Quantitative easing

mrearlygold

A term I guess we should all familiarize ourselves with.

Quantitative easing
The term quantitative easing (QE) describes a monetary policy used by central banks to increase the supply of money by increasing the excess reserves of the banking system. This policy is usually invoked when the normal methods to control the money supply have failed, i.e the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.

A central bank implements QE by first crediting its own account with money it creates ex nihilo ("out of nothing").[1] It then purchases financial assets, including government bonds, agency debt, mortgage-backed securities and corporate bonds, from banks and other financial institutions in a process referred to as open market operations. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money, and thus hopefully induce a stimulation of the economy, by the process of deposit multiplication from increased lending in the fractional reserve banking system.

Risks include the policy being more effective than intended, spurring hyperinflation, or the risk of not being effective enough, if banks opt simply to sit on the additional cash in order to increase their capital reserves in a climate of increasing defaults in their present loan portfolio.[1]
Quantitative easing

jmski52

Yeah, and until the bank bailouts, I had never heard the term "moral hazard" either.

These people simply do whatever they want and usually get away with it. Gold is saying "not so fast". We shall see.

Justacommeman

The real problem with QE2 is that there must be a QE3..............I've never been more concerned about our state of affairs.MJ

derryb

QE2 will occur shortly after the Nov. elections and it will occur for one reason only: to provide the Fed with approx. 3 trillion dollars to continue buying Treasuries. Of course the Fed won't do this outright. They will continue to funnel it to the TBTF banks who will continue to purchase Treasuries on behalf of the Fed. It's Washington's way of having an endless supply of spending money and at the same time flooding the world economy with US$. This will help increase the value of foreign currencies (and our exports), something we have not been able to accomplish with threats of a trade war.

RedTiger

Aggressive use of QE is almost certain to lead to disaster. The timing, the second level consequences are more difficult to figure. I have seen precious little intelligent commentary on this topic. Yes, their are the Weimar stories, but that isn't what is going on right now. The analogy isn't close enough to be of much use to investors or traders.

QE is a difficult concept to fully understand. Any asset class that is deemed worthy of propping up can be the target of QE. Treasury rates too high? Print money, buy the bonds and notes. Real estate values falling too fast, print money, buy REITs or similar. Etc. When all the major economies are playing similar tricks, the currency doesn't fall.

I have difficulty understanding what is going on in Japan. Japan is one of the most aggressive countries in terms of QE, and has gov't debt levels well above American levels, and yet, the yen keeps appreciating vs. the US dollar. If I were laying odds on major economies (not the PIIGS) to default on its national gov't debt obligations, I would rate Japan at the top, with England second. So why is the yen seen as a "safe" haven, when my rational mind would rate it odds on as most likely to default? That is one of the conundrums of QE.

HalfStrike

Canada has somewhat high debt as well, they better watch out or they will end up becoming a US state.

jmski52

I have seen precious little intelligent commentary on this topic. Yes, their are the Weimar stories, but that isn't what is going on right now. The analogy isn't close enough to be of much use to investors or traders.

I see this strictly as a directly transfer of wealth from the wage earners to the bankers. If you don't own gold, you are part of a massive financial "reset".

It's a power deal. Without QE, the bankers will never be able to keep 'hold of their favorite politicians. Without QE, the bankers would have failed. It keeps their derivatives bacon out of the fire, temporarily.