Talk:Quantitative easing/Archive 4

Archive 1

Archive 2

Archive 3

Archive 4

Archive 5

Funding government debt in Process section

OK, Time Out on each others the edit warring and back to the article. The last sentence of the process states: "Banks using quantitative easing, such as the Bank of England, have argued that they are increasing the supply of money not to fund government debt but to prevent deflation, and will choose the financial products they buy accordingly (for example, by not buying government bonds directly from the government)." This is wrong as it is illegal for the the government to buy bonds directly from the government, it is against article 101 of the Maastricht treaty. So it is not a matter of choice but a matter of the law.--Caparn (talk) 22:31, 27 July 2011 (UTC)

I don't know what that discussion was doing in the Process section when all the points are duly covered under the "Printing money" subsection below it. It's a legal rather than a technical restriction, so it doesn't belong under Process. I've removed it. Lagrange613 (talk) 23:50, 27 July 2011 (UTC)

That original entry goes back to a change on 12/07/2010 22:01 http://en.wikipedia.org/w/index.php?title=Quantitative_easing&action=historysubmit&diff=373144604&oldid=373140606 "for example, buy buying government bonds not straight from the government, but in secondary markets." Here is a useful tool for tracking when changes where made: http://wikipedia.ramselehof.de/wikiblame.php --Caparn (talk) 13:40, 29 July 2011 (UTC)

History Section - After 2007

In the history section under "After 2007" it currently states: "More recently, similar policies have been used by the United States, the United Kingdom and the Eurozone during the Financial crisis of 2007–2010. Quantitative easing was used by these countries as their interbank interest rates are either at, or close to, zero." I don't believe this is true as one of the reasons to perform QE in the UK was the interbank interest rate (LIBOR) was very high, much higher than the base interest rate. The interbank interest rate was high as banks didn't know if another bank would be able to payback the money they borrowed. So in fact the opposite of the statement in the article was true. The interbank interest rate was much higher than the base rate and this was another reason for performing QE. See this chart: http://www.wsjprimerate.us/libor/libor_rates_history-chart-graph.htm the rate was over 5% in 2007/2008 (pre QE)--Caparn (talk) 18:15, 8 August 2011 (UTC)

In the United States, the federal funds rate was brought to less than 0.25%/year by the end of 2008. Since US national banks are insured by the FDIC, this is essentially the risk-free short-term nominal interest rate. If LIBOR is not risk-free, then what do Europeans use for that purpose? JRSpriggs (talk) 06:10, 9 August 2011 (UTC)

LIBOR is the interbank interest rate, i.e. the rate at which one private bank will lend to another. The BOE base rate is the rate at which the BOE will pay for deposits of government bonds by private banks. I think the federal funds rate is more the equivalent of the BOE base rate rather than the interbank rate. In 2008 the LIBOR rate reached an all time high see: http://bigpicture.typepad.com/comments/2008/09/all-time-high-o.html http://useconomy.about.com/b/2007/12/19/what-is-libor-why-it-is-high-and-how-it-affects-you.htm Overnight indexed swap --Caparn (talk) 10:58, 10 August 2011 (UTC)

There is a measurement called the LIBOR-OIS spread this is the difference between the 3 month LIBOR rate and the Overnight indexed swap. This is used as a measurement of the general health of private banks as when they are near equal the probability of a bank defaulting is seen to be low. When the LIBOR is much higher than the OIS the loan is seen as risky as extra interest is added for the probability a bank will default. In 2008 there was a lack of bank reserves so the LIBOR rate was much higher than the OIS. This was one of the reasons given for QE so the banks could increase their reserves.--Caparn (talk) 11:31, 11 August 2011 (UTC)

The article you linked on OIS indicates that it must be calculated from some underlying interest rate and says "In the United States, OIS rates are calculated by reference to daily federal funds rate.". But the article does not say what the underlying interest rate is in the United Kingdom (or anywhere other than US). JRSpriggs (talk) 19:56, 11 August 2011 (UTC)

JRSpriggs, yes but the text in this section of the QE article is incorrect. The interbank interest rate were high prior to QE, not low. The Bank of England have something called the "base interest rate" which is used as an indicator for everything else see:http://www.bankofengland.co.uk/monetarypolicy/how.htm#interest. The base rate is the overnight rate the Bank of England lends to financial institutions. The MPC meets monthly for a two-day meeting, usually on the Wednesday and Thursday after the first Monday of each month. Decisions on interest rate are made by a vote of the Committee on a one-person one-vote basis see: http://www.bankofengland.co.uk/monetarypolicy/framework.htm --Caparn (talk) 21:55, 11 August 2011 (UTC)

Edit request from Rickck, 10 August 2011

Please change QE1, QE2, QE3 section text from "Between December 14, 2008 and March 30, 2010, the U.S. Federal Reserve purchased: $300 billion of longer-term Treasury securities, $175 billion in housing-related agency (Fannie Mae and Freddie Mac) debt, and $1250 billion of agency-guaranteed mortgage-backed securities." to Between December 14, 2008 and March 30, 2010, the U.S. Federal Reserve purchased: $300 billion of longer-term Treasury securities, $175 billion in housing-related agency (Fannie Mae and Freddie Mac) debt, and $125 billion of agency-guaranteed mortgage-backed securities." for accuracy since the total purchase was 300 billion.

Rickck (talk) 14:16, 10 August 2011 (UTC)

You can edit the page yourself so long as you are logged in as it is only semi-protected, please also provide references.--Caparn (talk) 17:11, 10 August 2011 (UTC)

 Not done: Caparn, users that are not autoconfirmed cannot edit semi-protected articles. Rickck, the $300 billion was for Treasury securities; the agency-backed MBS were purchased separately, and there were a lot more of them. Lagrange613 (talk) 18:15, 10 August 2011 (UTC)

In fact, I'm deleting the whole discussion of amounts in this subsection since it's unsourced and duly covered in the previous subsection where it belongs. Lagrange613 (talk) 18:21, 10 August 2011 (UTC)

To Lagrange613: The reason I added the stuff you deleted from that section was primarily to show to what time periods QE1 and QE2 referred (in the United States). That is not immediately obvious from the section above. JRSpriggs (talk) 21:43, 10 August 2011 (UTC)

I thought the emphasis on quantities got in the way of explaining what QEx means, but you're right, some context would be better. With this edit I tried to approach it from the opposite end, identifying QE2 in the narration. What do you think? Alternatively, we could move the explanation of QEx to the Process section. Lagrange613 (talk) 23:39, 10 August 2011 (UTC)

I think emphasizing the quantities is not inappropriate since it helps to make clear what quantitative easing is. For my sources, see minutes of FMOC meetings and look near the bottom of each minutes for the policy directive to the system 'Desk'. For example, in the minutes for December 2008 it says

"...At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:

"The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range of 0 to 1/4 percent. The Committee directs the Desk to purchase GSE debt and agency-guaranteed MBS during the intermeeting period with the aim of providing support to the mortgage and housing markets. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of conditions in primary mortgage markets and the housing sector. By the end of the second quarter of next year, the Desk is expected to purchase up to $100 billion in housing-related GSE debt and up to $500 billion in agency-guaranteed MBS. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability."

