Talk:Quantitative easing/Archive 1

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open market operations vs. quantitative easing

so what's the difference? from this article i don't see any.

New introduction

I think the use of 'thin air' is rather subjective and offers quite a biased view on what quantitative easing actually is. This should be re-written or returned to the original 'is a tool of monetary policy.' which was much more neutral. -- (A.szczep) 08:48, 20 February 2009 (UTC)

Why is it biased? And it's certainly not subjective. It's an objective description of the process. Just saying something is a 'tool' doesn't describe where the new money comes from. People ask where new money comes from? It's created out of thin air. fact. 'thin air' is a common enough phrase and it's use here is appropriate. Vexorg (talk) 21:41, 21 February 2009 (UTC)

The term "thin air" is absolutely accurate. The federal government creates all its money out of thin air, backed only by full faith and credit. The problem with quantitative easing is not that it might cause inflation or hyper-inflation, but rather that it does almost nothing. Banks exchange Treasury securities for dollars. Dollars are demand deposits at the Fed. T-securities are time deposits at the Fed. So a time deposit has been exchanged for a demand deposit. Not much excitement there. Anyone wishing to discuss this further can reach me, Rodger Malcolm Mitchell, at rmmadvertising@yahoo.com —Preceding unsigned comment added by 24.1.107.40 (talk) 16:23, 21 April 2010 (UTC)

The lengthy description of FRB and money-multiplication in the introduction is duplicated as it is also described below. The references to FRB and money-multiplication in the introduction should be removed and instead just say that the money banks receive from selling the bonds to the government should enable them to lend more money to their customers, increase the overall money supply and allow banks to increase their reserves.

Also, something that has been left off the entire article is that the QE process should be reversed when the economy has recovered or if inflation has started. This would be achieved by the government selling bonds to the banks and then destroying the money that they receive (buy electronically subtracting from their own account). —Preceding unsigned comment added by Caparn (talk • contribs) 18:10, 14 August 2010 (UTC)

"A central bank can do this by buying government bonds" - how ?

The above sentence appears in the main article. I would like to ask, what does the central bank use to buy these bonds? If it uses money it already has, then where is the 'quantitative easing' ? If it is creating 'new' money, what does the double entry book-keeping look like: Debit Investments, Credit Money from thin air ? This article is very important, since it refers directly to what looks like being a major plank of G20 government policy. At the moment I echo the comments below from Ashley Pomeroy. The crucial issue that everybody wants to know is 'how is new money made'? Someone who knows the nuts and bolts of central bank bookkeeping should just show the T-account entries.

Perhaps a better metaphor (that I like) is: "A snake eating it's own tail, to temporarily sustain itself!"

Most new money is made out of thin air by [|Fractional Reserve Banking] (deposit multiplication ). The Federal Reserve booklet Modern Money Mechanics explains how this works. Vexorg (talk) 05:50, 19 February 2009 (UTC)

btw - here's a link I found to a pdf version of Modern Money Mechanics http://www.smeggys.co.uk/smeggy_info/Modern_Money_Mechanics.pdf Vexorg (talk) 02:08, 3 March 2009 (UTC)

"Out of thin air" has to be one of the worst metaphors used in this article and should be struck in all cases. The colloquial "out of thin air" refers to a very basic concept in economics but doesn't accurately depict the importance of that concept - the concept is value. When an asset appreciates in value (a.k.a. price), does the marginal increase in value appear "out of thin air"? When two accounting firms disagree over the valuation of an asset to be disclosed in a public report, is that discrepancy appearing "out of thin air"? Unfortunately, the phrase "out of thin air" implies some impropriety from the producer - such as, pulling your story "out of thin air," or a magician pulling a flower "out of thin air." Let me suggest that you avoid nonsensical metaphors and colliquial language in exchange for cautionary statements that accurately describe the discipline's limitations, such as value is slippery concept, which economics has come to define as a function of supply and demand - assuming, of course, a rational actor seeking to maximize their wealth. Vexorg - the very pamphlet you cite describes money as a medium of exchange commonly accepted and, therefore, could be baseball cards, jewels, or printed dollars.Cpuga001 (talk) 18:16, 27 June 2009 (UTC)

You're worried about the impropriety of the metaphor "out of thin air" being used in an article whose very title, "Quantitative easing", is itself a euphemism for inflation (of the money supply, of course)? That's rich.—Blanchette (talk) 03:20, 18 August 2009 (UTC)

To Blanchette: "Quantitative easing" is not a euphemism, it is technical term for a particular type of monetary policy. Unfortunately, interference from people who do not understand it has prevented the article from correctly defining it. Yes, the QE policy is a kind of monetary inflation, but so are some other policies which are not QE. JRSpriggs (talk) 07:16, 18 August 2009 (UTC)

New money is not created by "fractional reserve banking" as such a process does not exist. Bank lending is not restricted by reserves. A bank with zero reserves could lend millions. Bank lending is restricted by capital. Rodger Malcolm Mitchell, rmmadvertising@yahoo.com —Preceding unsigned comment added by 24.1.107.40 (talk) 16:28, 21 April 2010 (UTC)

But what is it?

I have read the article three times, the third time whilst eating some cereal. In its current form, the article does not actually say what quantitive easing is; or if it does, it is not clear. -Ashley Pomeroy (talk) 23:08, 5 December 2008 (UTC)

Ashley, what do you find unclear?

Quantitative easing is a tool of monetary policy. It effectively means that the central bank injects new money into the financial system, in order to increase the supply of money... Is this not clear enough? Janosabel (talk) 20:38, 25 January 2009 (UTC)

My Dear Ashley: "Quantitative Easing" is Newspeak for "increasing the money supply by simply 'printing' more of it, either literally or electronically; inflating the currency by fiat". Writtenright (talk) 02:23, 8 March 2009 (UTC)Writtenright

On the subject of "What is it?", can anyone include an outline of the provenance of the term "Quantitative Easing". It seems to be a new term since I can't find any references to "Quantitative Easing" prior to autumn 2008, when there is an explosion in instances. It would be helpful because, presumably, it would shed light on how the practice is distinct from historical policies of printing money or Open Market Operations. 94.169.132.184 (talk) 19:03, 8 March 2009 (UTC)

A good analogy to help the layman understand "Quantitative Easing" is the common practice of using one credit card to pay off the debt on another credit card, postponing the day of reckoning. Government buying it's own debt. —Preceding unsigned comment added by 88.106.172.215 (talk) 10:35, 24 May 2009 (UTC)

Need to define "New Money"

Someone pleas write the entry on New Money, that is, money created in addition to total quantity of notes and coins plus the current debt burden carried by individuals households and businesses. I have contributed an introductory entry before but it got "speedily deleted". Now an economic illiterate is diverting the link to Nouveau riche. -- Janosabel (talk) 23:27, 8 February 2009 (UTC)

I've rewritten the intro to get rid of the irrelevant Nouveau riche link. The central bank buys bonds by simply crediting the account of the agents account. These new deposits allow the private bank to increase it's lending, ergo increasing the money supply. The federal reserve's document Modern Money Mechanics explains it all. Ther ereally needs to be a Wikipedia article on the Modern Money Mechanics publication. Vexorg (talk) 06:03, 19 February 2009 (UTC)

QE in the setting of interest rates

This could be expanded: "The BOJ accomplished this by buying more government bonds than would be required to set the interest rate to zero." How does the interest rate go to zero exactly? And is this a reference to long-term interest rates ('bond yields') since short term rates are set directly by central banks themselves?

Thanks 11:17, 05 March 2009 (UTC) —Preceding unsigned comment added by 92.2.86.124 (talk)

My question is similar: how does buying government bonds cause their interest rate to change, as is implied by the statement that buying a certain number of bonds would set the interest rate to zero? rspεεr (talk) 05:36, 9 March 2009 (UTC)

The price of of a bond is inverse to its yield (Finance 101). Hence if you buy lots of bonds (ie increase demand) the Price goes up (Economics 101) and hence the interest rate goes down. Thus, if you buy enough bonds, then you can theoretically push the interest rate to zero. Suicup (talk) 11:53, 10 March 2009 (UTC)

dead link

• Forum for Stable Currencies --Alex1011 (talk) 21:50, 25 January 2009 (UTC)

Link OK now-- Janosabel (talk) 22:13, 8 February 2009 (UTC)

printing money

sometimes quantitative easing is known as "printing money", although of course paper currency that is a promissory note to gold or whatever still has to be printed. Printing money currently redirects to fiat currency. i've linked fiat currency in the see also section, as that is a prerequisite for quantitative easing, but some inclusion of the phrase "printing money" might be useful.--Mongreilf (talk) 12:27, 8 March 2009 (UTC)

I agree. I read this article and asked myself "Isn't this just a fancy euphemism for 'printing money'? And why doesn't the article say so if it is?" rspεεr (talk) 05:34, 9 March 2009 (UTC)

The article does explain in the first paragraph that it's essentially creating money out of 'thin air' (whether that is printed or an electronic account adjustment) - I've had to fight off a couple of editors who seem to want to avoid disclosing this basic fact though. Vexorg (talk) 19:47, 9 March 2009 (UTC)

I explain below that you must understand the term "printing money" in the context of government policy goals, not just the Fed's mission.Edsdet (talk) 02:23, 22 September 2009 (UTC)

Indeed I propose that the article be added to Category:Euphemisms. __meco (talk) 20:47, 9 March 2009 (UTC)

Text removed related to hyperinflation

I had added the following text after the introduction:

Quantitative easing is a prerequisite for hyperinflation, which will be a later stage in a deteriorating economic crisis when stabilization of the currency is unsuccessful and confidence in the authorities' measures continually declines.

This was removed by another editor calling it POV. If anyone will bother to find sources supporting this observation it should be harder to removed this obvious link from the article. Presently the article makes no mention at all of hyperinflation. __meco (talk) 07:57, 9 March 2009 (UTC)

The way that was written can be misconstrued as a possible inevitability of Quantitative easingw hich obviosuly is not necessarily the case. I think the article would be better served by introducing a section on the pros and cons of Quantitative easing of which hyperinflation can be one of the cons. Vexorg (talk) 19:44, 9 March 2009 (UTC)

I accede that perspective, however, not having any mention of it in relation to hyperinflation appears to me a blatant omission. __meco (talk) 20:48, 9 March 2009 (UTC)

This is exactly my point. There needs to be a proper section on the pros and cons of QE and not something that can misconstrued as an inevitable conclusion of it. Vexorg (talk) 21:02, 9 March 2009 (UTC)

Even in my "Conspiracy Theorist" mind the term hyperinflation is an emotive ill defined word, generally used as propaganda against failing governments. A reference to inflation is needed, along with the concept that inflation is another form of hidden taxation, because of the private banks creating and lending money to the government (at interest). This system is a complex monster, that defies logic to any sane person! —Preceding unsigned comment added by 88.106.172.215 (talk) 11:00, 24 May 2009 (UTC)

Missing the whole point

To Meco (talk · contribs) and Vexorg (talk · contribs): You two are missing the whole point of the phrase "quantitative easing". It is a kind of monetary policy where open market operations are used to increase the money supply by a pre-determined quantity. Your definition "the creation of new money 'out of thin air' by a central bank for injection into the banking system in an attempt to increase the money supply" contains several errors: (1) It is not sufficiently specific, your definition (if the wording were corrected) would apply to any open market operations. Thus you are leaving out the entire reason why this new phrase was created. (2) Central banks do not create money "out of thin air" (nothing). The central bank buys securities which are used as collateral for the new money. If it is necessary to withdraw the money to stop inflation, then the securities can be sold to get the money back. (3) There is no "attempt" about it. Money is definitely created. JRSpriggs (talk) 09:44, 10 March 2009 (UTC)

I agree with JRSpriggs. The 'out of thin air' definition is sloppy, incorrect and possibly bordering on POV. The definition given by JRSpriggs is far superior on each of these levels, which is why I have edited the intro to reflect this. To the other users, if you disagree, don't revert back, it will just create an edit war - discuss here first. Suicup (talk) 12:00, 10 March 2009 (UTC)

Please don't order people not to revert so you can claim priority Vexorg (talk) 19:31, 10 March 2009 (UTC)

I am not 'ordering,' just suggesting that the best way to resolve disagreements is to discuss them here first rather than edit back and forth. I suppose now that the phrase is referenced there is no need for it to be deleted, however I still think 'out of thin air' is too casual for an encyclopaedia article of this nature - ie a reasonably technical topic in economics.Suicup (talk) 05:30, 11 March 2009 (UTC)

JRSpriggs, the money used to buy the securities is, however, newly created "out of thin air" by the central bank. from the article on open market operations: "Newly created money is used by the central bank to buy in the open market a financial asset, such as government bonds, foreign currency, or gold." the italics are mine. that the central banks retain the ability to later disappear the money back into thin air doesn't mean it wasn't created out of thin air in the first place, but it does thankfully mean they maintain monetary control.

the "thin air" is basically a slightly POV way of saying that while money is created (as you admit) wealth isn't, and an unawareness that this happens all the time and is the basis of money.--Mongreilf (talk) 18:31, 10 March 2009 (UTC)

There's nothing POV about 'thin air'. Just because the newly created money is used to buy securities it was still created out of 'thin air'. I agree the previous wording of 'attempt' is wrong and I've also left in the referral to Open Market Operations in the opening paragraph, but the reader needs to know the basic facts and that is the money is created out of 'thin air'. I do understand why some want to avoid educating people about this. Vexorg (talk) 19:31, 10 March 2009 (UTC)

Edit: I've added a source ref for the term 'thin air' Vexorg (talk) 19:45, 10 March 2009 (UTC)

The phrase "out of thin air" does not tell the reader anything truthful which is not already implied by the word "create". It is true that creating money does not create wealth. But buying a corporate bond or share of stock to be collateral for the new money is not fundamentally different from buying an ingot of gold. In either case, non-monetary wealth passes from private ownership to the ownership of the central bank; and money (which is more liquid) passes from the central bank to the private owner. And the process is reversible.

