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 ...


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 ...


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 ...


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

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 ...


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

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 that the ECB would buy to perform Quantitative Easing measures. In the US this is easy because of the presence of US Treasury ...


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,...


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 ...


1

If your question is "in what circumstance", 123's comment is correct: when the zero lower bound (ZLB) on the central bank benchmark interest rate is binding, i.e. when that interest rate is zero, and negative rates are undesirable. Sometimes the ZLB can actually be negative, cause banks will still hold some reserves with the central bank under a negative ...


1

One initial point: you refer to "printed money", which would normally be restricted to currency in circulation (notes and coins); the parts of the money supply that are electronic are literally not printed. Borrowing on a credit card creates a credit card receivable, which is not normally considered part of most money supply figures. However, if it were ...


1

The first thing you must know in order to understand the situation is that under a fractional reserve monetary system: Bank loans create money The repayment of bank loans destroy money In the up phase of a house price bubble, millions of people are borrowing like crazy to get on the property ladder, whilst after the bubble bursts, the enthusiasm for ...


1

First of all, I'm not sure you are reading that article correctly, as I cannot find any mention of the claim you make. In any case, you can find here a superb comparative analysis of QE for the Fed, the Bank of Japan, the ECB and the Bank of England. Regarding money creation, the key difference between conventional monetary policy and QE is the type of ...


1

As a comment noted, without a reference, it is difficult to give a definitive answer. However, I have often run into similar phrasing in financial market commentary, so I will offer an initial guess as to what you read. This answer is just giving an initial idea as to what topics you could search for to get more information. This phrasing is often used by ...


1

In usual open market operations, the central bank will create money, use this money to buy short term treasury securities from maybe banks, individuals, institutions in the open market. This creates more demand for these securities and hence their price goes up and yield goes down. This newly generated money goes into the banking system. With more money, ...


1

Bank of England decided to lower reserve interest rates to 0.25%. This means the central bank wants to reduce the interest paid on reserved stash, discourage bankers parking too much money in central bank. With smaller return from central bank interest rate, this is just a policies that central bank hope the bank will use the money to invest or buy bonds....


1

What stops governments from partnering with their central banks to lower interest rates? Central banks in most countries are independent. It means that the governor of the central bank decides the monetary policy according to his/her mandate. This mandate is usually to keep a check on inflation and in some countries to lower unemployment rate. If the central ...


1

In regards to the question about the 77:1 ratio, I can't be certain, but some balance sheet information is publicized from the Fed online: The main balance sheet is down by section six of this form: http://www.federalreserve.gov/releases/h41/current/h41.htm The Fed also provides historical reports of why the balance sheet changed: http://www....


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