..." (underlining added as emphasis). This was the beginning of QE1, but the amounts and time period were subsequently substantially increased. JRSpriggs (talk) 20:27, 11 August 2011 (UTC)

I agree amounts are important generally, but what do they contribute to the QEx section in particular, especially since there's already an Amounts section? Lagrange613 (talk) 20:50, 11 August 2011 (UTC)

I like the change you made in the amounts section. However, that section still seems to be lumping together reserve assets purchased as a result of quantitative easing with reserve assets acquired as a result of other processes such as loans to institutions being bailed-out or the earlier open market operations targeting a rate for federal funds. JRSpriggs (talk) 21:24, 11 August 2011 (UTC)

Ah, now I understand. On one hand, we do want to distinguish between QE and other actions. On the other hand, actions that have the same effect as QE (expanding the monetary base around zero interest rates) should be identified as such. BOJ did "not QE" for years but we call a spade a spade. I'm agnostic as to language so if you have an idea about how to implement what you're talking about, be bold and we'll discuss. Lagrange613 (talk) 01:16, 12 August 2011 (UTC)

JRSpriggs, So are you saying you would like to make the amounts purchased in the Amounts section less than they currently state? --Caparn (talk) 13:30, 14 August 2011 (UTC)

Less technical introduction requested

This page is incomprehensible to me. I can't understand how both of the first two paragraphs can possibly be true: is quant. easing when the government cuts interest rates on banks, or is it when they buy assets from banks? So I would like to propose a page that's far less technical, even if less precise. — Preceding unsigned comment added by OptimistInChief (talk • contribs) 02:04, 18 August 2011 (UTC)

It's simple. Usually a central bank buys bonds in order to lower interest rates. (They don't do it by ordering banks to lower interest rates, this isn't communism.) When interest rates are zero, buying bonds no longer lower interest rates. QE is when the central bank buys bonds anyway, even though it no longer has an effect on short-term interest rates. This is done in the hopes that it will affect longer term interest rates and other things (like stock prices). LK (talk) 02:44, 18 August 2011 (UTC)

I'm not sure the lead is too technical as much as it is poorly written to the point of incomprehensibility. It's been battled over so much that now it's this clunky, redundant chimera. I may attempt a bold rewrite shortly. Lagrange613 (talk) 07:25, 18 August 2011 (UTC)

To OptimistInChief: The process (open market operations) by which easing is done is the same for quantitative easing and for the conventional policy. The difference is in the instructions given by the policy makers to the people who implement the policy. For an example of conventional policy, in June 2008 the FOMC said "...the Committee in the immediate future seeks conditions in reserve markets consistent with maintaining the federal funds rate at an average of around 2 percent.". (The amount of assets bought or sold was decided by the people who implemented the policy.) For an example of quantitative easing, in December 2010 the FOMC said "The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.". (That was $75 billion per month for the eight months from November 2010 to June 2011 inclusive.) JRSpriggs (talk) 04:10, 19 August 2011 (UTC)

The first paragraph is a bit too verbose, it could be summed it up in one sentence that is expanded in the next paragraph. --Caparn (talk) 13:23, 8 September 2011 (UTC)

The first paragraph is good. It says what's essential. The 2nd and 3rd paragraph are too long, redundant and can be cut down. Darx9url (talk) 00:36, 10 September 2011 (UTC)

There is also some confusion about what QE is. I believe it is "when a central bank purchases a large pre-agreed amount of government bonds with newly created money". The article later details that when things like mortgage backed securities are purchased this is different to QE and can be called qualitative easing or credit easing. Does anyone agree that the main definition of QE is the purchase of government bonds and it is a different version of QE when other securities are purchased?--Caparn (talk) 16:28, 10 September 2011 (UTC)

I don't think there's any "confusion about what QE is." When economists and journalists (a.k.a. reliable sources) write about the Fed's QE1 and QE2 they're talking about purchases that have included MBS. That means QE can include assets other than government bonds. Lagrange613 (talk) 18:01, 10 September 2011 (UTC)

If quantitative easing includes mortgage backed securities, which are seen as high risk, what is the difference between qualitative easing and quantitative easing?--Caparn (talk) 19:12, 10 September 2011 (UTC)

According to the Buiter quotation, qualitative easing shifts the composition of the balance sheet but leaves its size constant. Lagrange613 (talk) 19:31, 10 September 2011 (UTC)

Shift it to what? From a mixture of bonds and high risk securities to to a mixture of bonds and high risk securities?--Caparn (talk) 23:57, 10 September 2011 (UTC)

This article is the only place I have seen "qualitative easing" used. It is non-notable.

"Quantitative easing" is not intended to be distinguished from "qualitative easing", although the reverse might be true.
Ben Bernanke's new plan to replace short-term Treasury securities with long-term Treasury securities might be an example of qualitative easing. JRSpriggs (talk) 05:26, 13 September 2011 (UTC)

I share JRSpriggs's suspicion that the term "qualitative easing" was created to distinguish from QE; the reverse is certainly false. There's also a subsection on "Altering debt maturity structure", which now that I think about it seems to be a kind of qualitative easing. I still think it merits its own subsection since it's actually been done and like JRSpriggs I haven't seen "qualitative easing" used outside this article. Lagrange613 (talk) 05:39, 13 September 2011 (UTC)

printing money = monetizing debt?

A claim is made in the section 'Printing money' that printing money is "also known as 'monetizing the government debt'". This claim is not backed up by any of the sources in that section. Unless a source is provided, the claim should be removed. LK (talk) 08:58, 15 September 2011 (UTC)

Amount of Treasury purchases during QE2

The "Amounts" section currently reads, "In November 2010, the Fed announced a second round of quantitative easing, or "QE2", buying $600 billion of Treasury securities by the end of the third quarter of 2011." This is in fact the amount that was announced by the Fed in November, however by the end of the third quarter of 2011, the Fed purchased around $767 billion of Treasury securities based on data from Bloomberg. I think this should be revised. — Preceding unsigned comment added by Meyerzm (talk • contribs) 22:58, 3 October 2011 (UTC)

Please provide a reference for your claim.

By the way, the $600 billion was purchased by the end of the second quarter of (calendar, not fiscal) 2011 (i.e. June 30, 2011), not the third quarter. My source is the minutes of the FOMC itself. JRSpriggs (talk) 07:50, 4 October 2011 (UTC)

effectiveness

This section should absolutely contain some of the many criticisms of QE. For example the stock market rallied in 2010 but did this not translate into better paying jobs or more jobs. Meaning that QE benefited Wall Street while Main Street only ended up paying more for food and other commodities. How can this article not have a criticism section? — Preceding unsigned comment added by 174.118.240.112 (talk) 20:26, 6 October 2011 (UTC)

Welcome to Wikipedia. If you see some coverage of QE in a reliable source that isn't reflected in the article, feel free to add it. Criticism sections are generally discouraged on Wikipedia; see here for why. Lagrange613 (talk) 20:38, 6 October 2011 (UTC)

There is now a growing consensus that QE is inefective, with frequent daily media citations. To continue to censor this raging debate would invariably result in Wikipedia being regarded as a biased source of information. I include below my suggestion which includes as a reliable source an open letter from Sen. Mitch McConnell, Rep. John Boehner (speaker of the house), Sen. Jon Kyl, Rep. Eric Cantor (verifiable source: Wall Street Journal).

"However, there has recently been significant opposition to quantitative easing and questioning of its effectiveness. In an open letter to Ben Bernanke, Chairman of the Federal Reserve, republican senators questioned the success of previous quantitative easing and stated that there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public [1] ." — Preceding unsigned comment added by 91.216.246.195 (talk) 14:04, 7 October 2011 (UTC)

Wikipedia is not censored, but it does have a well developed set of policies and guidelines for content. In technical articles like this one, statements of experts are considered far more reliable than statements of non-experts, especially when the non-experts are politically motivated. Basically, while the Journal is a reliable source for what the Republican leadership said, the Republican leadership is not a reliable source for whether QE has been effective. Lagrange613 (talk) 17:26, 7 October 2011 (UTC)

Politics is the way in which policies that are unpopular with the people are unwound. If Wikipedia wishes to continue represent a one-sided viewpoint by citing political motivations, then that is censorship. Therefore I suggest the following alternative reliable source from 23 experts:

"However, there has recently been significant opposition to quantitative easing and questioning of its effectiveness. In an open letter to Ben Bernanke, Chairman of the Federal Reserve, a list of 23 economists and professional investors stated that they disagreed with the view that inflation needs to be pushed higher, and worried that another round of asset purchases, with interest rates still near zero over a year into the recovery, would distort financial markets and greatly complicate future Fed efforts to normalize monetary policy [2]." — Preceding unsigned comment added by 86.157.15.74 (talk) 20:15, 7 October 2011 (UTC)

The IP user still doesn't seem to understand what Wikipedia is about, but no matter. The source strikes me as reliable since there are some economists in there, though I'm open to arguments to the contrary. I've gone ahead and added it boldly, but others are free to revert and discuss if they disagree. Lagrange613 21:21, 9 October 2011 (UTC)