The problem of depreciation and the resulting inflation is not primarily caused by central banks (unless they are corrupt). It is caused by the government spending too much and financing its spending with borrowed money. Then it forces the central bank to monetize that debt (which is not wealth) instead of monetizing real wealth. JRSpriggs (talk) 03:31, 11 March 2009 (UTC)

You seem to have a problem with the phrase 'thin air' - The word 'create' does not fully describe the process. 'Create' can mean creating 'something' out of 'something' as well as 'something' out of 'nothing'. This is why it's important to let people know that money is literally created out of 'thin air'. It's bad enough that this information is not both readily available and easily explained, so let's at least use the opportunity of Wikipedia to show people the truth. We have to spell it out in simple and truthful terms and not the usual euphemisms if lay people are going to understand. Further, I know the process is reversible and I think it's important to educate people on that. But as far as I know there isn't a notable term called something like 'Quantitative tightening' - Anyway the buying and selling of securities as a forward and reverse method of controlling the money supply should be under Open Market operations. Quantitative Easing is a one way process designed to seed an increase to the money supply. Please remember these articles are meant to educate laymen, not people who already know how it works. Vexorg (talk) 08:33, 11 March 2009 (UTC)

The problem with "out of thin air" is that it has no clear meaning. What would you consider to be creating something which is not out of thin air?

When a corporation creates new shares of its stock or new bonds and sells them, are they created out of thin air in your view?

I agree that I have not heard of "quantitative tightening". I suspect that by the time that a central bank has decided to tighten at all, it is ready to do so by returning to an interest rate target above zero (or an inflation target or whatever other form of monetary policy it used to use). JRSpriggs (talk) 16:57, 11 March 2009 (UTC)

'Thin air' couldn't be more clearer. Most people normally assume that money has always been in existence and is simply passed around through transactions. An example of the dreadful education has just been on the BBC TV news in the lat few minutes. A brief report on quantitative easing where it was briefly explained that "the Bank Of England has bought government bonds" - no explanation of where the money has come from to purchase these bonds. it hasn't come from anywhere. It's created from 'thin air' by someone typing a number into a computer to increase the balance on someone else's account. That's why the BBC's website article, which goes into more detail says it's created from 'thin air'. How else would you explain it? Created from 'nothing' perhaps? 'Thin air' is a universally known phrase in the English language and is more eloquent than 'nothing'.

Regarding 'creating something from something' - In regards to money I guess this would apply to the usage of a physical commodity for money, for example gold. This way the only way to expand the amount of money in existence would be to mine more gold. But there's no doubt not enough gold in existence to supply the demands of an expanding economy. There's enough grains of sand. But of course if we used grains of sand as money hyperinflation would soon kick in as people came back from the beach with truckloads. :) - better then to have money as a virtual entity ( fiat money) which can be created and destroyed by those authorized so that the amount in existence can be regulated to avoid under or over supply. On a related note .... What is a problem is that private banks have the real control over the money supply as they create most of it through deposit multiplication under the fractional reserve system. But that's for another debate I guess. :) Vexorg (talk) 22:36, 11 March 2009 (UTC)

"Printing money out of thin air", is a good start at explaining our very much empirical economic system. Most people (especially those in the banking system) have little understanding about the tangled mess, as was observed by all those in charge, "not seeing" this coming crisis. It was only the Austrian Economist who have been warning us! The idea of printing money, and then ripping it up (IOU's) is pretty easy for even a child to comprehend. —Preceding unsigned comment added by 88.106.172.215 (talk) 11:18, 24 May 2009 (UTC)

A new Definition

I agree with the above comment that the reporting of QE is very poor. I also think that the term "thin air" is fine in this context. It is precisely where the money to buy the bonds comes from. However, just like a loan, where everyone concentrates on receiving the money to spend BUT forgets about having to pay it back, so the discussion on QE. We forget the rest of the story. The full story is below.

QE can be defined as a process as follows

1. central bank creates money out of "thin air"

2. central bank uses the money to buy bonds (long term it seems)

then much later when things are "eased"

3. central bank sells the bonds (or waits for maturity)

4. central bank destroys the proceeds of the bonds (returning the money safely to the "thin air" from whence it came)

The latter two steps are always missed out in explanation and are precisely what prevents "wheelbarrow" inflation. step 1 is the "money printing press". step 4 is the "money shredder". The entire process is money quantity neutral. Engineers must obey conservation laws of physics. Economists need to obey similar laws of conservation (money in this case). What is going on here, if the process is fully followed, is that money is borrowed from the future and paid back in future. This in exchange for bonds (that are removed today and returned in future). I really feel it would be very helpful if Politicians, Central Bankers, Commentators, etc would remember the latter steps when talking of QE. This would help to not scare the population with visions of "wheelbarrows". Currently commentators seem to provide a very scary partial story. The interesting thing here is that, whereas banks have central banks as "lenders of last resort", Central banks have "thin air" as the "central bank"'s "lender of last resort" - Ie the "central bank"'s central bank.

Clearly things can go wrong in the above - eg buying bonds at a higher price than selling them.

I hope my understanding is correct here (otherwise I need to convert my savings/pension to a safe currency). If I am correct, may I suggest the above definition.

mereEngineer —Preceding unsigned comment added by MereEngineer (talk • contribs) 23:10, 11 March 2009 (UTC)

mereEngineer, a very good commentary!. However we have to define some boundaries on this article. Although your steps above are excellently succinct in summing things up we might be in danger of expanding the article beyond what quantitative easing. On the other hand it's important to explain the broader scope of where QE is placed. e.g it's good to explain that the excess reserves created by QE allow the increase in the money supply by deposit multiplication, because really QE is a seed for further money creation. But where do we stop?

Someone above made a valid point about clarifying the difference between QE and the normal procedure of Open Market operations as a method to control the money supply by altering bank's reserves. I personally think we can allow some crossover and expand the article. Problems can occur with Wikipedia whereby an explanation of a process is handicapped by having the overall situation split across several articles. i.e Quantitative Easing, Fractional Reserve Banking, Bonds, Fiat Money, Open Market Operations, Money Creation, etc, etc. The article on Money creation and Fractional Reserve Banking in particular need improving to tie in with this article and also to improve clarity. Vexorg (talk) 07:22, 12 March 2009 (UTC)

Thanks for your comments Vexorg.

May I suggest the following alternative defintion to replace para 1

<START OF PROPOSED TEXT>

The term "quantitative easing" refers to the process by which a central bank increases the money supply for a limited period of time. QE is used when more conventional mechanisms for increasing the money supply (eg lowering interest rates) have failed or have reached their limit (zero). The period of time may be a number of years. The process of QE involves the following steps

1. central bank creates money from "thin air"

2. central bank buys (usually long term) bonds

3. central bank monitors and waits for the easing effects to be successfull. (see below)

4. central bank sells the bonds.

5. central bank destroys the monew it originally created (returns it to "thin air")

Notes on definition

1. QE is used in circumstances where conventional mechanisms have failed. These circumstances are where commercial banks have ceased to lend, often because of bad debts and poor reserve ratios. These conditions generally lead to deflation.

2. step 3 above is deemed to be succesful when lending has resumed again and the economy has returned to health.

3. step 4 and 5 are essential to prevent inflation. They terminate the period of increased money supply by destroying the money originally created.

4. QE is analogous to "printing money" for a period of time then "shredding money". Shredding money is essential to avoid inflation.

<END OF PROPOSED TEXT>

I have taken the view that QE is the entire process. One could argue QE only means steps 1 an 2. If so, what is the existing term for the opposite (steps 3 and 4). Is it "quantitative Squeezing"?

If its thought that QE only applies to steps 1 and 2, then its important that QE and its opposite are defined together as part of one process.

MereEngineer —Preceding unsigned comment added by MereEngineer (talk • contribs) 14:07, 12 March 2009 (UTC)

I notice from the above that there does not appear to be a term for "quantitative tightening"/"quantitative squeezing". Feel free to correct me. This is very worrying. Its like having a term for borrowing without a term for "paying back". If so it suggests that experts have thought about the easing bit without thinking about the tightening bit. I hope that I am wrong here. in any case any definition of one should include the other. Otherwise its like defining a positive electrode without defining a negative electrode. —Preceding unsigned comment added by MereEngineer (talk • contribs) 15:17, 12 March 2009 (UTC)

I think you've kinda of answered your own question about involving the reverse process in the opening section of the article. Personally I would avoid putting your steps 4 and 5 in as an essential to avoid inflation. Becuase .... If the economy expands to accommodate the extra money created by QE then there's no need to remove this money by 'quantative tightening' - With that in mind would it not be better to include mention of the reverse process in a section dedicated to the possible caveats of QE? Vexorg (talk) 18:58, 12 March 2009 (UTC)

Re-organisation

Because the article was getting increasingly messy I've reorganised the first few sections to increase clarity in quantitative easing's meaning and place in the process of increasing the money supply Vexorg (talk) 21:18, 10 March 2009 (UTC)

Thanks -- I find this clearer than what was there before. It would be good to organize it into sections again, however. rspεεr (talk) 06:39, 11 March 2009 (UTC)

Yes I agree that sections would help further. At the least we need sections describing the pros and cons of Quantitative easing. Vexorg (talk) 08:18, 11 March 2009 (UTC)

I can't believe how condescending this article is

This article uses unnecessary jargon alternating with contentless "simple" explanations for two-thirds of a page. Finally, when it provides a complete and jargonless description of the process, it prefaces it with the assertion that it is using

very simple layman's terms,

Do you see how very simple is in italics?? That is seriously some rude, obnoxious text. And it's not like this is a complicated process. The only obstruction to understanding is a glut of ridiculous jargon.

The place for a very simple explanation is at the beginning, and the phrase very simple should be removed. Furthermore, consider that explanation:

the central bank creates new money out of thin air. It then uses this money to buy what is essentially an IOU, usually from the government. This money is credited to the bank account of the seller of the IOU. The bank can then use this money as a basis for creating more new money by increased lending.

Even that is more complicated than necessary. I propose the following very simple explanation as an alternative.

Esssentially, the central bank creates money 'out of thin air.' It then loans this money to other institutions, such as governments and private banks, by purchasing securities or other debt instruments.

