From my understanding Quantitative Easing(qe) is used to increase the money supply and stimulate growth. Why are bonds primarily the asset qe buys? Would it not achieve the same thing by just financing the government directly by giving the newly 'printed' money to the government budget to spend?
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$\begingroup$ This practice is exactly what brought the current system into existence. Putting money into circulation by buying debt or financing government directly is the reason so many periods of hyper inflation existed and will continue to exists. Most central banks can only buy government bonds in the secondary market and not directly from the government. $\endgroup$– AKdemyJun 6 at 17:04
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$\begingroup$ @AKdemy does qe not cause inflation or potentially hyper inflation anyway? If the central bank acts independent of government why would it matter what market it buys the bonds from? $\endgroup$– Ira WattJun 6 at 17:33
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$\begingroup$ Prices for newly issued government securities are set by private market demand and supply conditions (usually through auctions). That way, there is no direct influence of the central bank on the borrowing decisions of the government. QE, as done by many central banks is unlikely to lead to hyper inflation. In fact, it is usually done to fight low inflation or deflation. $\endgroup$– AKdemyJun 6 at 19:03
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$\begingroup$ economics.stackexchange.com/q/6476/37817 $\endgroup$– AKdemyJun 6 at 19:16
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$\begingroup$ Re: "Putting money into circulation by buying debt or financing government directly is the reason so many periods of hyper inflation existed and will continue to exists." ... This is disputed... positivemoney.org/2015/12/… $\endgroup$– MickJul 3 at 22:10
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