This IP user suggests removing "conservative Republican" from this new insertion, as all economits will have a political leaning of some sort. In no other place in this article are the political leanings of other economists quoted - why are other economists not labelled as "liberal democrats" where applicable? — Preceding unsigned comment added by 91.216.246.195 (talk) 12:30, 10 October 2011 (UTC)

Suggest adding the following:

In December 2010, the Nobel Prize-winning economist Joseph Stiglitz warned that liquidity created by the Federal Reserve was not not going back to grow the American economy and was instead going to Asia and other emerging markets where it was not wanted. He went on to say that this has resulted in a variety of interventions [3]. Some chinese economists and government officials have argued that inflows resulting from quantitative easing, combined with expectations of a stronger yuan - are the cause of inflation pressures in China [4]. — Preceding unsigned comment added by 91.216.246.195 (talk) 13:21, 10 October 2011 (UTC)

First paragraph

The last sentence of the first paragraph currently states "This is distinguished from the more usual policy of buying or selling financial assets to keep market interest rates at a specified target value." It is true that government debt is a financial asset but it is not true that they can buy other financial assets that are not government debt to control interest rates. So wouldn't it be more correct to change "financial assets" to "government debt"?--Caparn (talk) 22:26, 10 October 2011 (UTC)

Good point, I have changed the sentence accordingly. LK (talk) 02:05, 11 October 2011 (UTC)

Risks

The risks section makes an unwarranted assumption when it states... "This can only happen if member banks actually lend the excess money out instead of hoarding the extra cash." That statement assumes that QE was used exclusively to re-capitalise banks (to encourage them to be in a position to lend more). But QE can be used to purchase any type of asset, not just bank assets. So QE does not necessarily need to directly generate more lending to work. It could be used to purchase say high-quality corporate debt (at near-zero interest) , allowing those corporates to use the cheaper money for investment or even to delever i.e. pay off existing debt which was entered into at a high interest rate. — Preceding unsigned comment added by Lucchase (talk • contribs) 18:57, 30 October 2011 (UTC)

From my reading of the article, the primary purpose of QE isn't taking the asset off someone else's books, it's to inject liquidity via the funds used to pay for the purchased asset. This is true whether the asset is government debt, corporate debt, mortgages, valuable paintings, comic books, etc., and doesn't depend on who the seller is. The key point is that the seller of the asset has (perhaps indirectly) an account with a member bank. In the course of paying the seller for the asset, the central bank will credit the member bank's reserve account. At that point (assuming the seller doesn't withdraw the full proceeds in bills or coin) the member bank can lend most of the extra reserves to another bank, or to its own customers, or otherwise invest it. Thus liquidity is added (at the risk of inflation). This occurs even if the member bank is not the seller of the asset, because it is still in the path of payment for the asset. Presumably, sellers get some benefit by unloading the asset, but the article doesn't really focus on that aspect. 24.93.24.156 (talk) 06:29, 31 October 2011 (UTC)

I'm not sure how clear my previous comment was, so to restate more simply: Banks don't have to be the seller of asserts to benefit from QE, as long as they retain custody of the resulting payments. A seller of $50 million in securities probably won't want a pallet of $100 bills delivered to their office. They are more likely to leave it in their bank, where most of that money then becomes available for additional loans. The quoted statement does not assume that the member banks are the sellers, only that the proceeds of the sale end up in the banks, which I think is the main point of QE. 24.93.24.156 (talk) 08:08, 31 October 2011 (UTC)

Very good point. Probably worth adding that clarification to the main article. — Preceding unsigned comment added by Lucchase (talk • contribs) 10:56, 31 October 2011 (UTC)

Also, the statement "Increasing the money supply tends to depreciate a country's exchange rates versus other currencies." Is an over generalisation or an assumption or plain false. Japan has been using QE for quite some time (along with an ultra-low interest rate), yet it's currency exchange rate has remained very strong. Also, the money supply may increase through an increase in the velocity of that money, which in turn may indirectly lead to an increase the exchange rate. — Preceding unsigned comment added by Lucchase (talk • contribs) 19:26, 30 October 2011 (UTC)

"This is distinguished from the more usual policy of buying or selling government bonds to keep market interest rates at a specified target value."

Buying or selling government bonds being more useful is subjective. Please remove it. — Preceding unsigned comment added by 74.212.173.162 (talk) 21:57, 14 November 2011 (UTC)

"More useful" might indeed be subjective. "More usual" is not. Lagrange613 22:13, 14 November 2011 (UTC)

Printing Money and Monetizing Debt

The following quote from Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas has been deleted by Lawrence KHOO with no comments on the discussion page: "Richard W. Fisher, president of the Federal Reserve Bank of Dallas, has said that the US is monetizing debt through QE, referencing the additional $600 billion created for QE2, "For the next eight months, the nation's central bank will be monetizing the federal debt." " Lawrence has just stated in the revision history that "these are meaningless quotes without context" and "That is not context, it's just a random statement". So some discussion on why it is in context is necessary. The Printing money section relates printing money directly to monetizing government debt: " whereas the term printing money usually implies that the newly minted money is used to directly finance government deficits or pay off government debt (also known as monetizing the government debt)." The quote by Richard W. Fisher directly relates the $600 billion created for QE to monetizing the debt. This is quite an important statement and should be placed in the article in this section. Lawrence, where else in the article do you think we can place this statement?--Caparn (talk) 09:33, 16 December 2011 (UTC)

Lawrence regarding your revision comment "God's sake, if they are negative comments about QE, phrase it as such". I'm not sure what you mean? It's just like the quote you added "According to economist Robert McTeer, former president of the Federal Reserve Bank of Dallas, there is nothing wrong with printing money during a recession". This is a positive comment about QE, do you suggest you somehow phrase this differently as it is a positive comment? Wikipedia articles shouldn't be biased one sided views as you appear to be attempting to do with this article.--Caparn (talk) 10:53, 16 December 2011 (UTC)

Maybe we need to add another sub-section under the "Comparison with other instruments" section called Monetizing Debt in which we can add this statement?--Caparn (talk) 20:40, 16 December 2011 (UTC)

When you quote someone, you really should take the whole speech into context. I have changed the paragraph and given it context, pulling a more relevant part of the speech. Caparn, IMO, your single minded editing to slant this article in order to paint QE in the worst light possible is disruptive. LK (talk) 04:32, 17 December 2011 (UTC)

To Caparn: I agree with you that monetizing the national debt is a bad idea. However, if you want to make that point in the article, you should say so explicitly. Or rather, you should quote some notable source who says that. Merely implying that it is bad by using the phrase as you have is weaseling.

Also, it is misleading to use that quotation because the Fed is almost always monetizing the national debt when it eases monetary policy regardless of whether it is doing QE or not. JRSpriggs (talk) 11:01, 17 December 2011 (UTC)

To Lawrence:

• It is clear from the whole speech that Richard W. Fisher president and CEO of the Federal Reserve Bank of Dallas is saying that US is monetizing debt through QE in exactly the quote I put and also there is a reference to the entire speech. How clear can he be he even spells out the maths: " The math of this new exercise is readily transparent: The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation’s central bank will be monetizing the federal debt."

• In your have removed the line breaks between different peoples quotes and placed a different quote from Richard W. Fisher it in the middle of the paragraph.

• In your edit you have removed the reference to the speech (http://dallasfed.org/news/speeches/fisher/2010/fs101108.cfm) so now no one will be able to find it!

• I do not accept you accusation of putting a biased slant on this article my edits are just making it balanced.

To JRSpriggs:

• I'm not saying monetizing debt is a bad idea, it is just that Lawrence seems to want to edit out anything that demonstrates that QE can-be/is-being used to monetize debt. The fact is there are times when monetizing debt is a good option for a nation but this is a zero sum game.

• I don't think you can put it much more clearly than Richard W. Fisher did with "For the next eight months, the nation's central bank will be monetizing the federal debt.", one thing it certainly isn't is "weaseling".

• Richard W. Fisher is a notable source he is president and CEO of the Federal Reserve Bank of Dallas

• Just because there are other methods the Fed uses to monetize debt does not mean that this one should not be documented. Its amount is also well above the amounts used when it "eases monetary policy" in its normal way.