128.91.128.143 (talk) 14:00, 20 March 2009 (UTC)

I think the article should provide both a simple explanation and go into the details. The monye isn't loaned to private banks anyway, it's used to increase their deposits to allow them excess reserves. Vexorg (talk) 22:11, 24 March 2009 (UTC)

Lead

I've restored the lead (again). The edits by JRSpriggs do not remove inaccurate statements and actually make clarity worse as they remove the explanation of where the new money actually originates from. i.e thin air. The use of the phrase ex nihilo is unnecessary dressing up with pretentious jargon Vexorg (talk) 17:59, 22 April 2009 (UTC)

I've clarified the intro even further. Vexorg (talk) 18:32, 22 April 2009 (UTC)

I've merged the additions by JRSpriggs into the lead to remove the duplications. Vexorg (talk) 15:24, 24 April 2009 (UTC)

JRSpriggs please stop edit warring!! Your 'definition' was mostly a duplicate of info. I've merged your extra info into the lead. Vexorg (talk) 20:13, 25 April 2009 (UTC)

I've removed the US-centric aspect of the 2nd half of the lead and made it simpler to understand. Vexorg (talk) 05:14, 28 April 2009 (UTC)

To Vexorg: You are the one who is edit warring! You insist on removing my language and replacing it with misleading and unprofessional language. You delete the links to other relevant articles which I carefully worked into the lead. You are not even willing to tolerate the compromise of having both our versions separately. If you want to remove duplication, then remove it from your version, not mine (since obviously you have no idea how to write properly). JRSpriggs (talk) 08:04, 29 April 2009 (UTC)

There is nothing misleading about the lead of this article, and to call it unprofessional is nothing more than a personal attack. The point of an an encyclopaedia is to convey knowledge to all, not just those who already know the information and the jargon. I shall remove your duplications again and please stop the personal attacks. By having a clear and concise lead I have made this article and the concept of quantitative easing understandable by all. You should go into more detail and into regional jargon further down the page. Please stop the edit warring Vexorg (talk) 20:54, 29 April 2009 (UTC)

I agree with JRSpriggs's language of ex nihilo rather than 'out of thin air'. It is not pretentious jargon, but a more accurate and encyclopaedic way of stating the information. The new money is not actually created from thin air - it is created from nothing. 'Out of thin air' is merely a popular phrase, however it does not convey a precise enough meaning in this context. For these reasons, I am reinstating the language. Regards. Suicup (talk) 12:17, 29 April 2009 (UTC)

Not precise enough? You simply prove the point about 'pretentious jargon' - Out of thin air is precise in that it's a widespread and universally understood as meaning out of 'nothing'. That's why the BBC(reference) used it so people can understand the explanations. "The new money is not actually created from thin air - it is created from nothing." is a nonsense statement as 'thin air' = 'nothing' . Furthermore there's no case for saying ex nihilo is more encyclopedic. It's simply pretentious jargon, something which other editors have commented on above Vexorg (talk) 20:54, 29 April 2009 (UTC)

I'm also going to call for a Wikipedia administrator to look into this. It's not acceptable IMO to have duplicated sections in an article as a compromise. Vexorg (talk) 20:54, 29 April 2009 (UTC)

I suppose you'll be advocating complete removal of phrases like sui generis etc from Wikipedia too? Just because it is in Latin doesn't make it pretentious. If people don't know the meaning, it is wikilinked. And if they didn't know what it meant, they just learned a new phrase. You alone have been pushing this 'out of thin air' line Vexorg. A number of editors have disagreed however you have refused to compromise. So if you want to bring the administrators in i say bring it on. Regards. Suicup (talk) 13:57, 30 April 2009 (UTC)

• Vexorg asked me to comment. Looking at the lead, I tend to agree with both sides in that we do not dumb down articles without good reason, but we also don't intentionally use words and phrases that are unlikely to be common knowledge unless a brief explanation is provided. You cannot expect a user to open and read Articles B, C, D, and E just so s/he can understand the concepts of Article A. This can be fixed by simply changing the wording to something like "... pre-determined quantity of new money ex nihilo (Latin, meaning "out of nothing") as the start of a process...". Write articles as if the person reading them has 0 knowledge on the subject beyond common knowledge. Latin, for the vast majority of the population, is completely foreign.
• As for the "definition" section, that seems rather odd. The article itself is supposed to be an explanation of the concept. It shouldn't be shoved into a single section, but explained throughout (with emphasis in the Concept section). --auburnpilot talk 14:41, 30 April 2009 (UTC)

To Suicup: quit the personal attacks ala "mate quit the tall poppy syndrome" - 'thin air' is a phrase commonly and universally used in the English language to mean out of nothing. This is exactly why the BBC used the phrase in it's article(which is sourced). Thankyou to auburnpilot talk for commenting. The article lead now contains both phrases so hopefully we can drop it and move now? Vexorg (talk) 20:06, 30 April 2009 (UTC)

Three points:

1. Vexorg, AuburnPilot did not suggest we use 'out of thin air', rather he suggested we supply a definition of 'ex nihilo' in brackets.
2. The BBC is a news outlet. Wikipedia is a encyclopaedia. Thus, different mediums have different writing styles.
3. 'Just because the BBC does it' is not a legitimate reason. If the BBC said the ocean was red would we use that in Wikipedia? Of course not.

Furthermore, based on the views of numerous editors on this talk page, the consensus for this article seems to be against 'thin air' and for 'ex nihilo'. Hence, the latter is what we should have. Regards Suicup (talk) 10:54, 1 May 2009 (UTC)

Suicup: Four points:

1. AuburnPilot did not suggest the use of 'ex nihilo', he suggested that phrases like 'ex nihilo' should be explained if they are used.
2. The use of commonly known terms is not unencyclopaedic
3. "If the BBC said the ocean was red would we use that in Wikipedia? Of course not." - That's a ridiculous and, furthermore, erroneous logical argument.
4. Looking down the talk page the consensus isn't either way.

Therefore, and particularly bearing in mind that ;thin air' explains 'ex nihilo', it's fine to have both in. You have your pretentious jargon, I have my commonly known term so anyone can immediately understand the article. Now please stop edit warring. Vexorg (talk) 15:59, 1 May 2009 (UTC)

User:A.szczep, User:JRSpriggs, User:Mongreilf and myself (ie 4 editors) directly oppose the phrase and have commented about it on the talk page. No-one else has supported the phrase 'thin air' except you Vexorg. A couple have 'indirectly' supported the phrase by supporting the introduction etc, which doesn't really count. Hence, your comment that the consensus 'isn't either way' is frankly rubbish. You are the person which is calling a latin phrase 'pretentious jargon', others do not believe this is the case. You are hence the one pushing your POV on this article. Having both as a 'compromise' is overkill and reduces readability. I'd rather have just one term, and it seems that the term with the most consensus is 'ex nihilo', whether you like it or not. I appreciate that you have contributed to this article a lot, and possibly are the number 1 editor in terms of edit count for this article, however Wikipedia is a collaborative project, which requires compromise at times when the clear majority disagree with your view. This is one of those times. Regards Suicup (talk) 01:37, 2 May 2009 (UTC) I might also add that usage of Latin phrases is common throughout economics/finance articles. eg ceteris paribus, pro forma, ex ante, ex post and many many more. How is this particular example any different? Suicup (talk) 12:34, 2 May 2009 (UTC)

Suicup, your lying about User:Mongreilf directly opposing the term 'thin air' is noted. Your demands, i.e "To the other users, if you disagree, don't revert back, it will just create an edit war - discuss here first." is also noted. Your attitude: "whether you like it or not" is also noted. Your patronisation is also noted. And lastly there are only TWO editors, yourself and User:JRSpriggs that have put forward the term 'ex nihilo'. Technically a consensus, but in practice 2 to 1 is as weak as you can get. And remember I was happy to include the term 'ex nihilo' alongside 'thin air'. Anyway if it's that important to you then I'm not going to waste any more time fighting this. Hope you're happy now. Vexorg (talk) 19:17, 2 May 2009 (UTC)

It appears to me that the absolute crux of Quantitative Easing is that money is created from nothing. To me, as a non-economist, non-banker, this is the single most important thing that must be communicated. I can see that 'thin air' may be considered unwelcome language by some, especially those concerned with maintaining public confidence in the value of money. Equally, to use 'ex nihilo' is to introduce an unnecessary barrier to rapid comprehension for those who use Wikipedia as the point of first access to unfamiliar subjects. Why cannot we just call a spade a spade and ditch the 'thin air' and the 'ex nihilo' and settle on 'money is created from nothing'. It may then be appropriate to include a sentence referring to the 'thin air' and 'ex nihilo' alternative expressions. I think to leave the first sentence containing only 'ex nihilo' is likely to be perceived by some as needlessly obfuscatory. If 'ex nihilo' is a phrase in common currency (pun intended) among bankers and economists then there is no reason why this could not be noted in the article. —Preceding unsigned comment added by 82.70.224.69 (talk) 10:29, 3 May 2009 (UTC)

I agree. Having only the pretentious jargon is 'ex nihilo' is needlessly obfuscatory Vexorg (talk) 00:54, 8 May 2009 (UTC)

JRSpriggs entered a pointless addition to the lead. Apart from the citing of 'recession' this was sheer duplication. I have removed this and added the citation of 'recession' to where it should belong. I can see we're heading for another edit war [yawn] Vexorg (talk) 04:16, 8 May 2009 (UTC)

Oh and Spriggs! What's the nonsense with the WP:OWN ?? It's nothing to do with that. It's about improving the article. If you add pointless duplications then expect to get it removed. If you wanted to add 'recession' then you should put it where it is now, instead of adding pointless duplications. This is the SECOND TIME you have added sections that are largely duplications. Vexorg (talk) 04:21, 8 May 2009 (UTC)

Out of nothing

Just off the bat, what i'm about to write doesn't advocate changing the article. I'd just like to take the opportunity to point out that this massive discussion regarding the wording of where the money comes from essentially misses the point of the article. Sure the money 'comes from nothing'/ex nihilo/out of thin air etc, however this is not unique to quantitative easing. That is simply how the fiat currency system works. In normal times, you grow the money supply to keep pace with economic growth. Where does this 'money' come from? It is simply created. Quantitative easing does not change anything about HOW the money is created, it merely describes a particular type of MONETARY POLICY. I suppose what i'm trying to say is that some editors have been making a big deal of the fact that the money is created out of thin air etc, when this isn't the key issue. The key issue is the problem which quantitative easing is designed to solve (ie monetary policy at the zero interest rate bound), and its effectiveness. Hence in my humble opinion, making a big fuss about how the money is created from thin air etc is throwing a massive red herring around the place. Quantitative easing may be good or bad, and i think the article should stick to a discussion around this angle, which it does for the most part. Regards Suicup (talk) 15:14, 8 May 2009 (UTC)

My only fuss has been against those who want to tuck away the fact that money is created out of thin air/nothing/ex nihilo into the dark corner of the cupboard in the hope that it goes unnoticed. Wikipedia is aimed at everyone not just those with a specialist knowledge each article. And of course you are 100% correct in that quantitative easing is not the only process in which money is created from nothing. Deposit multiplication immediately springs to mind. I haven't visited that particular Wikipedia article recently, but I would wager that it's not clear that the increase in deposits are effectively created from nothing and I would also wager that any attempt to make this really clear is met some opposition as I've found here. Anyway I'm currently happy with the lead as it stands in regard to ex nihilo immediately followed by (out of nothing). Whether or not creating money 'out of nothing' is unique to QE it's still at the core of the process and should be immediately explained IMO. Vexorg (talk) 23:11, 8 May 2009 (UTC)

I have been wondering why Vexorg is making an issue of "out of thin air" out of thin air as it were. The most likely hypothesis seems to be that he has a hidden agenda. He is pushing the point of view that creating money is somehow dishonest, that is, when money is created the dilution effect amounts to stealing from those people who already have money. For example, if there were $2 trillion dollars in circulation and then the Fed created another $2 trillion (say by quantitative easing), he believes that this would result in half the value of the original $2 trillion being stolen and given to the recipients of the new $2 trillion.

However, if this is what he believes, then why does he not just say it instead of beating around the bush and playing with words? Perhaps he thinks that if he said it straight out that people would question whether it was really true, while if he sneaks it into their minds by the backdoor, then they will not question it. If so, then let me assure him that people are not so stupid as to fall for such a trick. JRSpriggs (talk) 06:29, 9 May 2009 (UTC)

I have changed my mind about not changing the article, and have decided to boldly rewrite the introduction, in order to reduce the emphasis on 'money coming from nothing'. I'm sure you will agree that the new introduction now far more effectively describes what QE is (a form of monetary policy), what it is supposed to achieve, and its associated risks. In fact, what I have written more faithfully reflects the points of the original BBC source, which had previously been abused for the 'out of thin air' arguments. I am actually considering rewriting the entire article along the lines of this flash video in the Financial Times, which does a superb job of explaining all the issues. If anyone has any confusion as to what QE is I highly recommend this video. Regards Suicup (talk) 14:49, 10 May 2009 (UTC)

While I haven't a problem with your new lead, considering rewriting the whole article is getting towards 'if it ain't broke don't fix it' Vexorg (talk) 17:09, 12 May 2009 (UTC)

Quantitative Easing "Noun")

Surely the term here: "Quantitative Easing" is now a noun, and so should start with upper case! —Preceding unsigned comment added by 88.106.172.215 (talk) 10:09, 24 May 2009 (UTC)

Most nouns are not capitalized in English. Some examples of nouns in your comment are "term", "noun", and "upper case". rspεεr (talk) 03:12, 4 July 2009 (UTC)

Article doesn't actually say anything

The article as written doesn't distinguish quantitative easing from normal central bank operations. For instance, the way it defines the method of increasing the money supply under quantitative easing is identical to what central banks do on a day-to-day basis to target a drop in interest rates (buy government securities from banks in exchange for credits in their electronic accounts). Moreover, central banks do not simply dictate interest rates (actually they only influence a couple of short-term ones, such as the interbank rate) but target them on an hourly basis through operations that are the same as quantitative easing, at least how you present it. Incidentally, you can find charts of market interest rates hour-by-hour versus the targets. The money supply is constantly in flux minute by minute. One can say the money printer and money shredder run 24/7.

