When central banks buy bonds and mortgage-backed securities, doesn’t that add more cash to the financial system? If no inflation results, could they simply buy all the debt? IIRC Germany couldn’t find enough buyers for their 30 year negative yield bonds, so their central bank ended up buying most of them. If that’s possible, why wouldn’t a country want to run up the deficit and fund it via QE?
In: Economics
Because you can’t effectively tell whether adding money to the money supply will cause inflation or not. So you add money cautiously, and then keep an eye on the data to make sure inflation stays under control after the fact. If it doesn’t, you scale back your addition to the money supply.
That’s in normal times. In times like these where everyone’s shitting their pants, you just pump money into the system. It’s akin to giving adrenaline to a person who’s had a heart attack – you go for something drastic and deal with the consequences later
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