--Caparn (talk) 12:05, 17 December 2011 (UTC)

I accidentally removed the ref, I have reinstated it. The last paragraph of the section is currently four sentences that all discuss opinions of people from the Federal Reserve. I see no advantage in replacing it with one-sentence paragraphs. LK (talk) 03:19, 19 December 2011 (UTC)

Quantity

The word quantity is currently italicized in the second sentence of the lead after I removed it, but it was reverted by User:JRSpriggs with the edit summary "[to] draw attention to the word 'quantity' to show why this is called quantitative easing". You should never have to draw attention to a word in the second sentence of an article. If you do, it just reflects poorly on the quality of writing. It's not needed in the case and I'll be re-removing it. -Nathan Johnson (talk) 18:28, 16 December 2011 (UTC)

If you can think of a better way to get the point across, then please do so. But just removing the italics without any other change is not acceptable. I will revert it.

Your assertion that "you should never have to draw attention to a word in the second sentence of an article" is arbitrary and unjustified. JRSpriggs (talk) 11:07, 17 December 2011 (UTC)

Quantitative tightening

Should the term Quantitative Tightening (QT) be introduced in this article as the opposite of QE. Where the central bank sells the assets it has bought with QE back to the open market?--Caparn (talk) 01:26, 17 December 2011 (UTC)

I am not aware of any instance of a monetary policy action which might properly be described as "quantitative tightening". If and when a situation arises, following QE, that the central bank wants to tighten its monetary policy, I would expect that it would simply raise its target interest rate above zero. Trying to remove a specific quantity of money would probably be regarded as unreasonably risky since it might accidentally take out too much and cause a credit crunch (push interest rates higher than would be acceptable). JRSpriggs (talk) 11:17, 17 December 2011 (UTC)

I thought it was one of the statements of central banks that they would reverse QE by selling the bonds back to the open market once the economy had recovered?--Caparn (talk) 12:21, 17 December 2011 (UTC)

Yes. But if they sell bonds until the interest rate reaches a certain level that is not "quantitative"; it is just their usual method of tightening. JRSpriggs (talk) 12:26, 17 December 2011 (UTC)

If you search the internet for Quantitative Tightening there are now many result returned. It seems to be an accepted term for the opposite/reversing of QE. For this reason I think inclusion is relevant.--Caparn (talk) 15:17, 17 December 2011 (UTC)

Please read WP:GOOGLE. Among other things counting results from a search engine says nothing about whether a term is accepted in the academic community, which is important in technical articles like this one. I don't see any difference between so-called quantitative tightening and just tightening; in either case the central bank sells assets, and interest rates presumably rise. Lagrange613 16:27, 17 December 2011 (UTC)

The term quantitative tightening has apparently been introduced by Stephen King, Group Chief Economist of HSBC Bank Plc http://economicsintelligence.com/2011/04/07/a-warm-welcome-to-quantitative-tightening/ .
WP:GOOGLE does state that the "google test" can be of use and does give an indication of how much a term is used. If the term is used enough, whether or not by economists, for something the reverse of QE it should still get a mention but with text to say this.--Caparn (talk) 23:03, 18 December 2011 (UTC)

To Caparn: What the journalist, Olaf Storbeck, is describing in the article to which you linked has no similarity to Quantitative Easing, not even the similarity of being opposite to it. It involves using regulatory interference with the credit market to try to prevent inflation. This would be a very foolish policy. And calling it QT would be quite misleading. JRSpriggs (talk) 12:07, 19 December 2011 (UTC)

As JRSpriggs says, this blog entry discusses an entirely different policy than "the central bank sells the assets it has bought with QE back to the open market". I don't think it has sufficient coverage to merit inclusion in this article. Lagrange613 17:32, 19 December 2011 (UTC)

Ok, points taken.--Caparn (talk) 21:44, 19 December 2011 (UTC)

A different policy similar to QE

I've heard recently that the European Central Bank (ECB) are intending to lend new money to private banks at a very low interest rate on the condition that they buy gilts with the money they have been lent. This will have the effect of increasing the monetary base, lowering the yield of government debt and increasing the reserves of the private bank. Has this monetary policy got a name? If it does come to fruition would it be a policy included in the QE article, would it require a new article or as it seems to have no name (that I know of) go undocumented?--Caparn (talk) 21:44, 19 December 2011 (UTC)

I suppose "gilt" (a thin coating of gold over a worthless substance) is an appropriate word to describe the sovereign debt of Greece and the other PIIGS. Encouraging private banks to make bad investments is not something which ECB (or anyone else) should be doing. I have not heard of any specific name being given to this activity.

If it were being done solely to ease credit and the quantity (in euros) of the loans to be made was determined in advance, then I suppose you could call it QE. But I doubt that those conditions hold here. JRSpriggs (talk) 16:34, 20 December 2011 (UTC)

It seems to be getting the name “Sarkozy Trade” and takes the form of unlimited 3 year loans to private banks at very low interest rates from the ECB. The banks then use this money to buy short term government bonds from countries like Italy and Spain, the difference in interest rates can then be pocketed by the banks. I'm not sure how the ECB ensures the money is used to buy government debt? This is thought to be one of the main reasons the yield on Italian and Spanish bonds has dropped recently. http://in.reuters.com/article/2011/12/20/ecb-loans-idINDEE7BJ08S20111220 --Caparn (talk) 07:17, 21 December 2011 (UTC)

The latest news (http://www.bbc.co.uk/news/business-16282206) is that 500+ banks have borrowed a total of over €490 billion euro for 3 years at a rate of 1% from the ECB. Some of the money will/has been used to buy the sovereign debt of Italy and Spain but the ECB has no say in what banks do with the money but Italian and Spanish sovereign debt is paying about 6% so the banks can just take a profit the difference in interest between the ECB 1% and sovereign 6% with the risk they might have to take a haircut at a later date. There are also a lot of bonds maturing in the next year which means the member states will need to sell debt to repay the maturing debt. No doubt this expansion in the monetary base will cause more euro inflation, it seems a bit odd that when too much debt is the problem that they try to solve this by adding more debt. It might work in the short term but in 3 years time they might well be in the same situation.--Caparn (talk) 00:24, 22 December 2011 (UTC)

Are reliable sources connecting it with QE? That would seem like a necessary condition for inclusion in this article. Lagrange613 03:41, 22 December 2011 (UTC)

There are certainly comparisons with QE with several articles calling it "backdoor QE", probably worth adding it to the comparisons section if not to the main section as €490 billion has so far been taken out and it has reduced the yield on Spanish and Italian gilts.
Backdoor QE http://www.huffingtonpost.co.uk/2011/12/21/eurozone-crisis-ecb-back-door-qe-quantitative-easing-bazooka_n_1162472.html
a sort of “quantitative easing” by the back door http://www.ft.com/cms/s/0/270fbc1e-2bef-11e1-98bc-00144feabdc0.html#axzz1hH8PtgAk
Analysis-ECB cash to give indirect boost via banks, no QE effect http://uk.reuters.com/article/2011/12/22/uk-ecb-banks-idUKTRE7BL0V420111222 --Caparn (talk) 15:15, 22 December 2011 (UTC)

Limits on amount of particular type of debt purchased.

