. They “pay back the loan with interest”… but it’s a net gain. There’s more money in the system which helps with… liquidity? inflation? confidence? whatever. The real job it’s doing is giving select organizations free money.
They changed the rules in this last round of crisis. Instead of QE going to big banks, now they can give money to literally anyone for anything. [$700 billion in 2020.](https://www.americanactionforum.org/insight/timeline-the-federal-reserve-responds-to-the-threat-of-coronavirus/) (That’s $2,132 for everyone in the USA, but you’d have to pay it back… with an “effective rate of zero”, so really, whenever you feel like it.)
Typically in an economic crisis the value of everything plumets as everyone sells whatever they’ve got to get some cash to make ends meet. Then businesses can’t make as much money because the value has dropped. 1929 and the great depression showed us that’s a horrible self-destructive path to go down. Now that we know better, we print our way out of trouble. With more money in the system, you money is now worth less. If the value of an egg drops, but the value of the dollar also drops the same amount, prices are stable and it’s like there’s no crisis. At least for those that still have a job. But now those affected aren’t dragging the rest of us with you.
I’m being harsh on the FED here, but to be fair this is their job. Keeping inflation in check. Normally they just cut back their interest rate, but it’s already zero, so QA is their “big guns” and running those money printers full tilt. My main complaint is that they’re picking and choosing who to save. They really do have a lot of programs and you can tell they’re trying to be diverse and somewhat fair. But this is a centrally controlled economy. There’s just no way to fairly coordinate something this big. So what we get is arbitrary.
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