9

For Quantitative Easing to happen, a central bank needs to expand its balance sheet by, more or less, "printing money" from scratch. Quantitative Easing is a difficult policy in that you want to encourage inflation to force investment, but at the same time you need to control that inflation. For this reason QE should be used only when central banks believe ...


9

High-powered money is another term for the monetary base or MB. MB represents all money created by the government. However, that is not all the only source of money. Banks are allowed to create money too. Which is why higher aggregates like M2 and M3 are greater than MB. Because bank money is greater than government money, it (and not MB) is more of a ...


6

"Foreign Direct Investment" is to be understood as bringing in an economy productive capital, and not just purchasing power. When an economy is seriously below full employment (of capital and labor), than a case can be made that "printing money" (i.e. creating purchasing power out of thin air) may not result in just inflation, but it may indeed bring into ...


6

The unwind depends upon what the central bank did. If the central bank did a repurchase agreement (“repo”) or lent against assets for a fixed time, the agreement automatically unwinds at the term of the deal (which is short). They would need to enter into new deals to keep their balance sheet size unchanged. If they bought the asset outright, it will either ...


4

There's a pretty simple answer to that. The money injected into the banking system does not acquire any velocity- it just gets redeposited at the Fed. If they had spent the same amount of money into the general economy in the form of goods and services, then you would have seen higher inflation.


4

The ECB faces a unique challenge in that the Eurozone is a monetary union without a fiscal union. Because each country has autonomy over their own fiscal policy and there is no separate Eurobond, it is unclear which countries' bonds the ECB would buy to perform Quantitative Easing. In the US this is easy because of the presence of US Treasury Bonds that the ...


4

This is a partial answer, in the sense that it addresses the case for state-sponsored house building, rather than the question of how that should be financed. In general, any means by which the state might finance spending is likely to introduce some kind of distortion into the economy. The question then faced is whether that spending generates benefits ...


4

Quantitative easing (QE) is an historically unusual monetary policy tool that involves the purchase of financial assets by the central bank. Unlike similar assete purchases used for moving exchange rates, these assets are typically local currency denominated and not sterilized. Although central bank purchase of government debt occurs in both QE and ...


4

You should be confused by Japan's version of QE. No one knows the long term implications, it has never been done before. I don't know that much about Japan's QE other than the monthly totals, but the concept behind QE is simple. Normally, when a central bank wants to stimulate economic activity, they will do so by reducing the returns on saving and ...


4

This is veering into the direction of an opinion-based answer, but I would argue that there is no particular evidence that the Fed “needs” to reduce the size of its balance sheet. If the Fed wanted to revert to its pre-2008 mode of operations - where interest is not paid on reserves - it would be required to reduce its balance sheet so that there are no ...


3

No, the deficit is not getting larger due to QE. Certainly not directly, because that's impossible, and also not indirectly, either. Quantitative easing is a policy of purchasing government bonds with the intent of decreasing yields while injecting cash into the economy. It affects only the demand for government bonds, not the supply of bonds created by ...


3

The easiest way to estimate the total amount of quantitative easing is to look at the change in the balance-sheet of the Federal Reserve because every bit of money put in through quantitative easing involved the purchase of assets which grew the central bank's balance sheet. You can see in the graph above that the total growth is about \$3.6T. There are ...


3

Money doesn't build houses: people do. Building houses requires real resources. Money is not a real resource, it is just a means of exchanging resources. So, as a first approximation, printing money just leads to inflation.1 There is an additional problem to consider. People who spend their time building houses cannot use that time for producing other goods,...


3

Yes they are "gift" (or rather a stimulus), but not exclusively to the 0.1%. There's basically "trickle down" by inflating the M2 money supply, i.e. bank loans, which hopefully include loans to companies where the "average guys" work. So in theory, banks have more funds to lend, at a low rate of interest, encouraging households ...


3

I actually found a model that proposes an estimator of CPI increase from a QE "unit" (relative to GDP), but this is based on ECB's intervention (which came pretty late compared to others). This is a New Keynesian DGSE with QE as an estimated AR(2) process. The "initial shock" is a 1% increase in ECB's bond-long term bond holdings, relative to quarterly GDP. ...