The BOE is not allowed to buy more than 70% of any individual type of government, so for example they could only buy 70% of all government bonds with a 5 year maturity. Where would be a good place in the article to state this limit?--Caparn (talk) 17:15, 22 January 2012 (UTC)

It should be mentioned somewhere in Wikipedia, perhaps in the article on the Bank of England. But I do not see its relevance to the issue of quantitative easing. JRSpriggs (talk) 00:29, 23 January 2012 (UTC)

It is only relevant to QE as it is with QE the BOE is buying most government debt to an amount where it could approach anything like 70% of any issue of government debt. --Caparn (talk) 20:22, 23 January 2012 (UTC)

If they will have to avoid continuing QE on that account when they would otherwise continue, then you could say that they are running up against that limit, perhaps in the subsection "Amounts" following the other information on the Bank of England. JRSpriggs (talk) 07:54, 24 January 2012 (UTC)

We should be careful about avoiding OR, specifically WP:SYN. A reliable source must link this 70% rule with quantitative easing before it is included. LK (talk) 15:55, 3 February 2012 (UTC)

Risks

I don't see the risks as mutually exclusive as the current section implies. You can have banks holding excess reserves and not loaning them out at the same time as you have asset bubbles/asset price inflation (c.f. gold and some other commodities in the US 2008-present). As well, commercial bank's early reluctance to utilize reserves can translate into later general inflation if they decide to start dumping money into the economy all at once. Gigs (talk) 14:25, 9 February 2012 (UTC)

Banks don't loan reserves to borrowers. Reserves merely circulate among banks. Loans are created, and then reserves are sought to meet reserve requirements if necessary.--greenrd (talk) 20:08, 9 February 2012 (UTC)

Excess reserves held on account at the central bank. Not interbank lending. Gigs (talk) 21:32, 9 February 2012 (UTC)

See Federal funds rate. JRSpriggs (talk) 11:40, 10 February 2012 (UTC)

I see it, now what? Gigs (talk) 16:10, 10 February 2012 (UTC)

If a bank does not have enough reserves to meet the reserve requirement while continuing business as usual, it can borrow reserves from another bank which has excess reserves. The federal funds rate is the interest rate in that market. I am not quite sure what your second comment meant, but you seemed to be saying that interbank lending cannot affect reserves which is false. JRSpriggs (talk) 08:27, 11 February 2012 (UTC)

Thanks for engaging. My point is that QE can fail by merely create excess reserves at first without encouraging lending, while still later causing undesired inflation. I don't see those two failure modes as mutually exclusive, in fact, the former probably increases the risk of the latter. This is especially true if the central bank is unwilling or unable to tinker with reserve ratio requirements. Gigs (talk) 14:25, 13 February 2012 (UTC)

Directed QE?

Hi, this BBC article meantions "directed QE" to help fund the nuclear industry in the UK. It doesn't explain, but sounds interesting. Does anyone understand what is meant and should there be a section in the article for this concept? Malick78 (talk) 21:22, 23 June 2012 (UTC)

What happens to coupon or principal repayments on the bonds?

What happens to coupon or principal repayments on the bonds held by the central bank? I think the main article should address this question. — Preceding unsigned comment added by Reissgo (talk • contribs) 22:35, 3 July 2012 (UTC)

POV Dispute: History subsection: Japan

This subsection should begin with a description of what the Bank of Japan did, including what assets were bought. The discussion of exactly when the QE term was applied may be useful later in the section, but isn't what most people come here to find out.

Krobin (talk) 00:22, 15 July 2012 (UTC)

What assets are included in policies thought of as QE?

A big question students have is: what is Quantitative Easing, and what is conventional policy? I _think_ the answer is that conventional policy (at least in the US) is announcing a target overnight rate, then using OMO to buy & sell short-term (overnight?) bonds as necessary to achieve that rate. I further think QE is distinguished from OMO by the duration of the gov't bonds sold: I'm pretty sure that the point is to change the interest rate on longer-term gov't bonds, once the overnight rate is close to zero. Perhaps the gov't buying corporate bonds could also be described as QE, but I think that's less conventional.

However, I need to find citations for all these things before I edit the article!

I added the NPOV tag to the Japan section because, since QE was first used describing the BoJ's activity, describing those assets could go a long way towards clearing up the definition. (The section now addresses a debate about when the term was first used, and frankly I don't think most people care when the first use was.)

I believe this article is useful:

http://faculty.chicagobooth.edu/john.cochrane/research/papers/QEII.html .

Krobin (talk) 00:21, 15 July 2012 (UTC)

Amounts

I removed the section on LTRO. Quantitative easing involves printing of new money to purchase assets. LTRO was a liquidity operation in which the duration of pre-existing assets was changed (in an attempt to lower interest rates). If LTRO is defined as quantitative easing then any central bank repurchase operation with extended maturity can be redefinied as quantitative easing. — Preceding unsigned comment added by 75.92.189.203 (talk) 13:22, 31 August 2012 (UTC)

"Quantitative Easing" is a euphemism

"Quantitative Easing" is a euphemism for criminals counterfeiting money without having to worry about going to jail. — Preceding unsigned comment added by 76.25.148.181 (talk) 14:06, 29 September 2012 (UTC)

While I am sympathetic to this reaction, it is not accurate. QE3 is an attempt to stimulate mortgage lending by socializing risk and privatizing the associated profits with Wall Street banks. There is a lot of criticism in the financial press which editors here are completely missing because they believe it is equivalent to inflating the currency, which it is most certainly not. (The mortgage-backed securities involved are based on extremely illiquid assets which would never be considered part of the broadest money supply.) For instance, FOMC member Jeffrey M. Lacker:

"the impetus, I think, is to aid the housing market. That's an area that's fallen short in this recovery. In most other U.S. postwar recoveries, we've seen a pretty sharp snapback in housing. Of course, the reason it hasn't come back in this recovery is that this recession was essentially caused by us building too many houses prior to the recession. We still have a huge overhang of houses that haven't been sold that are vacant. And it's going to take us a while before we want the houses we have, much less need to build more."[5]

—Cupco 16:06, 29 September 2012 (UTC)

I think the OP is problematically arguing that the creation of money without a physical standard constitutes counterfeit, even when conducted by the government. This seems like far too philosophical a view to be expressed as fact here, not to mention that it's factually inaccurate. -- Avi 68.101.126.153 (talk) 14:05, 28 March 2013 (UTC)

This type of rant should be removed from the talk page. Darx9url (talk) 09:14, 14 June 2013 (UTC)

Types of QE

There seem to be very different types of QE.

I seem to identify at least three:

1.) "Stuffing bank reserves" by buying bonds while on ZLB, synonymous with conventional monetary policy while in a liquidity trap - the original BOJ "QE" (ineffective) 2.) Buying securities en masse, not only the short term ones usually employed in monetary policy - the first FED QE, BOE QEs (effective) 3.) "Perpetual QE" or QE3. It is different because it promises bond purchases until a certain condition are met, not a fixed "package" of purchases. According to Woodford, Krugman, Sumner, Bernanke and others it will have an effect on inflationary expectations (intentedly).

Sources: Paul Krugman: http://krugman.blogs.nytimes.com/2010/08/31/japan-1998/

" What do we mean by quantitative easing? • Originally used to mean continued conventional open market operations (buying short-term government debt to increase reserves) at the zero nominal bound. • Now used to mean unconventional OMO at the ZLB, such as buying long-term government bonds, MBS, or other assets. " On a slide by Christina Romer and David Romer, which you can get here: http://emlab.berkeley.edu/users/webfac/cromer/e210c_f11/e210c.shtml (Lecture 9)

proff. Mihov that explains that QE 1 and QE2 are "completely different beasts" in the video below this blog post: http://fatasmihov.blogspot.com/2012/01/big-day-for-fed.htm

I'm posting this in a Talk section because I'm not sure I'm not doing original research. This is basically jargon, not terminology. Jargon: 4. Speech or writing having unusual or pretentious vocabulary, convoluted phrasing, and vague meaning. intr.v. jar·goned, jar·gon·ing, jar·gons

I hope this helps someone; write me an email if something comes up: dimitar.ouzounoff@gmail.com 46.238.8.50 (talk) 18:38, 28 October 2012 (UTC)

In large part, I agree with what you have said. Unfortunately, I don't know of any reliable source that has explicitly detailed this issue. And we need one before adding to the article. The only thing related that I know of is Bernanke explaining why his QE (which he called qualitative easing) isn't the same as the Bank of Japan's QE, LK (talk) 06:09, 29 October 2012 (UTC)

Potentially useful articles

Interesting and valuable for understanding -- not sure if any of it belongs in the WP article.

Federal Reserve Board's QE/Inflation intentions

http://www.theatlantic.com/business/archive/2013/02/the-2-mystery-why-has-qe3-been-such-a-bust/273381/

Concise summary of consequences, benefits and exit problems

http://www.slate.com/articles/business/project_syndicate/2013/03/quantitative_easing_all_your_questions_answered.html

-- Jo3sampl (talk) 15:37, 3 March 2013 (UTC)

References

Ref#7 on "Quantitative Easing Explained" is a dead link. There is a page with the smae title, possibly the same page, on http://www.bankofengland.co.uk/monetarypolicy/pages/qe/default.aspx 78.69.107.197 (talk) 20:55, 9 July 2013 (UTC)

selling short term government bonds

Second paragraph of the article.