What seems to distinguish quantitative easing from normal interest rate targeting is the maturity level of the government bonds being bought up by the central banks. Instead of short-term maturity treasury bills, the central bank is buying long-term government bonds as well as even corporate bonds under quantitative easing. Quantitative easing seems to be more a method of targeting long-term interest rates than anything else. G. Csikos, 21 June 2009. —Preceding unsigned comment added by 216.239.89.200 (talk) 07:54, 21 June 2009 (UTC)

I totally agree, the distinction between the two is not apparent in the article. I'm not an economics expert, therefore I am not sure of the right answer, however I believe everyday activity (when it's not QE) involves the use of repos (which is short term indeed) instead of directly buying and selling securities. Also, there are some claims that there should be a distinction with "printing money" based mostly on how the money is used (i.e. buying securities instead of monetizing the debt). Others however disagree.

See also http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/02/obtaining_the_right_to_print_m.html

Peter, 7 October 2009 —Preceding unsigned comment added by 85.72.35.7 (talk) 16:45, 7 October 2009 (UTC)

The difference between QE and normal monetary policy is that the central bank is unable to use interest rate targeting (since rates cannot go below zero) and must set targets for the quantity of money instead. That is all there is to it. There is no difference at the level of the member banks. JRSpriggs (talk) 09:40, 8 October 2009 (UTC)

So what you are saying is, there is no difference at the means, just the target? By implementing the exact same measures as in normal monetary policy, the outcome is higher money supply instead of lower interest rates (just because they can't get any lower)? I always thought lowering target interest rates is actually done through increasing money supply. Is it just me, or all this sounds a little pointless? I mean, there must be some kind of difference between the measures taken in these two cases... otherwise there is no real need for a new term. Peter. —Preceding unsigned comment added by 85.72.35.7 (talk) 16:15, 8 October 2009 (UTC)

Well, in practice the Fed has used some additional methods during during this recession (see Bernanke's recent speech) in conjunction with QE. But there is no necessary connection between the methods used and the targeting.

Yes, the Fed has to change the money supply to affect interest rates when targeting interest rates. When targeting interest rates, it might use say the Taylor rule to set the interest rate target and then adjust the money supply until it gets the desired interest rate. But if the Taylor rule specifies a negative value, then this cannot be done. The Fed has to do something else (QE) in that case, perhaps use the McCallum rule. JRSpriggs (talk) 09:59, 10 October 2009 (UTC)

private banks can't create money out of thin air

" The increase in deposits from the quantitative easing process causes an excess in reserves and private banks can then, if they wish, create even more new money out of 'thin air' by increasing debt (lending) through a process known as deposit multiplication and thus increase the country's money supply"
Private banks don't create money out of "thin air" so the quote is wrong. —Preceding unsigned comment added by 86.157.182.179 (talk) 21:50, 3 July 2009 (UTC)

See, Vexorg, "out of thin air" has no clear meaning. So I cannot even understand this man's comment nor the sentence on which he is commenting. Thus I cannot reply rationally to him. JRSpriggs (talk) 07:30, 4 July 2009 (UTC)

The correct term, I believe, is creation of credit. That's how I learned in school anyway; there doesn't seem to be a corresponding wikipedia article, so I'm reluctant to edit the article. It is based on the assumption that not all the amount deposited in banks is required as cash (i.e. cheques, debit, etc are acceptable as payment), so that cash can be lent to others on credit (who don't need the full cash amount either, so it goes further). To say that banks make "new money out of thin air" is categorically wrong: they lend existing money on credit (i.e. the promise that it will be repaid in due course). SG Gower (talk) 16:18, 17 January 2010 (UTC)

I think you're looking for Fractional Reserve Banking. Ravensfire (talk) 18:54, 17 January 2010 (UTC)

Yep, that looks right. Thanks! SG Gower (talk) 00:44, 18 January 2010 (UTC)

QE "temporary" - so when will it be reversed?

Reports of current use of QE as a policy tool say that it is "temporary", e.g. [1]. This is so that it doesnt linger in the system and stimulate inflation when the crisis has passed. Sooo... where has anyone said when the central bank purchased assets will be sold back into the financial system, and what will be the effect at that point?

E.g. The central bank purchases govt bonds under QE. This increases the money supply. To reverse QE the central bank later sells the govt bonds (to who?). What then does it do with the cash? Does it "destroy" it (which is what would have to happen to truly reverse QE)? This is quite an important point. Fig (talk) 15:03, 6 August 2009 (UTC)

Not all of it is done by buying government securities. There are many other methods also being used, e.g. the Term auction facility which lends money to banks over 28 day or 84 day periods.

Actual currency (Federal Reserve notes or coins) are neither created nor destroyed specifically for QE or its reverse. This is done with checking account money (book entries). JRSpriggs (talk) 12:15, 7 August 2009 (UTC)

I know it's not notes, and coins, but does the bank's 'funny money' last forever or does it get destroyed as whimsically as it was created. Andrewjlockley (talk) 12:24, 8 August 2009 (UTC)

They have expressed the intention of destroying most of it when the economy improves to the point that that can be done without undermining the economic recovery. This can be done either by letting the loans mature and be paid off (slow) or by selling them on the private market (faster, but less profitable). JRSpriggs (talk) 01:05, 10 August 2009 (UTC)

Please add this, with citations, to the article. Andrewjlockley (talk) 01:30, 11 August 2009 (UTC)

I am not going to try to improve this article, because Vexorg (talk · contribs) reverts any improvements I make. He likes to keep it really dumbed-down. However, if you want to try, a recent report to Congress at Semiannual Monetary Policy Report to the Congress included: "... we also believe that it is important to assure the public and the markets that the extraordinary policy measures we have taken in response to the financial crisis and the recession can be withdrawn in a smooth and timely manner as needed, thereby avoiding the risk that policy stimulus could lead to a future rise in inflation."; "... bank reserves held at the Fed will decline as the longer-term assets that we own mature or are prepaid."; "... we can drain liquidity from the system by conducting reverse repurchase agreements, in which we sell securities from our portfolio with an agreement to buy them back at a later date."; and "... another means of tightening policy is outright sales of our holdings of longer-term securities.". JRSpriggs (talk) 18:39, 12 August 2009 (UTC)

That they have expressed "the intention" of destroying the QE assets could be analogous to every nations "intention" to pay off its national debt! I.e. will it really happen? Also, does the central bank receive the usual interest payments on the debt it has bought from the government? If so, what does it do with that interest cash? Fig (talk) 11:13, 19 August 2009 (UTC)

Will they actually do what they say they will do? If I had a crystal ball, perhaps I could tell you.

Yes, the Fed does get interest on Treasury securities just like everyone else who owns them. They use the money to pay their expenses, including dividends on paid-in capital from member banks and interest on the reserves of member banks which are deposited in the Fed. Any leftover profit is turned over to the U.S. Treasury under the guise of "interest on federal reserve notes". See page 17 of the combined financial statement of the Federal Reserve system at Fed's financial statements. JRSpriggs (talk) 08:06, 21 August 2009 (UTC)

That's interesting - it means those securities are to an extent "interest-free". Surely then it isnt in the interests of the Treasury for the Fed to sell on the securities to private holders, since that would mean the Treasury wouldnt get back any of the interest payments they send! Does anyone know what the Japanese actually did in this scenario? Adding that info to the article might be instructive in the likely future actions of the Fed. Fig (talk) 10:39, 22 August 2009 (UTC)

No, if the Fed never bought U.S. Treasuries anymore, it would still make a profit on whatever other investment it made and be compelled to turn that profit over to the U.S. Treasury. So there is no advantage in buying U.S. Treasuries, except to guarantee the solvency of the U.S. government. JRSpriggs (talk) 11:27, 22 August 2009 (UTC)

Should it be 'government bonds' or 'treasuries'?

Isn't the term 'treasuries' a little US specific in a similar sense to the term 'gilts' as applies to the UK? Should the introduction not read 'government bonds' in keeping with the worldwide nature of Wikipedia? —Preceding unsigned comment added by 82.18.92.44 (talk) 22:00, 7 September 2009 (UTC)

Unfortunately, no terminology here would suit everyone. In America, "Government bonds" would be understood to refer only to Treasury securities with very long periods until maturity. Short-term are called "bills" and mid-term are called "notes". So confusion will occur either way. JRSpriggs (talk) 21:22, 8 September 2009 (UTC)

Perhaps just say 'short term government paper' Mitsuhirato (talk) 01:51, 9 September 2009 (UTC)

I changed it to "In practical terms, the central bank purchases financial assets (mostly short-term), including government paper and corporate bonds, from financial institutions (such as banks) using money it has created ...". How is that? JRSpriggs (talk) 07:54, 10 September 2009 (UTC)

Current Context of QE Should Be Discussed Up Front

Let me offer a simple example of how Bernanke's QE is different from the run-of-the-mill open market operations:

It is done in tandem with the Government's expansion of public debt. Whether the Fed is buying Treasuries in the market to create demand for a debt issuance or it is supporting Fannie Mae, Freddie Mac or Ginnie Mae securities (they are now extensions of Government policy) to stoke the home mortgage market, it is for all intents and purposes to execute policy outside the boundaries of its stated mission.

This is what is meant by the phrase "printing money" (as in a Department of Treasury operation) and only in the context of the government's purposes in crisis. It also opens up dicey trade relations if creditor nations suspect the policy is aimed at stealth devaluation of the dollar via laundering through the Fed's monetising run amok. Hence the public debt is paid off easier in the future.

Some harp at the term "thin air" but equally important is debt extinguishing into "thin air". That's what's happening at an alarming pace. QE as policy is also struggling to address the vacuum and not just the availability of credit. There is a difference. The term "printing money" evokes an air of last resort appropriately suiting the present crisis and the tools engaged to work it.

It is collusion with Treasury that gives QE its force and risk when it is discussed with "meltdown". That really is what QE means in the current situation and since most are coming here to find a lucid explanation of the term being thrown around, that should be squarely discussed in the first part of the article.

You get lost in the technical nuances of the narrow and historical meaning of QE which as it turns out isn't so tidy after all.

Good luck with the article. Edsdet (talk) 02:04, 22 September 2009 (UTC)

The "Out of nothing" point of view saturates this article

The lede and much entire article is written from a point of view: the one advocating that money should be backed by a physical commodity, otherwise it is "out of nothing". That advocacy would be rejected by a consensus of editors in a mainstream financial article like "Monetary policy", but here we have a cozy corner of the Wikipedia where it might not get the notice it should have.

Out of Nothing? That's certainly a criticism of the policy and central banking in general, but in this article it gets woven into the lede, the definition, its history, and the explanations of "Quantitative Easing". Who is characterizing this policy as "extreme" by the way? The repetition of "out of nothing" is tedious and conceptually this has more to do with fractional-reserve banking and fiat money than an specific central bank policy, money supply policy, or monetary policy.

