Quantitative easing (QE) is an unconventional form of monetary policy where a Central Bank creates new money electronically to buy financial assets, like government bonds. This process aims to directly increase private sector spending in the economy and return inflation to target.
What isn’t quantitative easing?
Quantitative easing (QE) isn’t good for the economy or good at returning to inflation.
I’ll use Australia’s Reserve Bank (RBA) as an example as they also use (QE) or monetary ‘policy’. For a start the RBA is privately owned, not owned by the government, the people, us, yet they are allowed to create currency. This created money is then given to the government to purchase bonds. Depending on the maturity of the bonds (1, 3, 5 years) they will receive regular interest payments up to the maturity date and then the full amount is paid back at maturity of the bond. Using 10% as an example, if $1mil is given to the government for a bond @10% over 5 years, $100,000 will be given to the RBA every year until it reaches maturity in the 5th year. That $100,000 paid every year isn’t printed to pay the RBA, IT IS PAID OUT BY THE PEOPLES TAXES. In other words, the RBA receives $100,000 from YOU every year for propping up the financial markets and making the rich richer and the poor poorer. This monetary stimulus reprices assets higher via printed money. This is not a real indication of worth hence the reason the market has flash crashes to come back down to real worth. The Bank of England as of 10th September 2015 is continuing to prop up their market with £375 billion pounds. This is going to continue to happen until it all comes tumbling down.