Expansionary monetary policy typically involves the central bank selling short-term government bonds in order to lower short-term market interest rates

It sounds strange to me. Selling short-term bonds should lower their prices subsequently increasing short-term interest rates(lower bond prices = higher interset rate) . Am I wrong? — Preceding unsigned comment added by 83.31.6.227 (talk) 08:54, 28 September 2013 (UTC)

 Done "Buying" had been changed to "selling" recently by an anonymous editor. I've now corrected it back again, and will review some other recent edits to check that they are OK. --greenrd (talk) 10:27, 28 September 2013 (UTC)

Nonsense in lede

In the first paragraph are the words: "or not being effective enough if banks do not lend out the additional reserves". But banks can never "lend their reserves" anyway. Reissgo (talk) 13:49, 29 September 2013 (UTC)

Mhhmmm... I think the sentence is talking about lending (to regular businesses and consumers) as a way to counteract their bank-reserve-balances which document their QE transfers to the Fed. Or maybe it is talking about QE itself, where the bank-reserve-balances are increased, when a bank 'lends' part of that bank-reserve-balance to the Fed? Guess at the end of the day, I agree with you it is confusing, and needs a rewrite.  :-) — 74.192.84.101 (talk) 23:27, 20 October 2013 (UTC)

QE as a way for inflation to stay above target?

The statement in the lead is somewhat counter-intuitive, since inflation can only be produced in the medium- to long-term because a short-term effect is the lowering of the interest rates through direct bond purchases. Since the only source given for the statement is a dead link, can someone either elaborate further here, or better still find an alternative source?cherkash (talk) 15:44, 3 September 2013 (UTC)

I think the title should be "QE as a way to inflation prevent inflation staying below?" As QE increases the money supply it causes monetary inflation. If the BoE or Fed didn't buy the government debt then someone else would have had to with other money so it is just additional money going into the economy.--Caparn (talk) 23:40, 8 September 2013 (UTC)

Reading this will help explain why, without QE, inflation would fall, or even become negative in our current post housing bubble environment: Reissgo (talk) 17:06, 23 September 2013 (UTC)

This tells the same story: http://www.bbc.co.uk/news/business-15446545 Reissgo (talk) 17:21, 23 September 2013 (UTC)

Wow. A wordpress blog? I'm convinced. bobrayner (talk) 19:09, 23 September 2013 (UTC)

I never claimed it was a RS for main page purposes. Its just a cheap and cheerful explanation for Cherkash. Mervyn King though, is authoritative. Reissgo (talk) 19:25, 23 September 2013 (UTC)

I'm trying to rewrite the intro-section (see below), to be easier to understand. I believe this is the sentence under discussion. "QE can be used to help ensure that inflation does not fall below some political target.[8]" Should this be rewritten a bit more verbosely, so it is easier to grok? Maybe: "Because QE increases the money supply in the long run, and thus usually leads to inflation, QE can be used to help avoid deflation (aka negative inflation), or to counteract the fall of inflation that usually follows when a financial bubble bursts, or in general to force the inflation-rate towards a political target.[8]" Is that *better* in terms of being able to easily understand, or worse because it is now too wordy? Would appreciate criticism, or even better, a rewrite of the sentence which gives crystal clarity.  :-) Thanks. 74.192.84.101 (talk) 01:08, 21 October 2013 (UTC)

Attempted intro rewrite by 74-whatever.

I have taken out the refs, but left in the ref-numbers, so that the refs can be added back in when we are satisfied with the rewrite. Comments and criticism welcome. Please don't change this paragraph, which is my working draft. If you want to suggest changes, go for it (say something like "suggest replacing 'short-term' with 'one-year' in first paragraph" or maybe "swap the 2nd and 3rd sentences") and I'll incorporate them later. If you want to perform a massive rewrite of your own, however, please just make a new section on the talkpage (called attempted intro rewrite by myUsernameHere). Thanks. 74.192.84.101 (talk) 00:37, 21 October 2013 (UTC)

((para#1)) Quantitative easing (QE), sometimes labelled (not quite correctly) as "printing money" in the press, is a political tool related to monetary policy. Typically, it is used by the country's central bank, or in the United States by the quasi-governmental Federal Reserve, as a means to achieving specific economic goals. ((sentence#3)) Usage of QE is unconventional, and usually only happens in economic emergencies, when standard monetary policy has become ineffective.[1][2][3] For instance, QE can be used to prevent the money supply from falling (this may be why it is sometimes dubbed 'printing money' which also increases the money supply). QE can be used to help ensure that inflation does not fall below some political target.[8] ((sentence#6)) A recent example, where QE is being used for a quite different purpose, is in controlling interest rates: if the government is trying to force short-term interest rates to be lower in the wider market, they institute an expansionary monetary policy, typically[9][10][11][12] involving the purchase of short-term government bonds by the central bank (or the Fed). Maintaining an expansionist monetary policy when interest rates are already forced close to zero requires[13] additional measures, beyond normal monetary policy: one such measure is QE, which involves the central bank or the Fed purchasing long-maturity assets (home mortgages or long-term municipal bonds for instance), which unlike short-term government bonds, can lower long-term interest rates (further out on the yield curve.[14][15]

((para#2)) Normally, in order to keep market interest rates at a specified target value, central banks will buy and sell government bonds.[5][6][7][8] This is distinguished from QE, which is the unusual policy of the central bank (or the Fed) buying non-government-bond financial assets from commercial banks (or similar financial institutions such as a credit union or a brokerage firm).[4] ((sentence#3)) For example, the government -- via their central bank or via the Fed -- might purchase a particular home-loan asset from a particular bank, or a stock that was purchased by the bank on the stock market. Assets which are purchased from commercial banks in this fashion (by the central bank or Fed as part of the QE process) will always increase in price, which lowers their yield.[16] The mechanics of QE vary from country to country, but in the United States it is performed via the Fed, when other policy tools fail to achieve their goals. ((sentence#6)) To implement QE, the Fed will first perform an electronic database operation that increases the bank-reserve-balance in the Fed's account at of one of the major commercial banks. In return, the bank in question will then transfer assets (a home loan or commercial paper certificate or similar -- also usually stored electronically) to one of the Fed banks, such as the Federal Reserve Bank of Minneapolis. As of 2013, the outstanding total bank-reserve-balances from QE1 through QE3 are predicted to hit three trillion dollars[22] sometime during 2014; this bank-reserve-balance outlay will eventually be dealt with, by becoming inflation, or by being paid from future taxation, or in some other fashion.

((para#3)) Risks of QE include higher inflation in the longer term (due to an increased money supply -- in cases where QE was specifically being utilized to prevent deflation, this can ironically be seen as monetary policy being more effective than intended).[17] Another risk is that QE may fail to achieve the intended goal (not being effective enough), should banks not lend out the additional reserves.[18] ((sentence#3)) According to the some economists at the IMF and elsewhere, QE undertaken since the global 2008 financial crisis has mitigated some of the adverse effects of the crisis.[19][20][21] Economists such as Taylor of Stanford largely disagree with this assessment,[22] stating that the "very existence of quantitative easing as a policy tool creates unpredictability... the Fed can intervene without limit into any credit market".[23]

Deleted this from the Risks: Savings and pensions section

In November 2010, a group of conservative Republican economists and political activists released an open letter to Federal Reserve Chairman Ben Bernanke questioning the efficacy of the Fed's QE program. The Fed responded that its actions reflected the economic environment of high unemployment and low inflation.

There are no mention of risks, and it's insignificant and political.