I am flagging this article as having WP:COATRACK problems. A coat rack for those unfamiliar with the term is when editors create a coat rack (in this case Quantitative easing as a place for their coats (advocacy of currency backed by physical commodity). The article cries out as well, for some copyediting and structuring according wiki guidelines. patsw (talk) 14:41, 29 March 2010 (UTC)

I have to disagree, the money created for QE is just created with no associated debt. When the supply of money is increased through fractional-reserve banking for every additional unit of currency added to the supply the same amount of debt is created. The money creation for QE has no associated debt and this is the key difference, the money really is created out of nothing rather than having an associated matching debt. --Caparn (talk) 20:31, 15 December 2010 (UTC)

I agree that the "out of nothing" idea put forth as the basis of this article is COMPLETE GARBAGE and the given sources do not support it. The "source" given is an offhand comment from a JOURNALIST at the BBC. Notice it's not a quote from anyone who knows what they're talking about. If we were printing money, we would end up like Zimbabwe. We know this, so we don't. Money is never printed or created from thin air, even electronically. It's "created" through clever accounting, in a way that numerous corporations across the world do every day. It is NOT the same as printing money because the net balance change is 0, as increased assets are offset by liabilities. Normally in a corporate situation, the assets and liabilities are then separated, the liabilities being shunted into a shell corporation to create the illusion of profit in the main company. — Preceding unsigned comment added by DelosFord (talk • contribs)

I see what you mean about the point of view and the over-repetition of the "out of nothing" concept in the lede. I have removed the word extreme for now, but it seems the lede could be simplified. As to what sources write about "Quantitative easing", I notice this BBC page writes "out of thin air" (so I added it as a cite) and "economists would still argue that QE is the same principle as printing money". The Bank of England also writes "does not involve printing more banknotes. Instead the Bank pays for these assets by creating money electronically", and their explanatory pamphlet on QE appears to be quite informative. I also moved the BBC cite to the clause it supports and added a {{clarify}} request after the mention of deposit multiplication. Maybe the BofE document could serve as a guide for a rewrite? -84user (talk) 20:45, 29 March 2010 (UTC)

As you can see from the sections of talk above, I tried several times to fix this article, but Vexorg and others kept changing it back. Eventually, I gave up. The essential point of quantitative easing is that the central bank has to set a target for the money supply rather than for interest rates because the interest rate is already pinned at zero. JRSpriggs (talk) 12:13, 30 March 2010 (UTC)

And I will keep fixing the article by including the factual concept that the money is created out of 'thin air', or 'out of nothing' - It's important for the reader of this article to understand that the money is created out of nothing and jargon like Ex-Nihalo needs an in place explanation. Vexorg (talk) 14:07, 19 July 2010 (UTC)

And @ patsw - the 'Out of nothing' is NOT a criticism of policy and nor is it POV. It is simply a factual explantion of how the money is created. Vexorg (talk) 14:44, 19 July 2010 (UTC)

All liabilities are created "out of nothing" (but secured by collateral), central bank money is no different. The article is misleading in that it suggests that when the central bank creates "money out of nothing", it actually creates value or an asset for itself. That is not the case. It creates a liability and at the same time the asset which is bought with that liability increases the bank's asset by the same amount as the liabilities that were created in the process (as is the case in any other purchase). In other words, creating money does not mean creating value "out of nothing" as the article suggests (see here). Thewolf37 (talk) 00:18, 25 September 2010 (UTC)

If we are to approach this from "all liabilities" and work backwards to QE, you would be mistaken to believe that they are secured with collateral and hence in QE's case also. Banks, run of the mill ones, create credit/debt from thin air every day. That privilege is given to them with one caveat: what they create they must also destroy with a precise set of books. The collateral you mention is an illusion since it's never secured first but only follows the transaction and is in fact dependent upon the act of the transaction to become collateral (neither the bank nor the loan applicant own the home in question - it is not secured till the credit is created with a contract magically). You believe that what you call "liability" (which is a book keeping method, nothing more) is balanced out by an "asset". What you miss is that the whole formulation, the line on that ledger - "liability" and "asset" were created out of thin air when the credit is created. And that line must be made to extinguish itself - cancel out - which is entirely different than balancing out (as if these things existed as financial entities outside of a loan contract). What separates the banks actions from the Fed is the limit of the fractional reserve requirement but that is all. They both have essentially the same power (on different scales of course) to create.

Now you may believe that the "collateral" in QE's case is truly a tangible item - like say a security or treasury - in possession of one party or the other. Yet if you peek into this class of asset you discover it's merely another claim on debt - part of a pyramid of claims on debt rather than something of "value" like say a manufactured good. These are liquid in varying degrees and they can be considered a form a "money" but that is all these are as assets. And the grounding to their value is dependent upon all other forms of money and confidence - not as an intrinsic quality - and how much new credit is created alongside these "assets". Just because bookkeeping is involved doesn't in that respect mean this is an invulnerable setup of cut and dried relationships.

QE is simply creating credit (out of thin air, yes - lets not confuse the issue by introducing the notion of "value" yea or nea) to execute monetary policy rather than create credit for its own purpose of directly facilitating commercial activity. The Federal Reserve System or any central bank for that matter is not subject to the reserve requirement of its children. It's really that simple. There are no limits other than the confidence others have in your government's ability to make good on its future debts. You can buy all the securities,MBS,treasuries etc you want because you create 000000's from thin air. You secure them with nothing on your end as the Fed. When you're finished with your "policy" then you can return them back into the ether you conjure those 00000's to start with. Debt extinguishing.

The problem with QE isn't the mechanics which is just another level of what the Fed does every day albeit by bloating its balance sheet. The problem is that it introduces crisis policy into the dynamic. By mere scale of intervention it attempts to engineer outcomes through the pretense of neutral monetary policy. It has other designs apart from making credit available where it really is needed and appropriate. And that is just an opinion.Edsdet (talk) 15:05, 9 October 2010 (UTC)

WHY DOES THIS ARTICLE NOT DEAL WITH THE UNITED STATES QUANTITATIVE EASING SITUATION? THIS ARTICLE IS OVERWHELMED WITH JARGON THAT NO AVERAGE READER CAN UNDERSTAND. SOMEONE NEEDS TO CLEAN THIS UP, BUT IT IS LOCKED. —Preceding unsigned comment added by 68.48.194.154 (talk) 03:15, 12 November 2010 (UTC)

"How" (now "Steps") section

The HOW section which was possibly the most clear section in the entire article with numbered steps as now been removed by Jarry1250. This and other edits he has made have made the article go from easily understandable to almost incomprehensible. For example the reason the the government is not creating money to directly pay off the debts as it is against the Maastricht Treaty rules but is instead buying guilts from banks with newly created money. Can someone stop this person from editing articles to make the clear unclear? —Preceding unsigned comment added by Caparn (talk • contribs) 14:20, 17 July 2010 (UTC)

Ouch. Well, to explain a little (and please do feel free to boldly go and change anything you disapprove of), the article contained, in my view, a lot of duplication. Minimising this duplication was the aim of my edits.

In the lead, we retain a simple overview. "The central bank purchases financial assets, including government paper and corporate bonds, from banks and other financial institutions using money it has created ex nihilo (Out of Nothing)." (As I recall, I made no major revisions to the lead.)

In the rest of the piece, I have attempted to merge the very simple in with the very complicated, such that both retain their value. I accept that it takes time to find the right balance. Can we open a discussion on how best to clarify?

As I see it, we have "Concept" paragraphs 1 and 2 as layman-friendly. Then, we have paragraph 3, which I have not edited significantly, as the more in-depth look at the specifics of the mechanism. After that, we return to the less technical, about restrictions on QE, from which you paraphrase above. All I can say is that I have no problem understanding it, but then, I wouldn't, would I? - Jarry1250 ^{[Humorous? Discuss.]} 16:38, 20 July 2010 (UTC)

I'm going to reinstate the "HOW" section as I believe it gives a very clear description of the QE process in a few very easily understandable short steps. At the moment anyone wishing to find out what QE is and how it is implemented will find themselves awash with non-direct information and unnecessary technical term. Caparn (talk) 18:02, 23 July 2010 (UTC)

Added section heading and indents to previous.I'd rather we could work to improve the existing... But going with you for a moment, even if I agreed with you, "How" is now after both "Concept" and "History" - if readers are daunted by "Concept" they're not going to get that far. Maybe we can think about rewriting the lead instead? I'll have a go incorporating it now.EDIT: Done - what do you think? Why don't I like that "How" section? Because I feel that far from providing a useful summary, it is deceptively simplifying matters. Point #1 isn't even QE at all! The other two points would make much more sense as prose e.g. in the lead.

Now, back to my proposed solution. Splitting your point into two, a) non-direct information and b) unnecessary technical terms - could you give examples of both? I'm happy to work with you to thrash out a better piece of prose for the "Concept" section if it is too daunting. - Jarry1250 ^{[Humorous? Discuss.]} 18:51, 23 July 2010 (UTC) edited 18:59, 23 July 2010 (UTC).

I don't believe that the 'how' section over simplifies the process, I would say it neatly sums it up, you seem to be surprised that that's all the QE process is? The underlying ideas about its effect could be argued either way for pages but the process of QE is as simple as the 'how' section describes. What I find more interesting is that while the QE process was taking place and bonds were being bought back with newly created money, bonds were also being sold, this could be seen as a mechanism, in the UK, for bypassing the Maastrict Treaty law that prevents governments printing money to fund state spending. —Preceding unsigned comment added by Caparn (talk • contribs) 23:01, 12 August 2010 (UTC)

I would rather see this described in the lead, rather than duplicated in the article content. If you disagree, we probably ought to solicit a third opinion. (And no, I don't believe "that's all QE is" in the same way mathematics cannot be simplified to merely "1+1=2". And honestly, I don't think anyone thinks QE is bypassing Britain's commitments under Maastricht, for the reasons fairly well explained in the prose.) - Jarry1250 ^{[Humorous? Discuss.]} 09:09, 13 August 2010 (UTC)

What specific QE process do you think is left out of the 'how' section? It is not meant to describe the effects of QE just the method for doing it; creating money, buying bonds back from banks. I think you are being ridiculous saying it's like summarising the massive subject of mathematics to 1+1=2. —Preceding unsigned comment added by Caparn (talk • contribs) 15:05, 13 August 2010 (UTC)

(indent previous) Vexorg seems to agree about the superfluousness of the section. My point is, the presentation of QE requires sufficient background and understanding. You can't just abstract out these short snippets. The lowest level were should go to is the lead. - Jarry1250 ^{[Humorous? Discuss.]} 12:11, 14 August 2010 (UTC)

Jarry1250, The current revision with the movement of the 'how' points to the paragraph at the beginning of the article is better, however, being mathematically trained I do like to see things generalized in the simplest form and the 'how' section did have the set of steps described to perform QE expressed in very simple form that anyone could understand. w.r.t. your last comment you never got back to say what other processes were involved in performing QE that were not in the how section? I am a bit concerned about the lengthy reference in the opening paragraph to fractional reserve banking, I feel this is unnecessary and not part of the QE process. It would be better to remove the references to FRB and money-multiplication in the opening paragraph and just say that the money banks receive from selling the bonds should enable them to lend more money to their customers, increase the overall money supply and allow banks to increase their reserves. I am also not sure that the national bank does buy mortgage based securities as part of the QE process, is there any reference containing the proportions of the QE budget has gone into buying government bonds, corporate bonds and mortgage based securities?

Bullet item number two seems incorrect and too colloquial. Central banks do not just add a zero electronically. Item 1: The central bank does not have to declare a extremely low interest rate -- but rather, quantitative easing is used as a 'last resort' Monetary Policy measure because interest rates are already near the lower limit. Item 2: They must purchase assets from banks (not only government bonds but also other 'riskier' assets, including mortgage based securities in the US, or stable-low-risk corporate bonds as in the UK) using existing money in the central bank's vaults. They are unable to 'print' or create money out of 'thin air.' The central bank itself has reserves in numerous currencies -- including dollars. I feel as though this section is misleading and erroneous. Either rewritten, or completely removed from the article. Mdestito (talk) 15:58, 30 November 2010 (UTC)

It is clear that Caparn is pushing his political agenda in the 'how' section. The how section is grossly misleading and completely inaccurate. This section either needs to be substantially rewritten or removed entirely. Caparn keeps adding it back to make sure it includes the statement that money is created out of 'thin air'. This statement is simply not true. —Preceding unsigned comment added by 71.122.125.170 (talk) 15:12, 1 December 2010 (UTC)

I can assure you that I have no political agenda. These are facts in the how section and are not incorrect. Perhaps you could explain what you think is incorrect about any of the points in the how section? The money is created and documented as being created in the BoE statements. It is also created electronically by adding to a number on a computer rather than actually being printed. See here: http://news.bbc.co.uk/1/hi/7924506.stm These days the Bank doesn't have to literally print money - it is all done electronically. However, economists would still argue that QE is the same principle as printing money as it is a deliberate expansion of the central bank's balance sheet and the monetary base.

Why do you keep refering to the BBC article that is an obvious simplification? The actual process is described VERBATIM by the federal reserve bank here:http://www.frbsf.org/education/activities/drecon/answerxml.cfm?selectedurl=/2010/0310.html What you typed up in the how section is patently wrong and you most certainly are pushing some sort of Mises institute agenda.

Firstly it is not patently wrong, this is how the Bank of England creates money for QE (by adding to a number on its computer application). . There maybe a difference in the way the Fed creates money compared to the way the Bank Of England creates money for QE. I would be interested to know what the difference is between the BoE adding to a number on its computer and the Fed (from your link) "taking extraordinary actions that caused its balance sheet to dramatically increase"? I suspect that they also just add to a number on their computer giving them the funds to buy bonds back from the banks.