2

I'll answer the first question. How is this fair for every other constituent in the economy who has earned money the hard way, by working and not by generating it so freely like interest returns on this free money do for commercial banks? Remember that commercial banks don't create money from nothing at all. When they create a loan, they also create a ...


2

1) In principle, there is nothing material to stop the central banks. Apparently, during the great recession in the 1930's in the US, the fed bought even stranger stuff. They could go domestic bonds, equities, houses, etc, and then they could go to foreign assets. 2) No, they cannot literally go bankrupt because they can always print money. Some banks have ...


2

Addressing your question directly, yes, the rate will necessarily decrease. The Fed's purchases of MBS were entirely MBS that were securitized by the government-sponsored enterprises (GSEs). GSE MBS are not subject to credit risk, as the credit risk is guaranteed by the GSEs. Further, banks underwriting mortgages that are securitized through this channel ...


2

It’s an editorial opinion, and it’s hard to give it a technical meaning. The distinction being made in the text is between growth in the “real economy” - which would be measured by GDP and/or consumer price inflation - and growth in asset values. For example, there could be no direct job creation because of QE, just equity prices going up. However, this ...


2

For considering a question like this, because the Federal Reserve remits seigniorage to the Treasury, it can be helpful to integrate the balance sheet of the central bank and the treasury and consider them as a single entity. Since QE involves the purchase of higher interest rate long dated debt and financing that purchase with lower interest rate central ...


2

As I noted in a comment, the description in this question of real world central banks is overly simplistic. Central banks do not make proportional changes to the monetary base to set the price level. However, I will ignore those problems, and just address the core of the question: 1) Will it make sense to change account balances on a pro rata basis to keep ...


2

The question as it stands now contains points that are debatable. So I will just attempt to answer a similar question; the question could be revised in response. There are a number of other questions on QE that offer some background. Difference between QE and regular monetary operations Limits to QE My revised version of the question is: “In quantitative ...


2

This is a transaction where productive assets change hands, it is not a transaction that reflects production. Moreover assume that the company oparates exactly as before, producing the same output in quantity and quality and with the same prices and with the same costs. Then nothing has changed in the economy as regards production (and so income). The ...


2

You may want to look at the following paper by Cukierman (2017). The author compares inflation for a period of identical base expansion in post Lehman US and hyper-inflationary Germany in the 1920s. They mention exactly what you said, that banks have increased their reserves at the Fed. In the US this has not translated into a heightened demand for goods and ...


2

According to Gambacorta and Mizen (2019) a number of factors explain the 2008 crisis (and insofar post-crisis) multiplier: banks factor in may more things than the interest rate nowadays, of their own accord they are also obligated to comply with more regulatory oversight Before the global financial crisis, the world was a simpler and more innocent place ...


2

If you want something "even more ELI5", try this from the Atlantic: Let me unpack these one by one. Right now getting the markets to buy our debt isn't the problem. Getting enough debt for the markets to buy is the problem. Investors are so crazy to load up on Treasuries that they're actually paying us to borrow, taking inflation into account. But while ...


2

That is because inflation is a change in price level and price level can be expressed using the basic monetary model as: $$P=\frac{MV}{Y}$$ Where M is money supply, V is velocity of money and Y is output. Hence, while it is true that the price level is increasing in money supply (M) it is also decreasing in (Y). Hence if your money supply grows for ...


2

The Fed’s liabilities (technically broader than the true monetary base but arguably more relevant depending on your definition of “money printing”) are released weekly in their H.4.1 release. They appear in Table 4. Right now they are about 6.3 trillion dollars, up almost 2.4 trillion from a year ago. They’re “validated” in the sense that the Fed has ...


2

This question is too long. To be useful for this website, questions need to be questions, without filler text. You should also try to avoid suggesting answers, as if your suggestion is wrong (as happened here), it makes it harder to answer the question. You have questions about the notion of “corporation” versus “bank.” A bank is just a type of corporation, ...


2

The question as currently stated is too long, and contains misleading statements. I will answer the core of the question, which I believe is as follows: why don’t countries use “helicopter money” to replace incomes? (“Helicopter money” is the act of the central bank directly handing out money to households to stimulate the economy.) The answer to that is ...


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