173.25.54.191 (talk) 06:12, 21 October 2013 (UTC)

Printing Money

1'DNTREMOVOPINIONS! I noticed there was some opinion floating around this section. Someone wrote something like, "printing money usually implies that the newly minted money is used to directly finance government deficits". I ended up removing that opinion and simply putting that the Fed uses newly created money to purchase financial assets. I started this section in the talk so that it can be further debated if needed. — Preceding unsigned comment added by Fatrandy13 (talk • contribs) 19:37, 18 December 2012 (UTC)

Well, while I agree with you that your phrasing is an improvement, I disagree it has become fully neutral. Printing money is *sometimes* used to purchase financial assets (such as a stock or a bond), and sometimes used to purchase physical materials (such as a tank or an oil well), and sometimes used to pay salaries of government employees (the post office nowadays... soldiers during the revolutionary war), and sometimes used for strange esoteric macroeconomic fiscal transactions. I think the only thing that can be said is that the newly-created money is almost always immediately *used* for some purpose... and maybe we should list some historical ones like paying the minutemen in the 1700s or buying mortgages from banks in the 2000s ... but the key here is that QE never is done for the purposes of boosting the gold in Fort Knox, or saving newly-created money for some future need in a rainy day fund. Money printed nowadays is, practically speaking, to satisfy existing obligations -- it was already spent, before it was printed, whether physically printed in the 1700s or electronically 'printed' in the 2000s. 74.192.84.101 (talk) 00:51, 21 October 2013 (UTC)

To me, this is a key point. A snippet from the main article is "...by purchasing assets ..." It is clear to me, I think, what the assets are. They are the things the Fed gets from the institutions. What is used as the money for making this purchase? Was this money just sitting around? Did the presses run overtime at the Fed to manufacture new Federal Reserve notes? Was there a checking account somewhere with several hundred billion dollars to be tapped? — Preceding unsigned comment added by PEBill (talk • contribs) 22:34, 21 September 2013 (UTC)

Hello PEBill, here is your answer -- note that IANAE ... I am not an economist -- but my understanding is that no paper-based dollar bills or zinc-based dollar coins are printed for quantitative easing, whatsoever. Your understanding of assets is correct, and in a way, so is your understanding of what was used to pay for the purchase (it is unclear to you what was used because 'nothing' was used). The way quantitative easing works is, the Fed, at their sole discretion, can boost the 'bank reserve balances' (at most of the major banks in the country ... and *maybe* any bank with FDIC printed on the door ... but methinks just the biggest banks that are tied into the Open Market purchase system). See graph over here, for the impact of QE1, QE2, QE3, plus predictions of what it might look like in the future.[6] Basically, somewhere between three and four trillion dollars of assets have been 'purchased' ... in exchange for changing a numeral in a computer database, rather than for any actual minted-printed fiat money, let alone for old-school money. The government therefore still owes the big banks for those assets which were purchased; in other words, quantitative easing is a kind of government borrowing. The feds might pay for said trillions someday, by raising taxes in 2015 and beyond, or by releasing the bank-reserve-balances as inflation (Taylor is afraid that will happen all at once, in a downpour), or by paying the banks back in some other fashion, perhaps by confiscating assets via eminent domain, by nationalizing the banking industry and then 'forgiving' their own debt, or by simply default on the national debt (Russia did this in the post-Communist era... and when the Russians refused to pay the big banks back, the big banks went to DC for a bailout, but were rightfully refused, back in the 1990s). How times have changed. HTH. 74.192.84.101 (talk) 23:22, 20 October 2013 (UTC)

First time poster on Wiki (so please help me with etiquette) I'm an MBA student at Columbia and have been digging into this in class, so hopefully this will help. HTH is partially correct, but the answer is a bit more nuanced. I'll explain in vernacular below and allow someone else to update the page with better wiki language. This is based on how the Fed explained it [7] as well as [8]. In short, QE is NOT printing money and does NOT increase the amount of money (whether in digital or paper form) in the system. This is the key takeaway that needs to be reflected in the article.

During quantitative easing, 2 things happen: 1. Banks purchase Treasury bills and corporate bonds from banks. This is the key stimulating element of quantitative easing, because it increases demand on bonds. An increased demand on bonds raises their prices, which lowers their yield, which stimulates borrowing because interest rates are lower.

2. The Fed needs to pay banks for these Treasury bills and corporate bonds, WITHOUT adding to the money supply. It does so by increasing the Federal Reserves of banks equivalent to the price of Treasury bills and bonds that it purchases. Typically, if banks have higher Federal reserves, they are able to loan more, and this would normally lead to an increase in the money supply (essentially printing money). However, since 2008, the Fed also pays interest on those Federal Reserves. This interest provides a dis-incentive for banks to lend money based on the injected reserves, and essentially, the money just sits in the Federal Reserve accounts and is never used in the economy.

Furthermore, Quantitative Easing does NOT increase the national debt in the long term. The reason is that the Fed has purchased Treasury Bills and bonds, and is currently keeping them. They do not disappear. At some point, when the economy bounces back, the Fed will be able to sell these same Treasury Bills and bonds back on the market, and pull their reserves out of the banks' accounts. Ultimately, all of the money comes back.GorillaManBear (talk) 22:17, 14 November 2013 (UTC)

Dates back to 1907?

George Cortelyou used Treasury funds to buy up government bonds, during Teddy Roosevelt's administration. The concept is far from new! — Preceding unsigned comment added by 68.173.52.158 (talk) 03:46, 25 November 2013 (UTC)

Only half explained

The main article does not appear to explain the whole process of QE. It does explain that the central bank may purchase bonds - but does not say what happens to those bonds. What happens to the principal and coupon payments made to the central bank? Does the money get destroyed? Does it get passed to the government? Many people are confused about what happens and this article is not helping them. Reissgo (talk) 09:13, 9 September 2013 (UTC)

Agree. Not only are many things left unstated, but the vast majority of the article uses economics jargon and/or macroeconomic political jargon, neither of which is conducive to the average reader being able to understand what the article is about. I understand this is a complex topic, but it is also a topic with relevance to the average adult, if they vote, pay taxes, or have a bank account. Shrouding the article in jargon does not help explain quantitative easing to the regular citizen, let alone to the regular ten-grade-student in a government class. I'm not sure anything here should be removed, but I'm very sure some in-layman's-terms sentences are needed, for just about every paragraph... and the intro is significantly painful and jargon-filled, where it ought to be the gentlest and most jargon-free section. 74.192.84.101 (talk) 23:01, 20 October 2013 (UTC)

It would also be nice for someone to incorporate a list of "private institutions" to which line three in paragraph one is referring. — Preceding unsigned comment added by 72.234.76.64 (talk) 07:39, 10 January 2014 (UTC)

September taper

I have just tagged the statement the Bernanke forecast a $20 billion taper in September 2013 with {{Notinsource}} because the cited source said only later in the year and did not mention any amount. To my recollection Bernanke forecast the start of tapering by the end of the year, and the notion of a September taper was the invention of media speculation. —teb728 t c 09:16, 23 March 2014 (UTC)

quantitative easing main role is to reduce government borrowing costs

I am an economist that has written about right of the government to access the zero percent borrowing matrix. This is what quantitative easing is about as the central banks purchases government debt instruments to make sure there is market clearance of these securities. Our sovereign debt crisis is getting worse and worse and worse. The only hope in our play book is our ability to finance deficits at a zero percent rate to rescue the free world. The ability to access these funds has coalesced into the term/jargon under the banner called quantitative easing. Basically, quantitative easing is here to stay and it is being shaped/created/tested into a common sense idea/an accepted economic practice. Once you accept that the govenment can access the bank of clearance without borrowing (managing the IOU structures banks use to led money) it is only a matter of time quantitative easing main role is to reduce/eliminate government debt costs.

Why do you think quantitative easing has nothing to do with reducing government debt costs? This is a nobel discussion. --199.60.104.18 (talk) 01:40, 16 October 2014 (UTC)

It's not really about what I think; it's about what reliable sources say. If I'm understanding you correctly, you're saying that QE is about monetizing debt, or will become so inevitably. A number of QE's critics agree with you, but the preponderance of sources agree with the central banks in saying that its primary intent and effect to stimulate the economy by increasing the money supply. The monetization angle still appears in the article, just not in the lead, in accordance with WP:DUE.