Banks increase the excess reserves during volatility times (ie park their money with the central bank). Neither the Federal Reserve or the BoE does any sort of magic with numbers in computers, it's just moving money around in the reserve depository accounts. Even the BBC article has no mention of any sort of changing numbers in computers. The point of contentions for economists that under fractional reserve system, both cutting target rates and QE amount of money creation, since it increases the money supply by more than a factor of 1 [specifically: 1/(reserve rate)]. Again please don't edit this if your only knowledge of the subject comes from watching youtube videos and reading things on the interwebs. ~PM

I have to say you are plainly and clearly wrong, Quantitative Easing does involve creating money from "thin air" and I will rollback accordingly. If not where did the Fed get the $600 billion to buy bonds from banks? --Caparn (talk) 15:05, 8 December 2010 (UTC)

Here you go: http://www.ny.frb.org/research/staff_reports/sr380.pdf. Banks started to hold excess reserves after Lehman collapse, essentially as a response to the central bank liquidity measures at the time. That is where the money (600B+) came from, primary dealers gave it to the central bank/fed. Myself and other people have posted several authoritative references to the actual mechanics of QE, yet you still insist that you're correct because you read it in a BBC news article. Again, there is no money created out of thin air to fund the fed purchases. It's been proved over and over. — Preceding unsigned comment added by Pavelmalik (talk • contribs) 15:59, 8 December 2010 (UTC)

Pavelmalik, I think you are confused, the banks that started holding excess reserves after Lehman, they had to so they would not be left in the same position as Lehmen, i.e. with more people demanding their money back than they could provide. The central Bank created the $600 Billion from 'thin air' and used this to purchase bonds from the banks so increasing the banks reserves. The money ($600 billion for QE2 and $2 trillion for the first round of QE) was just created. This is why people worry about inflation with Quantitative Easing. --Caparn (talk) 16:14, 8 December 2010 (UTC)

The How section is not only laden with POV, it is a gross oversimplification of the central bank operations in general and quantitative easing in particular. ALL expansionary monetary policy, whether it is quantitative easing or targets an interest rate, involves 'creating' money, but that is the central bank's purpose (that's why they are called banknotes as opposed to treasury notes). Currency is a liability on the central bank's balance sheet, so when it increases the money supply, it must add an equal amount of assets: hence the Fed purchases treasury bonds instead of just handing out cash. Open market operations are how the bank acquires those bonds. Private banks do the same thing, except that their assets are loans they issue and their liabilities are deposits (the central bank can also increase the money supply this way, adjusting its deposits by changing reserve requirements and lending money at the discount rate, but doesn't do this because it creates uncertainty in the banking sector). Since the rest of the article (modulo various changes reflecting gold-standard nostalgia and anti-bank paranoia) explains precisely how central banks conduct quantitative easing, the section should be left out entirely. —Preceding unsigned comment added by 89.247.123.116 (talk) 12:21, 9 December 2010 (UTC)

I give up, everything i said was referenced by research from fed that I'e linked, yet you keep claiming I am confused and bring forth NO evidence aside from misquoted BBC article. This is not an argument, this is you saying the same thing regardless of what evidence i show. The paper CLEARLY states banks started holding excess reserves after lehman collapse and that's a FACT. Are you employed by a political consulting agency? Your bias is absolutely clear. This is exactly where wikipedia fails - people with financial incentive to push bullshit have higher incentive than people like myself that edit article for truth. — Preceding unsigned comment added by Pavelmalik (talk • contribs) 12:53, 9 December 2010 (UTC)

pavelmalik, "The paper CLEARLY states banks started holding excess reserves after lehman collapse and that's a FACT.". No one is disputing this, it is just that these excess reserves held by private banks are not used by the Fed to perform QE. Do you agree on that? --Caparn (talk) 13:05, 9 December 2010 (UTC)

Look at the chart showing the composition of the Federal Reserve balance sheet over time: The light grey area, representing deposits of member banks, balloons at the onset of the crisis. That means excess reserves ARE being deposited at the Fed instead of held as cash by the bank. You can't say the Fed doesn't use that particular money to finance QE, because money is fungible and there's no difference from financial transactions using one "set" of liabilities as another. All that matters is that they balance. Since cash is fungible and also a liability of the Fed, if the Fed were to arbitrarily create a quantity of money but keep the excess reserves on its balance sheet, there's no difference between creating money that way and directly using the excess reserves to finance QE.

So, in summary: banks do store excess reserves at the Fed, thus that money is available for QE. You cannot differentiate between clusters of money used for QE, because money is too fungible to make such differentiations coherent. Therefore, it is a complete misunderstanding to say that the Fed creates money by adjusting electronic accounts. —Preceding unsigned comment added by 217.71.103.242 (talk) 15:51, 9 December 2010 (UTC)

There is no statement by the Fed that there must be deposits in the Fed account of an amount at least equal to the amount injected in QE. The amount of money created "out of thin air" for the first round of QE by far exceeded the increased reserves of the banks. --Caparn (talk) 00:22, 10 December 2010 (UTC)
I'm not sure that the term "re-absorbing" is a valid way to describe the opposite of "creation" of money. Surely the wording should be something like "electronically destroy" instead? --Caparn (talk) 18:41, 15 December 2010 (UTC)

Clarification required: interbank, deposit and bank rates

What precisely is the difference between the bank rate and deposit rate? They seem pretty much the same. Also, are interbank rates actually used to determine whether or not to use QE? My impression was that if the supply of money needs increasing and the bank rate cannot be lowered any more, then QE is brought in. Although I see that the Fed Funds Rate is a set rate like the BoE rate, but is an interbank rate, so I'm guessing it's dependant on the particular systems around the world?

As an aside, I'd appreciate if someone more economically literate than I check over the top 5 paragraphs to make sure I've not oversimplified, over-summarised, omitted something or added something incorrectly.

--SG Gower (talk) 14:44, 12 July 2010 (UTC)

In the UK the BoE interest rate is the overnight interest rate that a bank will pay for very safe assets such as government bonds. This clearly has to be less than the interest rates on government bonds as people would be able to buy bonds and then get their money back and earn interest by putting the bonds back in the bank and obtaining the BoE interest rates. In the UK the Interbank (or LIBOR) rates are the rate at which one bank will lend money to another bank at. —Preceding unsigned comment added by 88.106.66.230 (talk) 11:53, 18 July 2010 (UTC)

FT cite for creating money

The central bank need only arbitrarily credit its own bank account to create the money used for quantitative easing.

References

The above was removed from the article, but still might be useful as a supporting cite for how central banks create the money. Note that the FT video requires subscription but it is free for the first 10 views in any 30 day period. -84user (talk) 14:39, 20 July 2010 (UTC)

Accounting: "A central bank implements QE by first crediting its own account with money it creates ex nihilo ("out of nothing").[1] It then purchases..."

So the debit is the purchase of, for example, Treasury Securities; and the credit is?

Dr. Treasury securities $xxxxx

Cr. money "out of nothing"? $xxxxx

Can someone make sense of this? —Preceding unsigned comment added by 132.216.129.29 (talk) 19:39, 13 October 2010 (UTC)

A central bank creating money has: Asset side: "Bonds" - Liabilities side: "Demand deposits of commercial banks at the central bank" (also known as "reserves"). If it physically prints the money, it has: Asset side: "Bonds" - Liabilities side: "Currency in circulation".
A commercial bank creating money (not deposited in it) has: Asset side: "Bonds" - Liabilities side: "Demand deposits of non-banks". The demand deposits are money because people pay by means of them. It is that simple. Economist789 (talk) 02:25, 21 October 2010 (UTC)

The credit, to "bank reserves," is not a liability since their is no obligation of the central bank to, in the future, decrease an asset or disburse cash or cash equivalents. The equity "Reserve account" appears to be a "equity control account"; i.e., it is the aggregate of all of the individual bank's reserve accounts. When banks have increased reserves, then they can lend more, and that, in turn, purportedly stimulates economic activity. —Preceding unsigned comment added by 132.216.129.29 (talk) 22:56, 27 October 2010 (UTC)

According to The Economist the credit, ("out of nothing"), is: "electronic money in the form of bank reserves." The previous comment said that this is a liability account in the Federal Reserve's General Ledger? These assertions are, of course, not inconsistent. So, by "reserve account" is meant an equity account in The Fed's (or other central bank's) general ledger or, indeed, a liability? If there is not a certain obligation resulting in future cash outflow, then this is not a "liability account" but rather an "equity account." So the previous comment, above, is in error.

And the article is not sufficiently U.S. focused.

There's no money created out of nothing, it's just the depository balanced are used to buy things with. Fed net impact on fed balance sheet is zero.http://www.frbsf.org/education/activities/drecon/2010/0310.html —Preceding unsigned comment added by 155.188.247.6 (talk) 21:37, 3 November 2010 (UTC)

Let me try to put this in words a non-economist can understand.

• I want to buy a new car.
• I write on a scrap of paper: Asset, new car, $50,000.
• At the same time I write: Liability, new car loan, $50,000.

Now I get a car? No. I have to pay for it. I give the dealer a check for 50,000 and he's going to try to cash it. When he does, no one is going to give him 50,000 cash just because I wrote "Liability, new car loan" somewhere. So, when the government's bank buys assets, where does the money come from to pay for them? How does the seller get paid? Don't just explain it to me here... explain it in the article. Thanks. 68.110.104.80 (talk) 12:46, 6 November 2010 (UTC)

You (well, many people) do exactly that. You have $0 total in assets and liabilities. The car costs $50,000, so you go to a bank and write on a scrap of paper "new car loan, $50,000". You give the piece of paper to the bank, and the bank gives you $50,000. You now have $50,000 in cash (asset value: $50,000) and an outstanding debt of $50,000 (liability value: $50,000). So, your net worth remains $0 even though you now have $50,000 in cash. The bank's net worth is the same as it was before, as its assets have increased by $0 (+$50,000 loan, -$50,000 cash). Then you take the cash to the car dealer and hand it over for the car. You now have: one car (asset: $50,000) and one debt (liability: $50,000). Your net worth has not changed, you haven't created a car out of thin air, you've just adjusted the composition of your balance sheet. —Preceding unsigned comment added by 89.247.123.116 (talk) 12:43, 9 December 2010 (UTC)

That's nothing like enough to be an analogy for QE as the IOU for $50,000 (which is really central bank money) doesn't have to be repaid, you can just keep the car without doing anything else, that's how the money is created also you would pay more than $50,000 for the car valued at $50,000.

So better example is:

1. The central bank sells 5-year government-bonds to private banks paying an interest of 4% per year for $100 billion dollars, the intention is that at the end of the 5-years the central bank will buy back the bonds back, for $100 billion, by either using tax payers money or by issuing more bonds to raise the money.
2. Each year, for 5 years, the bank pays the owner of the bonds (the private bank) $4 billion dollars in interest.
3. In this example after 3 years of the bonds existance QE starts, so the bonds still have 2 years interest ($8 billion) left to pay on them.
4. The central bank announces it is going to perform QE in the near future, this makes the bonds a more attractive investment because people know the government will be in the market for buying them back which puts the price up.
5. This causes the second-hand price of the bonds to increase and the yield to drop to 1%, i.e the bonds (with a face value $100 billion and paying 4% yield) with 2 years left are now worth about $106 billion.
6. The central bank creates money from "thin air" and buys these bonds back from the private banks for $106 billion, so the private bank makes an instant profit of $6 billion by selling back the bonds at a higher price than they would have been were it not for QE.
7. At the end the central bank has bought back its bonds (with a face value of $100 billion) with newly money created money for £106 billion.
8. The private bank has made a quick $6 billion by selling back the bonds with a now low yield.
9. Had the yield on the bonds remained at 4% the bonds would still be worth $100 billion on the second-hand market.
10. If no QE were performed the yield on the bonds would have actually increased from 4% to say 6% due to economic conditions so the value of the bonds would have dropped to about $96 billion so the private bank would have lost $4 billion rather than gained $6 billion.
11. In the case of "credit easing" the central bank may have purchased sub-prime-mortgage securities from the private banks so there is the risk that these are worth much less than they paid for them so the private banks are very pleased to have got rid of them from their books.

