If you have heard the term 'Quantitative Easing' but are unsure what it means then the graphic in today's FT should help. As interest rates reach their lower limit with doubt about the effectiveness of rate cuts, the Bank of England is looking for other measures to stimulate spending in the economy; 'Quantitative Easing' is such a measure. Link
2 comments:
Hmmm so is it basically the central banks printing money? This may work because there will be more credit in the Economy so therefore banks will have the money to lend out and consumers may start borrowing as interest rates will remain low. Also, as prices of assets rise, it may increase consumer confidence because right now, assets like house prices are decreasing so consumers aren't very confident. The main point of this is that it should start increasing consumer spending so therefore the economy should come out of a recession. This seems like a good idea but like in the clip, it said there are risks. It seems like its a good short term solution. The risks seem to be pretty big, if hyperinflation lasts for too long then its not good for the economy, it will probably bring the economy down again. As there may be higher taxes, it may effect taxpayers in the future as it will reduce disposal income. If quantitative easing does work than it seems like the economy will just go around in circles, it may help the economy out of a recession but it seems like it will push it back into a recession later.
Actually, could the central banks not sell of the assets to suck out money from the economy so hyperinflation doesn't take place? This actually seems like quite a good idea..
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