Thank you for your contribution to the article and for engaging on the talk pages. Consider creating an account. Right now you're editing from a public computer, which can make it hard to tell the difference between you and whoever sits at that computer next. Lagrange613 01:54, 16 October 2014 (UTC)

The article discloses the "FED bought/buying $30 billion in two- to ten-year Treasury notes every month." "In November 2010, the Fed announced a second round of quantitative easing, buying $600 billion of Treasury securities by the end of the second quarter of 2011." This is not a stimulus program.

Quantitative easing is grease to satisfy the government's borrowing needs. The treasury must raise funds to fund the government's deficit and refinance maturing debt. If there are not enough investors to buy the government's debt products, the FED must step to the plate and buy it(which I support.) The FED reduces government debt costs as the FED is the government purchasing the debt and paying interest to itself. Also noteworthy, is the FED's quantitative easing program buying mortgage products, creates a feed back loop were the large banks invest some of these proceeds in government debt products which further creates demand for US government debt products. Importantly, increasing demand for treasuries keeps financing rates low. --199.60.104.18 (talk) 20:54, 17 October 2014 (UTC)

Additional comments on: The primary intent and effect of quantitative easing is to stimulate the economy by increasing the money supply. This sounds comforting and so repeated, and is a truism as any tinkering with economy stimulates the economy hopefully. This is the truth but...

The ugly truth is, the tool of quantitative easing dual purpose was to stop a credit market failure both in the government debt products and in the private banking sector. A shrinkage of the lending sector destroys the demand curve to absorb government debt and purchase assets at their current valuations. Imagine the price of houses if we could not buy on credit for example.

Economists picture the credit industry as not lending money. Rather, the macro reality is a bank lending you money is giving you a debt product, an IOU, that is honoured by the bank you deposit the loan in (Canadian spelling for honor.) We think we are borrowing money BUT we are actually moving bank IOUs around between banks. This is the true bank multiplier effect. This scheme works as deposited IOUs/lent funds in a bank allows that bank that gets the deposit to lend IOUs/lend funds that must be honoured my other banks that have lent IOUs. Quantitative easing/magic is the ability to manipulate the tabulation of these IOU credits between banks and allow banks to lend more. BUT if a group of bank all fail at once, which is what happened in the 2008/09 banking crisis, it gets ugly. This we cannot allow, therefore the function of quantitative easing was to save the credit industry from a shut down, and not to stimulate the economy -- thus quantitative easing was BORN.

The Canadian experience with quantitative easing was not to stimulate the economy, rather is was to save our banks credit ratings with the international lending industry. Our central bank - the Bank of Canada -- protected the balance sheet of our large banks be maintaining our bank equity ratios. We created 20 billion in an accounting entry and used this paperwork to increase the deposits in the banks to weather the storm, and after the 2008/09 crisis this quantitative was removed quickly from our central bank's books. Food for thought. --199.60.104.18 (talk) 21:04, 17 October 2014 (UTC)

I don't want to get too thickly into arguments about the definition and purpose of quantitative easing, because as I've tried to spell out Wikipedia needs to reflect what's in reliable sources, not what individual editors believe the truth to be. That is my primary objection to adding this content. But you've said a couple things that I believe to be false, and I think clarifying them may help advance this conversation.

First, it is not the case that the Fed began QE because of a lack of demand for Treasury securities. Look at the yields on Treasury bills and Treasury notes in 2007 and 2008. (Unfortunately you have to adjust the time window manually in the Yahoo interface.) Beginning in September 2008 with the main shockwave of the financial crisis, the yields plummet, indicating a high demand for those securities. Everyone was selling all the stock they could and buying up the safest thing around, namely U.S. government debt. There was no need to monetize the debt, because investors couldn't get enough of the stuff. Quantitative easing began that November not because of unsold debt (there wasn't any) but to stimulate the economy [9]. The Fed paid dearly for those high-demand securities, but that's okay because it was kind of the point.

Second, you are correct that the Bank of Canada's $20 billion purchase was a temporary effort to stabilize Canadian banks, but for that very reason it was not quantitative easing. It was the Canadian version of the American Troubled Asset Relief Program, a bailout, just administered through the central bank rather than the treasury. As the Wall Street Journal wrote earlier this year, "Unlike the U.S. Federal Reserve, the Bank of Canada never embarked on quantitative easing" [10]. Lagrange613 03:12, 18 October 2014 (UTC)

image label

(I can't figure out how to comment at the image site per se, so I'm commenting here.) The image says areaS and recessionS - but there is only one recession, and I think most people considered the shaded area as one area and not more than one.Kdammers (talk) 06:27, 26 October 2014 (UTC)

Electronically creating money?

The article as it now stands states in the opening line that QE is the creation of funds electronically. No other definition I've found says anything about "electronically." They say EQ is the central bank buying government securities--bonds and such. This should be dealt with or explained more thoroughly if this article is to be useful. Right now it sounds somewhat slanted, at least to this non-economist, and the point of Wikipedia is to clarify and explain. — Preceding unsigned comment added by 2601:9:A80:7CE:221:E9FF:FEE0:8C3C (talk) 20:39, 22 January 2015 (UTC)

•  Done Went back to a version of the long-standing opening sentence. --I am One of Many (talk) 02:33, 23 January 2015 (UTC)

This article as it stands is not good enough. The fact that this is new money is important, and I think "electronically" would add to the definition given in the opening paragraphs. Here is the much more understandable, succinct definition from the Bank of England. http://www.bankofengland.co.uk/monetarypolicy/pages/qe/default.aspx

"Quantitative easing (QE) is an unconventional form of monetary policy where a Central Bank creates new money electronically to buy financial assets, like government bonds. This process aims to directly increase private sector spending in the economy and return inflation to target." — Preceding unsigned comment added by 2.24.187.3 (talk) 18:25, 6 May 2015 (UTC)

As the BOE does it, it's electronic, but that's not a defining feature of QE. If they handed out truckloads of banknotes it would have the same effect macroeconomically. Lagrange613 02:10, 9 May 2015 (UTC

===========

We are lumping the BOE with the US Fed but both have different national laws and policies. The US Fed is prohibited from buying its own bonds at issue by US Law. The BOE isn't and it does. Comments here about creating money are true about the BOE but not about the Fed which sells new bond issues in the open market. Fed bonds (treasuries) take money from others as loans and don't create money. BOE creates bonds and buys them itself which should cause greater concern.

The Fed "increases the money supply" by regulating what percent of depositor's money banks can loan. It increases that amount to increase money available to the general economy (the money supply), and then stimulates borrowing with interest rates via its Window.

For "money supply" see M1 and M2!!!!!

I don't know why we even have this page which confuses while lumping Europe with the US, confuses the differences in laws and policies, and then makes misstatements based on the confusion.

!!! I wish the whole page would go away until someone fixes it !!!

Cheers!!!

Cmre3456 (talk) 20:44, 16 July 2015 (UTC)

The Fed buys lots of U.S. government debt, just not directly from the Treasury. It buys them from the secondary market, through open market operations. That does create money. Again, the discount window and reserve requirements are tools of monetary policy, but not the only ones, or even the primary ones, at least as the Fed practices it today. Lagrange613 02:39, 17 July 2015 (UTC)

QE does not "stimulate" the economy

There is no evidence that QE actually works - there is no bona fide stimulation to the economy - there is only an artificial increase in certain asset prices, nothing more. 98.118.62.140 (talk) 02:49, 30 September 2015 (UTC)

You might be right but the definition should be neutral. I removed "ostensibly" because this term suggests that central banks pursue some hidden agenda.--Herbert81 (talk) 06:07, 1 October 2015 (UTC)

Banks DO pursue a "hidden" agenda. It's called Quantitative Easing and this article is a shining example of a concept based on lies and supported by lies. QE has been failing since 2008 - at least, failing to do what we are told it is supposed to do. But, if a policy has been failing for 8 years, would central banks really continue to pursue it? Or perhaps, the policy has not failed, it has served its precise purpose. Given who benefits from QE, noting those who are quoted as supporting QE in biased, unverifiable articles from think tanks and newspapers; I think it is quite safe to say that this Wikipedia article is simply a whitewash, a means by which the lie can be given credibility. — Preceding unsigned comment added by 189.172.159.39 (talk) 00:40, 6 October 2015 (UTC)

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