--Caparn (talk) 19:07, 27 December 2010 (UTC)

Will someone please Clearly answer the comments above. Without using the words asset or liability. Speak plain english, where does the Value of the FEDs deposits come from? We all know that commercial institutions are more than happy that the central bank added numbers on its balance sheet and will gladly accept these numbers as deposits, but where's the actual value? Whats the difference from the new car example above? Is this just a game of musical chairs between the FED, the banks and the public? —Preceding unsigned comment added by 69.143.65.128 (talk) 22:17, 26 November 2010 (UTC)

The national bank could print money and use that to buy the car, but these days financial transactions are carried out electronically so there is no need to actually print the money. Instead a number on the national banks computer system is added to. It's just another way of printing money but electronically. Of course the more money you print the less it becomes worth. Look what happened in Zimbabwe, printing millions of billion dollar notes didn't mean everyone was rich it just mean that a billion dollars could buy you less i.e. inflation occurred by deflating or diluting the value of money.

The above is wrong, Zimbawe literally just ordered a swiss firm to print more money. Fed is just replacing cash from primary dealer reserve accounts with assets they buy from the primary dealers. It's no more "printing money" than reducing interest rates under fractional reserve banking.

Here's my attempt at an analogy:

* You keep 5% of your kids money in your own account as a rainy day fund

* Your kids bought a car last year that broke down

* Now your kids cash is tied up in the broken car, so they put more than 5% of their money into your account to save up for a new one

* You come up with an idea that instead of your kids sitting at home and saving all their money, you buy that broken car from them with the 5%+ of their money that you have in your account (another way to think of it is that you let your kids put the broken car into the rainy day fund instead of cash).

* The end status is that instead of your kids' cash, you now have their broken car in the rainy day fund and your kids get back the 5%+ rainy day cash. The hope is that the car becomes a classic and is worth at least what your kids paid for it, and you'll be able to re-establish the cash rainy day fund in the future by selling it.

It's not exactly is to make simple analogies with complicated issues, but this should give you the gist of it. There's no money created by adding digital account balance or any of this bs. It's just shuffled around.

"Fed is just replacing cash from primary dealer reserve accounts with assets they buy from the primary dealers. It's no more "printing money" than reducing interest rates under fractional reserve banking." What? That is an incomprehensible statement. The Fed is just doing the equivalent of printing money. It works like this: the fed writes some IOU's with interest that it calls "bonds". It sells them to banks for say $100 billion and agrees to pay 4% interest and buy them back for $100 billion after say 5 years (this is not QE yet). The government then spends the $100 billion it has borrowed from the banks. Then comes QE, before the bonds have come to the end of their 5 years the government generates money (by adding to a number on a computer) and buys back the bonds on the from banks, this costs them more than the $100 billion they sold them for as the price goes up as they are in demand (from the Fed itself). The banks can then use this money to buy more bonds or whatever else they want to do with it. So at the end of it the Fed has spend the initial $100 billion, the banks have made a profit from the bonds by selling them back at a profit to the Fed. So the Fed has managed to spend $100 billion and the bankers made a profit from selling the highly in demand bonds back to the Fed. — Preceding unsigned comment added by Caparn (talk • contribs) 11:46, 8 December 2010 (UTC)

You obviously have zero background in finance to come with this nonsense. It's the US treasury that auctions Tbills/Tnotes/Tbonds that investors and banks buy up and this is colloquially known as the government debt. The fed is funded by primary dealer/member bank deposits and they buy and sell this government debt on the secondary market to expand/contract the money supply. This is standard monetary policy.

Now when the central bank conducts QE, it uses the money that primary dealers have deposited to it and buys government debt and other assets with it. That is instead of member banks having CASH deposits with the central bank, they now have asset deposits. There's no money changed on a computer or any of that nonsense. Again it's painfully obvious you have 0 background in this, so please refrain from editing the article further. ~pavel (I do fixed income investment management for living)

pavel, "it uses the money that primary dealers have deposited to it and buys government debt and other assets with it." That is completely incorrect, the money the Fed uses for buying back bonds is not this money but money create "out of thin air" by the Fed; an increase in bank reserves is not a necessary prerequisite for QE. May I suggest that it is you who do not know what you are talking about. --Caparn (talk) 11:04, 9 December 2010 (UTC)

Show credible proof of what you said right there or just drop it. What I wrote it sourced from the article on the SF Fed website and it factually correct. You provide no proof of your "out of thin air" nonsense. Not even the BBC article mentions that. — Preceding unsigned comment added by Pavelmalik (talk • contribs) 13:06, 9 December 2010 (UTC)

Pavelmalik, here are some more supporting documents:

http://business.timesonline.co.uk/tol/business/economics/the_times_mpc/article5847958.ece

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/02/obtaining_the_right_to_print_m.html

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/02/just_follow_the_money.html

http://www.ft.com/cms/s/0/737c1928-fe53-11df-abac-00144feab49a.html

http://www.telegraph.co.uk/finance/financetopics/recession/4941631/Bank-of-England-to-creating-new-money-a-QandA.html

http://www.guardian.co.uk/business/2010/nov/08/fed-quantitative-easing-may-lead-to-disaster

You can leave your apology on my talk page. --Caparn (talk) 00:56, 27 December 2010 (UTC)

Pavelmalik, The "out of thin air" argument has been discussed above and there is a general consensus that this is true and this is also an accepted term that people will understand. Can you also please sign your comments using the signature and timestamp button at the top of the page? --Caparn (talk) 14:20, 9 December 2010 (UTC)

Intro unclear

The introduction states:

"The purchases, by way of account deposits, give banks the excess reserves required for them [emphasis added] to create new money, and thus hopefully induce a stimulation of the economy..."

Does this refer to the "member banks" of the Federal Reserve? And when the Fed acquires Treasury securities, as the proposed $600B QE2, does it do so at face value or market value (i.e., at a premium or discount)? If transactions occur at market value, then are gains or losses on disposition recorded? If so, I would presume that realized gains by the member banks, and corresponding losses by the Fed, would be stimulative; whereas the converse would be anti-stimulative? —Preceding unsigned comment added by 132.216.129.14 (talk) 02:06, 5 November 2010 (UTC)

QE2

The financial news media readily use this term to signify "Quantitative Easing - Round 2". I suggest this article discuss these "rounds". __meco (talk) 09:13, 16 October 2010 (UTC)

Agree, and let's keep the dismab at QE2 (the cruising ship). Strausszek (talk) 06:57, 11 November 2010 (UTC)

Humorous youtube video

I find the inclusion of the following: "Here is a humorous look at QE2 from a viral video that obtained over two million hits in its first week on YouTube: Quantitative Easing Explained" to be hardly neutral. The linked video is a piece of political propaganda. The video is only humorous to those with a particular political and economic ideology. I would delete it myself but this page is locked. Boylenink (talk) 03:42, 25 November 2010 (UTC)

I agree. It's a mildly funny external link, but adds nothing to the article, and I don't see any basis in WP:EL for including it. TJRC (talk) 02:06, 1 December 2010 (UTC)

I disagree, humour is often used to illustrate points that poeple find difficult to understand. There is still a core of people who still somehow, against all evidence, that QE is not the equivalent of printing money. This YouYube video has received many millions of views in very short space of time and is now regarded an important statement about QE2. For this reason I am going to reinstate the video in the QE2 link. --Caparn (talk) 00:06, 10 December 2010 (UTC)

The argument that there is going to be deflation and that this is a bad thing is open to debate, rather than just accepting "deflation" is a bad thing this video illustrates that deflation is a good thing when the things people buy go down in price. What has not been made clear is that where the public are concerned deflation is bad in respect of salaries going down and for some people house prices but good in respect of things people purchase on a regular basis. It also illustrates the fact that the buying of government bonds in the open market actually puts the price up of the bonds up and also asks the question "why don't the government just buy the bonds directly from the central bank at a lower price". All of these are interesting questions which the rest of this article does not address. --Caparn (talk) 00:17, 10 December 2010 (UTC)

Just for reference here is a link to the video: http://www.youtube.com/watch?v=PTUY16CkS-k --Caparn (talk) 19:18, 13 December 2010 (UTC)

This video is seriously biased and mostly wrong. It is also hypocritical. Ben Bernanke is attacked for having no business experience and then William Dudley is attacked for having business experienced. It claims that the fed thinks we are in deflation, but the fed believes we have mild inflation. If the treasury sold $600 billion in treasuries a day, it might make sense. But it would take a large fraction of a year to do this, and the fed might want to do it again in a few months. They want the impact now, not drawn out over a year or two. 0¹⁸ (talk) 19:42, 13 December 2010 (UTC)

Question

I have always thought that the Fed controls the interest rates (the federal funds rate) primarily by open market operations, i.e. by buying bonds (assets) using newly created central bank liabilities (i.e. money). In other words, I have always thought that saying that the Fed decreases the interest rates actually means that the Fed increases the money supply by open market opearations first. If this is correct, how does quantitative easing differ from this "everyday" procedure consisting in changing the money supply by open market operations (except that the interest rate cannot decrease anymore because it is already zero)?? I think I am not the only one who is confused by this issue. I would be happy if anyone knowledgeable in this matter could help me with this question.Economist789 (talk) 02:25, 21 October 2010 (UTC)

It differs in that quantitative easing specifies an amount of money to be added to the economy instead of targeting an interest rate. If the Fed says the target rate is 1%, they will buy or sell as much in securities to maintain that rate. On the other hand, a quantitative easing specifies the amount of the money to spend on securities over a time period, without paying attention to the interest rates. The fact that it is basically the same thing just within slightly different discretionary parameters is why the vitriol and ink-spilling over QE as terrible monetary policy is silly. —Preceding unsigned comment added by 217.71.103.242 (talk) 15:27, 9 December 2010 (UTC)

In the UK the BoE interest rate is the overnight interest rate that a bank will pay for very safe assets such as government bonds. When you say the "Fed says the target rate is 1%, they will buy or sell as much in securities to maintain that rate" are you saying that the interest rate is not something they can just announce and then pay as interest? If so it is very different from the BoE base rate. --Caparn (talk) 18:01, 9 December 2010 (UTC)

In my humble opinion QE is making money available and abundant vs. more affordable and accessible by normal central bank operations. The reason is under tough situations many entities become cautious even though interest is near zero. QE would infuse money into the system and everyone is forced to find a way to use it. That's why all other countries especially Asian ones are so worried about the newly created "hot money" entering and shaking their systems. --Maikaubay (talk) 18:24, 9 November 2010 (UTC)

"The Fed"

Could all references to "The Fed" be altered to just "central banks" to ease the US-centric focus?--Hooperbloob (talk) 19:13, 4 November 2010 (UTC)

Question

I'm not an economist of any sort, but this can't be right:

"The annual rate of inflation above the central bank´s target indicates how much fiat money has been created in excess of what is considered by the central bank as required in the economy."

The annual rate of inflation can't depend on the central banks opinion surely? It can depend on it's actions but how on its opinion? If this is right it should be rephrased so that its clear Domminico (talk) 23:53, 9 November 2010 (UTC)

Thank you for your comment: Yes, the statement was not very clear. I have rephrased it. See if you agree.

Please note: the target annual rate of inflation does in fact depend on the central bank´s opinion. The Fed targets 1.7 to 2%, the European Central Bank targets a rate close to but not above 2%, the South African Reserve Bank targets 3 to 6%, etc.

NotAGroup (talk) 10:44, 10 November 2010 (UTC)

Obfusticated Article

This article seems to have gradually got more and more obfusticated. There seems to be no clear concise definition of what QE is or how it is performed. The "How" section that listed in three simple steps the method for performing QE is still needed. This explanation makes the process immediately obvious whereas the current explanation seem almost deliberately confusing and complicated to follow. For this reason I am going to reinstate the "how" section. —Preceding unsigned comment added by Caparn (talk • contribs) 00:38, 14 November 2010 (UTC)

The "how" section is a somewhat sarcastic, superfluous oversimplification of ideas that should be clearly explained in the lead. #1 isn't even quantitative easing. "The Fed adds a number to its computer and buys back bonds" is not a useful summary of the topic and encourages misconceptions of how quantitative easing works, the reasoning behind it and the effects it produces. However, more work could be done to simplify the lead if it isn't clear enough.Opiance (talk) 04:07, 14 November 2010 (UTC)

Opiance, I do not believe it does oversimplify the process of performing QE but just simplifies it to a level most people will understand. Before you delete the section again would you explain how it is an oversimplification, and how does it lead to misconceptions? Also, it is not at all sarcastic but just a statement of facts. —Preceding unsigned comment added by Caparn (talk • contribs) 19:35, 14 November 2010 (UTC)

How unsuccessful was Japan's QE?

The article flat out states it was unsuccessful, and cites a Feb. 2010 BBC article that states "But there is little the bank [of Japan] can do given its view that quantitative easing didn't achieve anything" - [http://news.bbc.co.uk/2/hi/8517760.stm]. Yet that same bank announced plans for more quantitative easing in Oct 2010. [Japan Reinstitutes ZIRP and Quantitative Easing[2]].

I believe saying it was successful or unsuccessful is debatable. One thing we know is that deflation didn't increase during QE, and inflation didn't become out of control.

"The connection between the quantitative easing policy and the macroeconomic recovery remains somewhat more flimsy. Most observers believe that because the quantitative easing policy aided the banking sector, economic activity at least did not deteriorate further. The pace of economic activity did pick up, with contributions from consumer spending and investment, but exports, which benefited from growth among Japan’s trading partners, spurred much of the improvement. Although deflation ended in 2006, along with the quantitative easing policy, it returned after a very short hiatus in 2007, and continued until the recent commodity price boom." - [Japan’s Quantitative Easing Policy[3]] —Preceding unsigned comment added by Tetondon (talk • contribs) 23:35, 17 November 2010 (UTC)

The science of Quantitative Easing

There is only one scientific article with the title "quantitative easing" in the ISI Web of Knowledge. Ueda, K. (2007). Trying to make sense of the Bank of Japan's monetary policy since the exit from quantitative easing. INTERNATIONAL FINANCE, Vol 10 (3): 301-316. There are 8 papers with the topic QE in Economics, 3 in Business/Finance and 1 in Management. Only one of these have been referred to more than 2 times in other scientific articles, and that one is about computer science. FINLAY PN, MITCHELL AC (1994). PERCEPTIONS OF THE BENEFITS FROM THE INTRODUCTION OF CASE - AN EMPIRICAL-STUDY. MIS QUARTERLY. Vol 18 (4): 353-370. QE is also used in the study of Chemistry. So, where is the hard science of QE? Most of the discussion on QE is lead in popular sources such as newspapers and TV programs. Nowhere does there seem to be a body of double blinded peer reviewed science of QE --Oneklaus (talk) 10:03, 23 November 2010 (UTC)

• Nowhere is there a body of double-blind literature of anything in macroeconomics, double-blind macroeconomic experiments are impossible almost by definition. You can't set up a control group, you can't replicate the initial conditions, etc. Economists have to work with theories and the data the markets give them. I'm not sure what the point you're trying to make with your post is, but if you're insisting that all references in Wikipedia articles on economics be to double-blind tests, I am- and other editors are- going to tell you you're nuts. Sloverlord (talk) 15:45, 30 November 2010 (UTC)

Edit request from Abelv123, 20 November 2010

{{edit semi-protected}} PLease make a grammatical correction in the Qualitative Easing section near the bottom. Just before [sic] in the first sentence "...central bank through an increase in its (currently "it is" - it is grammatically incorrect. it should read (in its") Abelv123 (talk) 02:47, 20 November 2010 (UTC)

This grammatical error is found in the original quote, ([4]) hence the sic. We generally do not edit quotes unless doing so would make it substantially more understandable or relevant, without changing meaning. More information: sic. Intelligentsium 04:07, 20 November 2010 (UTC)

Caparn Vandalism, please roll back

This person keeps reverting content referenced from the San Fran Fed to a simplification from a BBC website article. Aside from the obvious issue that the Fed is probably the authority on QE, it yet again saturates the article with the asinine notion that the balance of feds assets is somehow changed in a computer somewhere. Here's the SF Fed reference:http://www.frbsf.org/education/activities/drecon/answerxml.cfm?selectedurl=/2010/0310.html — Preceding unsigned comment added by Pavelmalik (talk • contribs) 14:17, 8 December 2010 (UTC)

I actually did not rollback your last change, someone else did and this is not vandalism. You seem to misunderstanding that money is created for Quantitative Easing, I thought most people understood that not least the people who edit the page. --Caparn (talk) 14:43, 8 December 2010 (UTC)

Money or credit is created under ALL monetary policy with fractional reserve. Every dollar freed up created 1/reserve ratio dollars available in the economy. The Central Bank, however, doesn't create money out of nowhere to fund the purchases of assets. That part is patently wrong.

Ok we've both now agree that money is created for QE. Do we also agree that when the bank (Fed in USA) creates the money it doesn't require an assets like gold? --Caparn (talk) 15:19, 8 December 2010 (UTC)

Money/money is created during monetary expansions under fractional reserve banking, regardless of whether it's conducted via lowering target rates or QE. That being said, there is no money creation to fund the asset purchases that are part of QE. Member banks' reserve funds are used to fund those purchases.

Fractional reserve banking does not create money. It just limits how many times money can be deposited and borrowed by always keeping a certain percentage in reserve. No one thinks when they deposit their money in a bank that the bank just puts it in a safe, they accept that the bank will use their money to lend at a higher rate of interest to borrowers. When the central bank performes QE it does create money. It could print money and use this to purchase bonds back from the bank but it is now done completely electronically by the central bank adding to a number on their computer. --Caparn (talk) 16:33, 8 December 2010 (UTC)

Fractional serve banking expands money supply by more than 1 dollar released from the bank due to the multiplier effect. That's the only time money is "created". You've provided no proof for what you're saying and I suspect you're a paid shill. I've now referenced 2 sources from the FED itself, you've done nothing. If you continue to reverse the articles, I will report you for vandalism to wikipedia. — Preceding unsigned comment added by Pavelmalik (talk • contribs) 12:56, 9 December 2010 (UTC)

Pavelmalik, So you are saying if the Fed announced QE of say $2 trillion they would demand an extra $2 trillion in reserves from private banks prior to them buying $2 trillion of bonds? If that was the case how would that 'ease' anything? --Caparn (talk) 14:30, 9 December 2010 (UTC)

Pavelmalik, here is some reading for you, all of which refer to the "creation of money" in QE.

http://business.timesonline.co.uk/tol/business/economics/the_times_mpc/article5847958.ece
http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/02/obtaining_the_right_to_print_m.html
http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/02/just_follow_the_money.html
http://www.ft.com/cms/s/0/737c1928-fe53-11df-abac-00144feab49a.html
http://www.telegraph.co.uk/finance/financetopics/recession/4941631/Bank-of-England-to-creating-new-money-a-QandA.html
http://www.guardian.co.uk/business/2010/nov/08/fed-quantitative-easing-may-lead-to-disaster --Caparn (talk) 15:14, 9 December 2010 (UTC)

Pavelmalik (talk) was someone who joined to just edit the QE page and when confronted with numerous documents detailing the creation of money for QE disappeared into "thin air". --Caparn (talk) 19:23, 13 December 2010 (UTC)

This page is a mess

This page is a mess. I'm going to try to clean it up over the next few days. Let's try to stick to the sources, and keep the OR and POV out of it. LK (talk) 09:35, 10 December 2010 (UTC)

revert of 'list'

About this edit [5], I'm reverting it because it's ungrammatical, unencyclopedic, and it's essentially original research, as it is not backed up by the source cited.

I'll also like to take some time to try to explain why the statements are wrong. However, do note that we don't include things based on what is right or wrong (see WP:TRUTH), but on what reliable sources say.

1. The national bank declares an extremely low rate of interest, for example 0.5%.

First, it's central bank, not national bank. Second they don't 'declare' a rate of interest, instead, they use open market operations to achieve their target interest rate in the market.

The national bank is an accepted term but if you have a problem with it you can call it the central bank. --Caparn (talk) 11:50, 10 December 2010 (UTC)

The BoE do just declare a rate of interest which is the overnight rate they pay on secure items --Caparn (talk) 11:50, 10 December 2010 (UTC)

2. The national bank credits its own bank account with money created from 'thin air', probably just by adding to a number on its computer.

3. The newly created money is then used for buying government bonds from financial firms such as banks, insurance companies and pension funds.

Central banks don't 'credit their own account'. A central banks doesn't have an account for itself with itself. Instead, a central bank credits commercial banks' accounts when it buy assets from them.

The BoE does credit its own account with money electronically. --Caparn (talk) 11:50, 10 December 2010 (UTC)

4. Theoretically at the end of QE, when recovery has taken place, the process should be reversed by bonds being sold back to the banks and the money from them destroyed meaning no money has been created in the long term.

Not 'should', but 'can'. What central banks should or shouldn't do is beyond the scope of this article.

I agree it could be --Caparn (talk) 11:50, 10 December 2010 (UTC)

LK (talk) 10:45, 10 December 2010 (UTC)

Below is an extract from the central bank page in Wikipedia, illustrates that the intrest rates are announced "The European Central Bank for example announces its interest rate at the meeting of its Governing Council"

Interest rate interventions Reserve Bank of India Headquarter in Mumbai

Typically a central bank controls certain types of short-term interest rates. These influence the stock- and bond markets as well as mortgage and other interest rates. The European Central Bank for example announces its interest rate at the meeting of its Governing Council; in the case of the Federal Reserve, the Board of Governors.

Both the Federal Reserve and the ECB are composed of one or more central bodies that are responsible for the main decisions about interest rates and the size and type of open market operations, and several branches to execute its policies. In the case of the Fed, they are the local Federal Reserve Banks; for the ECB they are the national central banks. --Caparn (talk) 12:33, 10 December 2010 (UTC)

Please stop the edit warring. The section the section you are trying to add, even if true, is not written in a manner which suits an encyclopedia. There might be room in the article for a simple straight-forward explanation of the process by which quantitative easing is done by central banks, but it should not in my opinion be written in the manner this section is.TheFreeloader (talk) 14:11, 10 December 2010 (UTC)

There is nothing wrong with the bulleted points in the HOW section. It is probably the most accessible and understandable description to general public in the entire article. There seems to be some kind of prevention from saying in this article that electronic money creation is performed for QE. This is widely accepted and is documented in hundreds of reputable news articles and research papers. --Caparn (talk) 15:18, 10 December 2010 (UTC)

I have no problem with the article saying that electronic money creation is a part of quantitative easing process (although I am not sure that's the phrase Bernanke would use for it). I actually think the lead for this article should say that quantitative easing has been described as "printing money", because that description is something that you hear very often by economists and the media. What I am objecting to in this section is the unencyclopedic style of writing of the section with words and phrases like "declares", "extremely low", "thin air", "probably" and "theoretically". Also the title is not as you would expect for a Wikipedia article subsection. It is also a problem that the process is not in the reference provided laid out in the fashion it is done in this section, which makes the section essentially OR.TheFreeloader (talk) 15:50, 10 December 2010 (UTC)

It might be the case that you would like printing money and money creation listed in the heading, but every reference to money creation is deleted and the denied by people like Pavelmalik who says that no money is created but the money used for QE is from the excess reserves that the private banks are required to hold, this is an untrue statement. He has even edited the article to say that this is where the money comes from. Also, the words "declares" appears several times in the central bank wikipedia article. The word "probably" is used as each central bank will have its own accounting system, but the money is created electronically and will be stored on a system database electronically as a number. "theoretically" is used as this is documented as how QE can be reversed though no bank has actually done this yet, reversal is not mentioned anywhere else in the article. --Caparn (talk) 16:39, 10 December 2010 (UTC)

Difference between Fed and other central banks

The article currently states: "Ordinarily, a central bank conducts monetary policy by raising or lowering its interest rate target for the inter-bank interest rate. The central bank achieves its interest rate target through open market operations – where the central bank buys or sells short-term government bonds in exchange for cash." This is completely false for the UK's BoE; the base interest rate is just announced after a meeting, this is the overnight rate the BoE pay for deposits of quality securities such as bonds, and this is what is usually raised and lowered in an attempt to control inflation. The "inter-bank interest rate" in the UK is known as the LIBOR (London InterBank Offered Rate) and is the overnight rate at which banks internally agree to lend-to/borrow-from each other. Do we need separate descriptions for how the Fed controls interest rates compared to other central banks? --Caparn (talk) 18:47, 16 December 2010 (UTC)

I recommend the introductory sections of the book Belke A. - Polleit. T.: Monetary economics in globalised financial markets (should be also in google search) as an introduction into all these rates etc. in various countries, it is a quite confusing matter that is badly understood by the general public, even many by economists.

Risks Section

This section currently states: "Only an increase in money supply in excess of what is required in an economy or monetary union has an inflationary effect" Surely the purpose of QE is to have an inflationary effect as it says in the first sentence "Quantitative easing may cause higher inflation than desired if it is improperly used", QE is generally used over fears of deflation so common sense would say the purpose is to have an inflationary effect. Having these two statements in the same section makes the article inconsistent with itself. For this reason I am going to edit this section to remove the statement that say's it only has inflationary effect if incorrectly used. --Caparn (talk) 17:29, 18 December 2010 (UTC)